When you are starting with levels that have historically demonstrated to be effective 45+% of the time, without using any sort of stop-loss or exit technique, I believe you have something to work with.
Understand that I absolutely believe that a stop-loss is necessary and important. Otherwise, how would you know how much you were risking to begin with? This is a methodology that was designed to put risk management first.
How can you improve those results, without a stop-loss?
Here are three suggestions:
- Trend Following Indicators
- Pattern Optimization
- Overbought/Oversold Indicators
All of these would likely improve the results. Improving the results is not necessarily improving the % success rate of the levels. However, improving other portions of the analysis. I discuss this in my book, The Intra-Day Momentum Method – A Scientific Approach to Trading in a Chapter 15 when applying a trend-based indicator to the data. In that chapter, I use the exact same levels but use the levels as Entry points based on the trend on the daily chart. At times, the short-term trend will be different than the level that is reached first on an intra-day basis. This is referred to as a divergence.
In this article, I am going to discuss Pattern Optimization. The pattern of interest occurs when the market or ETF closes in the upper or lower range of the trading day. The distance traveled during the trading day is also very important, as the market should have a reasonable range and not considered a consolidation. The following day, the market opens in the opposite direction of the Close of the previous trading session.
If the market closes in the lower x% of the range and the following day, the open occurs in the upper x% of the range, is this a big enough move to change the direction of the trend?
If the market closes in the upper x% of the range and the following day, the open occurs in the lower x% of the range, is this a big enough move to change the direction of the trend?
The goal is to determine if the market made a move back to the Close of the previous session, should you ‘Trade’ that directional move (IDMM Levels ML1/MS1) or ‘Fade’ it?
If the market makes a move opposite of the previous day’s Close, should you ‘Trade’ or ‘Fade’ that move? This move would likely be a break of the previous day’s High or Low.
QQQ
On 3/5/2025 and 3/7/2025 the QQQ Closed in the upper portion of the trading range. The Open on the following day in both instances was in the lower portion of that range. The questions to ask are:
Do you fade a move back to the Previous Day’s High at the ML1 Level?
Do you trade a move to the MS1 Level?
On 3/13/2025 the QQQ Closed in the lower portion of the trading range. The Open the following day was in the upper portion of the trading range. The questions to ask are:
If the market were to trade back towards the Previous Close, would you Fade that move?
If the market trades to the ML1 Level, do you Trade that move?
DIA
On 3/5/2025 and 3/7/2025 the DIA Closed in the upper portion of the trading range. The Open on the following day in both instances was in the lower portion of that range. The questions to ask are:
Do you fade a move back to the Previous Day’s High at the ML1 Level?
Do you trade a move to the MS1 Level?
On 3/13/2025 the DIA Closed in the lower portion of the trading range. The Open the following day was NOT in the upper portion of the trading range, but closer to the lower half. The questions to ask are:
If the market were to trade back towards the Previous Close, would you Fade that move?
If the market trades to the ML1 Level, do you Trade that move?
SPY
On 3/5/2025 and 3/7/2025 the SPY Closed in the upper portion of the trading range. The Open on the following day in both instances was in the lower portion of that range. The questions to ask are:
Do you fade a move back to the Previous Day’s High at the ML1 Level?
Do you trade a move to the MS1 Level?
On 3/13/2025 the SPY Closed in the lower portion of the trading range. The Open the following day was in the upper half portion of the trading range. The questions to ask are:
If the market were to trade back towards the Previous Close, would you Fade that move?
If the market trades to the ML1 Level, do you Trade that move?
Something you should know about the data:
Sometimes the data on daily charts does not represent what occurred intra-day. If you notice in the above image, it appears as though the SPY made a move towards the Previous Close. However, if you look at an intra-day chart, it does not show that same move. Below is a chart from Symbolik that more resembles what I witnessed intra-day on 3/14.
Below is the SPY intra-day chart for 3/14/25.
