PART I
Trading in a stock exchange requires continuous search for and adjustment of trading strategies. So, one needs to select only those elements based on some general market regularities that practically don't change with time.
Extreme Price Range (EPR) is a concept that helps to quickly spot a price range (major support and resistance levels). When broken, they often generate a strong movement in the direction of the break. This trading method supports both intraday trading and capturing medium-term movements.
EPR can be classified as:
1. Monthly
2. Weekly
3. Daily
Actually, these levels represent a modification of previous day's HIGH and LOW. They cross the previous candle's HIGH and LOW at senior timeframes and are rounded to the closest round figure.
Graphically, EPR levels look this way:
They are strong support and resistance levels and are more effective than daily HIGH and LOW because it is these levels that market operators (major buyers and sellers) start working from, push prices and create trends. Here the trader's objective is to pinpoint the start of a strong movement and simply join it.
This is a simplified pattern as we use use a special algorithm rather than only a break of HIGH and LOW of the previous daily, hourly or weekly bar rounded to an integer.
This is a monthly EPR level in the daily chart. You can see well that the break was followed by a strong move which usually lasts a few days to a few months. Growing volumes suggest that a major player started buying at these levels which generated strong moves.
There is a general rule when trading EPR levels:
Break of the upper level is treated as a BUY signal.
Break of the lower level is treated as a SHORT signal.
You can see in the figure above that senior levels are viewed on smaller timeframes, for example:
Monthly EPR levels – on daily charts.
Weekly EPR levels – on hourly charts.
Daily EPR levels – on M5 charts.
This approach involves trading this way: when entering a medium-term position, we use the break of the monthly level in the daily chart. We can use the break of a daily level in an M5 chart to capture a strong intraday move.
This is why the higher the TF we use the larger the potential movement we expect. Medium-term traders have one TF, intraday traders – a different one...
Let's see how the break of a weekly EPR level work on the hourly chart:
Movements resulting from the break of weekly levels often last from a few hours to a few days. The break of the lower EPR level in this situation confirms that there was targeted selling here, while growing volumes after the level is broken suggest that a large operator joined the game at these moments which resulted in strong movements.
This method was developed by experts of the Futures Trading and Stock Exchange Faculty. Its simple version works well with futures, currencies, and stocks.
However, stocks have certain features and obvious advantages, so the break of extreme zones was introduced to the SNIPING strategy as one of its fundamental elements.
The next issue will deal with how to find entries and other features of trading based on Extreme Price Range in the share market.
Igor Vasev, Dean of the Faculty for Futures Trade and Stock Exchange
