It’s important to study and understand the moves of the markets you trade, because there are often idiosyncrasies that may not apply to another trading vehicle. That’s one reason I try to carefully analyze the Russell 2000 each day after the close, looking for repetitive patterns. Sometimes these patterns can give you a real trading edge.

Markets Have Habits

Yesterday, after falling for most of the day, the Russell made a nice reversal during the last hour. The bottom was a Measured Move, two thrusts in the same direction that end up being the same length. This is shown by the green “X to A” and “B to C” moves. (I’ll use different colors to cut down on the confusion.)

I’ve pointed out Measured Moves before, but here’s an interesting twist. Today’s magenta “X to A” move is precisely the same length as the green “X to A” from yesterday. It’s almost the same for the “B to C” moves. Four consecutive downward moves of approximately equal length, and two of them occur in a downtrend and two in an uptrend.

Out of curiosity I just checked the previous three days, and found six moves of almost exactly this amount. Then I remembered something I learned some years ago from a trader named ral (Russ Lockhart) about what he called his Box Point Calculator.

It was part of a spreadsheet where you entered the most recent pivot point, and it displayed a series of numbers that were multiples of 4.4 points above and below that pivot. (This was for the S&P Futures.) The two important levels were 4.4 points and four times that interval (17.6 points.) My first thought was “that’s too simplistic to be worth anything.” Then I tried it on a chart, and the first big move was exactly 17.6 points.

I’ve never looked for anything like this on the Russell, but there are lots of useful ideas that are hard to explain. The Measured Move is one of them. Yesterday we had one near the close. Today there is the series marked in magenta, and overlapping that, another shown in blue, all with two consecutive moves of the same length. I use these all the time in my trading.

Maybe there is a “Russell Standard” move that would be worth watching. If anyone is interested in a research project, the magic number might be 3.8.

, ,