Raschke Execution Techniques

8/10/2019 Raschke Execution Techniques

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2/27/20082/27/2008 Copyright (C) LBRGroup 1997Copyright (C) LBRGroup 1997--20082008 22

Execution Techniques and TradeExecution Techniques and Trade

Management ToolsManagement Tools

The Relationship Between Entries, ExitsThe Relationship Between Entries, Exitsand Stopsand Stops

[email protected]@att.net

LBRGroup.comLBRGroup.com
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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4/562/27/20082/27/2008 Copyright (C) LBRGroup 1997Copyright (C) LBRGroup 1997--20082008 44

Traders want an edge in knowing when andTraders want an edge in knowing when andwhere to enter and exit trades.where to enter and exit trades.

?



PROBLEM: A single tool, such as an indicator, does notPROBLEM: A single tool, such as an indicator, does notalways identify a high probability trade opportunity.always identify a high probability trade opportunity.

?


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M k t P fil h l t h k t t tM k t P fil h l t h k t t t



Market Profile can help teach market structureMarket Profile can help teach market structureand show data in a conceptual type of format.and show data in a conceptual type of format.



..Technical Analysis indicators can help identify

when and where.



Building a Solid Market Foundation!Building a Solid Market Foundation!

Market Understanding Self-Understanding

#2 WHEN (Volume Charts or discretionarytape reading)

#3 CONFIRM (Indicators / Oscillators)

#1 WHERE (Market Profile Charts)


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A general comment about the relationshipA general comment about the relationship

between Entries, Stops, and Profitsbetween Entries, Stops, and Profits

There is not always a relationship between a trade isThere is not always a relationship between a trade is

entered and where a trade is stopped out.entered and where a trade is stopped out.

For example, with time based stops, the stop out levelFor example, with time based stops, the stop out level

has no relationship to the initial entry price.has no relationship to the initial entry price.

Its not necessarily the entry that makes a model orIts not necessarily the entry that makes a model or

system successful. Its all about the exit strategy!system successful. Its all about the exit strategy!

The larger the target, the lower the % win rate.The larger the target, the lower the % win rate.

The smaller the target, the fewer times the stop will beThe smaller the target, the fewer times the stop will be

hit (all else being equal).hit (all else being equal).

The wider the stop, the higher the % win rate.The wider the stop, the higher the % win rate.


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Definitions and concepts forDefinitions and concepts for

understanding the marketunderstanding the market Initial BalanceInitial Balancethe first hours rangethe first hours range

Range ExtensionRange Extensionmove outside of the first hours rangemove outside of the first hours range Value AreaValue Area70% of the days activity level70% of the days activity level

Single Print Buying TailSingle Print Buying Tailone time frame price rejectionone time frame price rejection

at the lower end of the range (30at the lower end of the range (30--minutes)minutes) Single Print Selling TailSingle Print Selling TailAlso considered to be a form ofAlso considered to be a form of

excess. Tails cannot occur in the last time frame ofexcess. Tails cannot occur in the last time frame of

the day.the day. Point of ControlPoint of Controlwhere the most amount of activitywhere the most amount of activity

takes place.takes place.


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Classic Market Profile chart with Value Area


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Overlapping value areas, Selling TailOverlapping value areas, Selling Tail


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Market Profile Value Areas with Expanded ProfileMarket Profile Value Areas with Expanded Profile


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How URGENT is the marketHow URGENT is the market

environment?environment? Should a trader use market orders, limit ordersShould a trader use market orders, limit orders

or buy and sell stops for trade initiation?or buy and sell stops for trade initiation? Lets review some basic market profile conceptsLets review some basic market profile concepts

to create a framework for understanding howto create a framework for understanding how

urgent the trading environment is.urgent the trading environment is. Traditional means of measuring this includeTraditional means of measuring this include

volume, range expansion or momentumvolume, range expansion or momentum

readings.readings.


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Six different Day TypesSix different Day Types 1) Normal1) Normal

DayDay Initial Wide balance in first hour. This type of day oftenInitial Wide balance in first hour. This type of day often

occurs on news where the initial directional move isoccurs on news where the initial directional move is

strong. Despite the early range is wide, support orstrong. Despite the early range is wide, support or

resistance is found off the initial drive, and the rest ofresistance is found off the initial drive, and the rest of

the day is spent testing back and forth in this range.the day is spent testing back and forth in this range.

