The Principle Of Contraction/Expansion by Toby Crabel, CTA
I define the principle of contraction/expansion as the market phenomenon of change from a period of rest to a period of movement back to a period of rest. This interaction between the phases of motion and rest is constant, with one phase directly responsible for the other's existence.
For this report I will use daily open, high, low and close data. I tested a trading method called opening range breakout—a trade taken at a predetermined amount above or below the opening range.
A trend day is defined as a day when the first hour's trade makes up less than 10% of the day's range or the market has no dominant area of trade throughout the session. Trend days are characterized by an opening near one extreme and a close on the opposite extreme of the daily range. Trend days fall into the category of expansions.