Chapter excerpt from bestselling book, Just a Trade a Day by Michael Jardine.
The Jardine Range
“What goes up, must come down.”– Sir Isaac Newton
Figure 4.1 and Figure 4.2 illustrate the two options for the trading day.
What Goes Up
Several years ago, it occurred to me that each day starts out with a natural potential trading range. The idea of a range makes sense because nobody really has any idea whether the market will go up or down. Usually, it does both, but nobody has any idea, on any given day, whether the market day will finish up or down. If someone did hold that information, he or she would be rich—and very lucky.
Natural and Potential
It is, however, possible to determine a natural potential range for the market, on any given day. This is not to say that the market will go up to the top of the range, nor that it will go down to the bottom of the range; but in terms of potentiality, it is quite easy to determine a range within which the market will naturally trade, and to at least one end of which it will trade and then reverse. What does that mean? Three things:
If prices move up to the top of the range, they will then reverse trade back down. This is shown in Figure 4.1.
If prices move to the bottom of the range, they will then reverse and move back up. This potentiality is shown in Figure 4.2.
If prices move outside of the range, then something unnatural is happening, like news or a slew of earnings reports, for example. Or, perhaps, just a stronger overall trend that was only temporarily halted at the extreme of the range.
Let’s observe what happened to the S&P E-mini Futures market on September 30, 2009.
Figure 4.3 shows that the market closed at 1054.50 on Tuesday. In preparing for the next trading day, I observed that there was a VPC above where the market closed, at 1059.00. I also noticed that there was a VPC below where the market closed, at 1044.00. The market will open in between those two points. Those two points form a natural trading range, which I call the Jardine Range. There are a few important points to recognize about the Jardine Range.
Two Turning Points—That’s It
First and perhaps most obvious, the closest VPC above the market open and the closest VPC below the market open constitute the Jardine Range. I usually draw a box to indicate the range.
React, Don’t Predict
The Jardine Range does not aim to predict anything. Its sole purpose is to provide a basis for reacting, not predicting. It is important to remove opinion, conjecture, and as much other outside “noise” as possible from the trading decision, because those will freeze you like a deer in headlights when it is time to make a decision. They will also prompt you to jump skittishly each time the wind whistles or an animal calls out. Or they may prompt you to enter the market too early or too late, and probably too often.
The Jardine Range does not predict how wide the likely range will be. It does not predict that prices will go up to the top or bottom of the range.
Back to Newton
The Jardine Range does indicate the natural “gravitational forces” of the market. That is to say, the closer that prices move towards either VPC, the more they will be drawn to it. Without getting too astrological, think of the gravitational pull of earth towards objects in outer space, or even to objects on its surface. Taking that one step further, all nature is drawn to forces just as objects are drawn to gravity. Observe the heads of those guys perched at the bar as an attractive woman enters. Watch what a flower does when the sun comes out. It is easy to understand what happens when the market approaches either end of the Jardine Range. Traders will exit positions, and that will cause a momentum shift that could result in a reversal or just a pause. The extent of that shift is of no concern at this point in time. We merely need to understand that there will be a shift. What we do with that shift is covered in Part Two.
Objectivity is Your Friend, Subjectivity Your Enemy
Start now by drawing the Jardine Range on your charts at the end of each trading day. Then check it each morning before the market opens. Will the market open within that range? Or will there be a gap? If the market gapped up or down, you may need to re-draw the range so that it includes only the one VPC immediately above and the one VPC immediately below the opening price.
Observe what happens as prices move towards either of the VPCs. Consider how you could use this information to your advantage. Remember, this information is all objective. Something will likely happen at either end of the Jardine Range, regardless of news, sentiment, or what the talking heads are saying; regardless of what other pivot points, harmonics, or lines in the sand have been drawn. Actually, for the time being, it is a good idea to ignore the rest as you gain an understanding of just how powerful the Jardine Range can be.
Then you can build a trading system on top of the Jardine Range. You can gradually layer back in your other lines in the sand—but only, I suggest, as independent indicators to confirm what the Jardine Range is already telling you.
Then you can go back to your old methods, and see if the Jardine Range and the Universal System can help make you a better trader. Many traders I know do this.
Or you can do what I did, and just drop everything else and trade the Universal System. I use nothing else. It gives me time to listen to that gurgling stream, take the kayak out on a beautiful day, or jump in the car for an afternoon of photographic fun in the mountains. After all, that’s what it’s all about, isn’t it? And if the weather outside is foul, I stay in and design “productainment” applications for the iPhone over at LeftCoastLogic.com
SELF TEST QUESTIONS
1. What is the Jardine Range?
a. A high and low band created by a moving average above and below the current prices
b. The most recent day’s high and low that has not been touched yet by prices
c. The most recent VPC above and below the open prices
d. A range of Market Profile POCs that form a band around the current price
2. Is the Jardine Range predictive or reactive?
a. Predictive, because it predicts whether the market will go up or down from its opening price.
b. Reactive, because it is not concerned with which direction the market will go.
c. Neither. It neither predicts nor reacts to price movement.
d. Both. The range suggests that prices will touch both ends of the range at some point during the day.
For answers, go to www.TradersLibrary.com/TLEcorner.