Normal days are actually rare, despite the name.Normal days are actually rare, despite the name.

A trader must recognize the implications and adoptA trader must recognize the implications and adopt

countertrendcountertrend trading strategies for the remainder of thetrading strategies for the remainder of the

day.day.


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Normal days and TailsNormal days and Tails detaildetail


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3), 4)3), 4) -- Trend Days Trend Days Standard andStandard and

Double DistributionDouble Distribution One direction movement fueled by high volume. This isOne direction movement fueled by high volume. This is

anan urgenturgent environment.environment.

The other time frame player is in control from theThe other time frame player is in control from theopening price.opening price.

Each time frame makes lower lows and lower highs (or,Each time frame makes lower lows and lower highs (or,vice versa).vice versa).

A double Distribution trend day lacks the strong openingA double Distribution trend day lacks the strong openingdrive, and instead has a narrow initial balance. Singledrive, and instead has a narrow initial balance. Singleprints then market the move out of the initial value areprints then market the move out of the initial value areand the other time frame player remains firmly in control.and the other time frame player remains firmly in control.


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Drive outside Narrow Initial BalanceDrive outside Narrow Initial Balance


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5)5) -- NonNon--trend Daytrend Day

A NonA Non--trend day has no directional conviction, no rangetrend day has no directional conviction, no range

extension, and minimal activity level.extension, and minimal activity level.

This type of day often occurs before a big news releaseThis type of day often occurs before a big news release

or economic event. Market participants balance theiror economic event. Market participants balance their

positions in front of the event.positions in front of the event.

The is no market conviction and little marketThe is no market conviction and little market

participation.participation.


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6)6) Neutral Day Neutral Day

The market tests on both sides of the initial balance.The market tests on both sides of the initial balance.

Price continues to rotate on both side of the openingPrice continues to rotate on both side of the opening

price.price.

Both the buyers and the sellers are active but no one isBoth the buyers and the sellers are active but no one is

in control.in control.

This type of day tends to form a broad value area orThis type of day tends to form a broad value area or

trading range. A breakout from this range must betrading range. A breakout from this range must be

accompanied by an increase in volume to indicate thataccompanied by an increase in volume to indicate that

the other time frame player has gained control.the other time frame player has gained control.


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Neutral DayNeutral Day no convictionno conviction


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OPENINGSOPENINGS

An increase in volume or range expansionAn increase in volume or range expansion

is our first clue that there might be a moreis our first clue that there might be a more

urgent trading environment.urgent trading environment.

Lets review some of the types of actionsLets review some of the types of actionsthat can take place off the opening.that can take place off the opening.


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OPENINGSOPENINGS

Open Auction: Price rotates around the opening withoutOpen Auction: Price rotates around the opening without

any clear conviction.any clear conviction.

Open Drive: Prices moves in a strong directional mannerOpen Drive: Prices moves in a strong directional mannerright from the opening.right from the opening.

OpenOpenTestTestDrive: After the market opens, the pricesDrive: After the market opens, the prices

tests in one direction and then sharply turns around andtests in one direction and then sharply turns around and

drives in the opposite direction.drives in the opposite direction.

OpenOpenRejectionRejectionReverse: The opening is outside theReverse: The opening is outside the

previous days value areaprevious days value areathe move outside value isthe move outside value is

rejected and the market reverses sharply back into therejected and the market reverses sharply back into the

previous days range.previous days range.


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OpenOpen RejectionRejection Drive, Gap outsideDrive, Gap outside

value areavalue area

BondsBonds trend day and drive off openingtrend day and drive off opening


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BondsBonds trend day and drive off opening,trend day and drive off opening,

followed by a neutral day, and then anotherfollowed by a neutral day, and then another

openopen--drive.drive.

A market that is out of balance demands urgent entry.A market that is out of balance demands urgent entry.


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g y

Volume confirms the trend. When there is l ighter volume, playVolume confirms the trend. When there is l ighter volume, play

for small targets only.for small targets only.


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Opening relative to a previous day lateOpening relative to a previous day late

afternoon move.afternoon move. If the market has a move outside of value area in the afternoonIf the market has a move outside of value area in the afternoon withwith

a weak or strong close, this can either be short covering (in caa weak or strong close, this can either be short covering (in case ofse of

up close) or, the higher time frame player stepping in. If the mup close) or, the higher time frame player stepping in. If the marketarket

holds above the previous days value area in the early AM sessioholds above the previous days value area in the early AM session,n,

then it can be assumed that the higher time frame player wasthen it can be assumed that the higher time frame player was

stepping in, and further upside continuation should be expected.stepping in, and further upside continuation should be expected.

