TD Range Projection

TD RANGE PROJECTION

When Financial News Network (FNN) broadcast market coverage in the mid-1980s, we were invited to be daily commentators on the markets. The producers asked that the comments be directed to the overall markets in general, as well as specifically to forecast the projected high and low for both the U.S. Treasury Bond Futures and the S&P 500 Futures for that particular trading day. Fortunately, a number of years earlier, I had developed a formula designed to project the daily price ranges.

The components of TD Range Projection necessary to calculate the following trading day’s price range were open, high, low, and close. Each price was weighted according to the relationship between the open and the close. For example, if the close was above the open, then the high was weighted two times and the low and close were weighted once; if the close was less than the open, then the low was weighted two times and the high and close were weighted once; and if the close and the open were equal, then the close was weighted two times and the high and low were weighted once. These formulas are as follows:

1.   If the Current Price Bar’s Close > Current Price Bar’s Open, then

• (Current High x 2) + Current Low + Current Close = X
• XU - Current High = Projected Low
• XU - Current Low = Projected High

2.   If the Current Price Bar’s Close < Current Price Bar’s Open, then

• Current High + (Current Low x 2) + Current Close = X
• XU - Current High = Projected Low
• XU - Current Low = Projected High

3.   If the Current Price Bar’s Close = Current Price Bar’s Open, then

• Current High + Current Low + (Current Close x 2) = X
• X/2 - High = Projected Low
• XU - Low = Projected High

Figure 9.10. The chart of March 1999 Soybeans display numerous instances of TD Camouflages. In this chart the open the following trading day was critical in filtering the trading possibilities for a day trader. Although not essential , it is important to have the open confirm the trend reversal.

The greatest advantage to TD Range Projections is that a trader can calculate them the day prior to their application. The projected high and low are used as benchmarks for the following trading day. Ideally, if tomorrow’s open is within the projected high and the projected low, a trader can expect resistance at the projected high and support at the projected low. If the open occurs outside the projected range, meaning it occurs above the projected high or below the projected low, it qualifies as a possible price breakout, provided price follows through by at least one price tick in the direction of the breakout. In addition, if the opening price exceeds the projected high to the upside, then this level would now provide support and should be held on a closing basis; similarly, if the opening price exceeds the projected low to the downside, then this level would now provide resistance and should be held on a closing basis.

There are periods when the actual prices seem to conform well with the projected highs and projected lows. An option trader can use the projected range to confirm other indicators or to buy puts when the underlying security opens within its projected range and then exceeds upside the projected high or to buy calls when the underlying security opens within its projected range and then exceeds downside the projected low. Should the open occur outside the projected range, an option trader can trade with the trend breakout, but this practice would be described as trend following and the option premiums would more than likely have already expanded.

Figure 9.11 of the German Dax March 1999 Future presents the TD Daily Range Projection. The first and third trading days opened outside the confines of the projection, thereby implying a continuation of price moves in the direction of the respective breakouts. Of the nine trading days shown on the chart, only the fifth and the seventh failed to open within the projected ranges. Amazingly, the latter two projections hit the low and the high exactly, while most of the other projections effectively contained any movement outside of these two levels. In these cases where the opening price is contained within the projected price range, it indicated that any intraday price movement outside the range should have been corrected by the close, where price could have been expected to close within this range. In but one of these examples this occurred.

Figure 9.12 includes a daily chart of EBAY with a series of daily projected ranges. As you can see, breakouts outside the range projection have a tendency to continue to trade in the direction of the breakout. Most openings within the projected range tend to close within the projected range as well, thereby indicating that moves outside this range are simply aberrations and should return to the projected area by the time of the close. Figure 9.13 also displays EBAY on a daily chart but over a different set of dates. The previous comments apply equally to this chart as well.

Figure 9.14 presents a daily chart of U.S. Treasury Bonds accompanied by the daily range projections. Each example has an open contained within the projected price range, and movement outside this range is temporary and followed by a price reversal by the close of trading.

Figure 9.11. In this chart of the March 1999 German DAX, if the opening is between the projected high and low, any movement outside the band should equate with intraday low-risk selling or buying opportunities. An open outside the projected range indicates a possible trend breakout for the day in the direction of the open.

Figure 9.12. EBAY is good example of how most openings within the TD Range Projections were usually followed by closes the same price bar within the band and how opening break outs either upside or downside the projections usually continued in that direction through the close of that price bar.

Figure 9.13. This is another chart of EBAY over a different time period demonstrating the application of TD Range Projections.

Figure 9.14. The December 1998 Treasury Bond gravitated to the daily range to the daily range projections but failed to close outside the range for those instances in which price within the projected range. Intraday trading opportunities present themselves whenever price moves outside the projected band after opening within it.

Figure 9.15. It is not uncommon for the actual price to record its respective price bar high and low coincident with the daily projected price ranges. The chart of the 1998 June S&P was no exception.

 

Figure 9.15 displays a daily chart of the S&P 500 June 1998 future. The majority of the projected ranges for each day effectively contained the daily price highs and the lows. Any movement outside the projections was very minor and resulted in a reversal in the underlying price. In each instance, by the close of that trading day, price returned within the projected range area.