Price behavior? Can you really read it? This article points out ways to look at price behavior to give you insight into possible consistencies, such as how much today's range typically overlaps yesterday's range. Not only that, how often does today's range not include yesterday's closing price? Being armed with such knowledge could help you to make trading decisions by knowing the characteristics of your favorite markets.
It is a well-known fact that markets spend more time in sideways consolidations than they do trending strongly in a given direction. Regardless of what phase they are in, however, the day's trading ranges, as represented by price bars on a chart, normally overlap one another to a greater or lesser degree. This partial– or sometimes complete – overlapping of one day's trading range by the next interested me because it is one aspect of price action that repeats, to some extent, more than 90% of the time in some markets. Anything that happens with such regularity in a futures market, I decided, might be worth investigating.
To investigate quickly and painlessly, I used a formula that can be programmed on EQUIS' MetaStock (for all of the formulas used in this article, please see sidebar, "MetaStock formulas") or a spreadsheet. In addition, I have included several extra formulas that can be used to measure other aspects of price behavior. It is not my intent here to offer a specific trading methodology. The various formulas are presented, along with a few opinions, for readers to use or expand upon as they see fit.