However, if the price drops below the previous days value area,However, if the price drops below the previous days value area,then the late afternoon move was nothing more then short coverinthen the late afternoon move was nothing more then short coveringg

by day traders.by day traders.

Recognizing the presence of the higher time frame player is suchRecognizing the presence of the higher time frame player is such ananimportant concept!important concept!

SPSP classic trend day down followed by unusualclassic trend day down followed by unusual


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SPSP classic trend day down, followed by unusualclassic trend day down, followed by unusual

reversal barreversal bar

Same market action shown by 30Same market action shown by 30--minute candlestickminute candlestick


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Same market action shown by 30Same market action shown by 30 minute candlestickminute candlestick

chartscharts

ECEC market profile 30 minutemarket profile 30 minute rising valuerising value


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ECEC market profile 30 minutemarket profile 30 minute rising valuerising value

areas in trendareas in trend

ECEC k (Si l P i t )k (Si l P i t )


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ECECmark up (Single Prints)mark up (Single Prints)

Market ProfileMarket Profile Big PictureBig Picture


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Market ProfileMarket Profile Big PictureBig Picture

Market Profile expanded into 5 minuteMarket Profile expanded into 5 minute


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intervals with volume.intervals with volume.

Classic Trend Day with elongated profileClassic Trend Day with elongated profile


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Classic Trend Day with elongated profileClassic Trend Day with elongated profile

Volume as a confirmation/nonVolume as a confirmation/non confirmation toolconfirmation tool


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Volume as a confirmation/nonVolume as a confirmation/non--confirmation toolconfirmation tool

Buy at Market Join the Bid Take the offerBuy at Market Join the Bid Take the offer


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Buy at Market, Join the Bid, Take the offerBuy at Market, Join the Bid, Take the offer


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A short term moving average has a lower high in aA short term moving average has a lower high in a


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downtrend. Lets use a sell stop to pull us into a trade.downtrend. Lets use a sell stop to pull us into a trade.

Bracket your tradesBracket your trades Buy stop above/OCO/Buy limitBuy stop above/OCO/Buy limit


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belowbelow

OCO or Bracket Functions can be entered contingent OCO or Bracket Functions can be entered contingent

f fi iti l f ill ft th t d h b t d


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upon an initial f ill , or after the trade has been executed.upon an initial f ill , or after the trade has been executed.

Sell Limit placed at previous resistance areaSell Limit placed at previous resistance area


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Sell Limit placed at previous resistance areaSell Limit placed at previous resistance area

Tighten your stop to cinch in profitsTighten your stop to cinch in profits


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Tighten your stop to cinch in profitsTighten your stop to cinch in profits


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Sell OCOSell OCO Sell Limit and Sell Stop in case the limitSell Limit and Sell Stop in case the limit

is not filledis not filled


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is not filledis not filled

Ec1.lnk

Now use OCO for Exit and trade managementNow use OCO for Exit and trade management


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gg

TheThe TrendlinesTrendlines show entry and exit for this EC scalpshow entry and exit for this EC scalp


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Trailing Stop FunctionsTrailing Stop Functions


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g pg p

ONLY should be used at specificONLY should be used at specific

structural points!structural points!

Breakouts, Trend reversals as defined byBreakouts, Trend reversals as defined bythe wave structure, and afterthe wave structure, and after

AA--BB--C formations in a trending marketC formations in a trending market

KeltnerKeltnerChannels on a 5 minute chartChannels on a 5 minute chart


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Volatility StopsVolatility Stops


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ATR = Average True RangeATR = Average True Range

3 ATR +/3 ATR +/-- highest high or lowest low ofhighest high or lowest low of

last 10 barslast 10 bars

3 ATR +/3 ATR +/

--

moving average of close, highmoving average of close, high

or low.or low.

DAILY CRUDEDAILY CRUDEVOLATILITY STOPVOLATILITY STOP


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BEANS, daily chart, ATR trailing stopBEANS, daily chart, ATR trailing stop


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Thanks for Attending.

The End!


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Raschke Execution Techniques