Randomly picking tops and bottoms, trading against the move....or Intelligent entries?

You can buy the lows and sell the highs which to the outsider may look like simply picking the top or bottom of the market... of course it is not that at all if you use a trading system and methodology.
Getting in at the lows and highs has the most awesome risk reward potential...using levels not picking an arbitrary place, planning trades based on historical horizontal levels... I personally find this most effective by using the convergence of time and price and ATR.

A possible theory and pattern could be that during a pre market - current session range >= 25% of the normal daily average ATR at the pre market, or at 100% ATR has a tendency to bounce strongly if the open range close failed to drive it pass a historical level. If true this will allow you to get in with a small stop for example below the low and catch the whole move that expands the range to 75% / 125% of the average daily range. You can look for and identify patterns like this on NinjaTrader charts by utilising the MicroTrends levels and ATR study indicators which have been written for this purpose.

Pictured is:

NinjaTrader Forex GPBUSD 30Min Chart
used in this case to show many sessions but not generally as the trading time frame.

MT Signals MT3 high Low Trader Configured as:
Green Dots: Trade Setup Buy new low Green Triangles: Trade Entry Buy candle close above setup candle high
Red Dots: Trade Setup Sell new high
Red Triangles: Trade Entry Sell candle close below setup candle low

MT Range ATR HTF Plotting the current range against a percentage grid of Daily AVG ATR.
yellow plot 161.8%
grey 150%
blue 125%
black top of the grid is 100%
blue 75%
grey 50%
red 25%
green=current session range

MT Levels Fib HTF - plotting previous week fibonacci levels
See right hand side for plots %

MT Levels horizontal S/R HTF
Plotting monthly and weekly levels High and Low as red and green horizontal lines

Perhaps then planning to trade a level is a good time for the use of limit orders for entry. Allowing you to enter at a planned price controlling your stop distance/trade risk - and therefore position size- staying with that trade scaling out at % levels all the way to the 100% and sometimes beyond of the average daily ATR is the goal... the risk reward is so large on a frequent number of trades that even a 35% winning ratio is still very viable...and extremely profitable. I find that increasing the winning ratio and not lowering a single trade risk reward profile is possible by looking for confluence with other levels of support and resistance/dynamic/ projected/ trend channels/fibs on previous year,month,week,day - higher time frames etc. But conversely what happens with too many filters is decreases the number of trades taken but winners and losers which can decrease the profit opportunity over time...however by letting winners run past the mean it can actually display an increase in average risk reward and win ratio – so psychologically for me it is the best approach as I don't over trade and do trade counter trend and trade with trend.

Mathematically I have studied that on a selection of popular currency pairs and futures markets a 1 standard deviation study of current day range versus a 5 to 25 Daily AVG ATR falls within 75% and 125%, which makes perfect sense as 100% is the midpoint of 75 and 125. There is of course a few days which will fail or blow out of the range from 25% to 175%, these stay within 2 standard deviations mostly - wait and see days and strong trending days which fat tail. of course then a few price shocks which are the exception to all the averages and should be discounted as a skew of the normal patterns. The trending days then require an entry to enter at a pull-back coinciding with a level.

Perhaps that is really a mean reversion trend hybrid utilising a high low/ levels approach - which is quite complicated for many traders.... many prefer a high low with for example CCI divergence only – but for me I like to combine that with levels with trend for maximum effect or away from a moving average of unsustainable distance.

Food for thought:
What then if the daily ATR average has been hit within 1 hour?
What is the normal market actual distance.... not ATR but bar length + length?
Is there a relationship to the AVG ATR and the market AVG session travel...? What is the probability that we have a reversal/ range bound or trending day?

This chart was created by NinjaTrader. NinjaTrader is a FREE application for advanced charting, market analytics, automated strategy development and trade simulation. Download it now at www.ninjatrader.com