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Mish Schneider How to find the right tools for the job

In this article, Mish Schneider, director of trading research and education at MarketGauge.com explains what a trader might learn from using a particular tool in their toolbox.

Tuesday was a choppy day for the market, which had sporadic price swings plus a large amount of volatility.

These days are tough to trade, as they can make it hard to see the daily trend direction.

One tool that can help you decide whether you want to trade the market or wait for things to unfold is the opening range (OR).

Tuesday, I used a 5-minute OR as a guide in order to see if the market was on my side or against me. A 5-minute OR is defined by the high and low of the first five minutes of the market open.

 

 

You can see an example of this in the chart above. Two lines are drawn; one for the high and one for the low of the first five minutes. This gives levels to watch for the price to clear or break down from.

Additionally, because of Monday’s large upwards price move in the major indices, my expectations for Tuesday were bullish.

Watching the major indices break over the high of their OR would confirm that the market agreed with my bullish stance.

However, the only major index to breaks its 5-min OR was the Dow Jones [DIA] around 9:58 ET. It was not a convincing breakout as it was the only major index to do so.

This proved that the next best thing to do was to sit and wait for multiple indices to break higher which never happened. Sometimes doing nothing is the best plan.

With that said, the OR is not perfect and there will be times when the market runs up only to turn around and move lower.

On another note, now that the market has taken a step back from Mondays gains the major indices are left in a strange spot between the highs and recent lows.

An exposed market might need some supportive news if it cannot clear Monday’s highs.

Without knowing when the next stimulus bill will pass or what Friday’s jobs report holds, today's choppy price action could easily continue.

Floorboards are creaking. Either the carpenter shows up or the floor gives way. Patience for now.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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