by Russell Sands

The 3-I day is a very reliable short term indicator, works equally well on both the short and long sides, and can be used either as a stand alone system, or a low risk place to add to long term possibilities that are already moving in your favor.

The chart below is a daily profile of the Canadian Dollar, showing the three forms of market activity as defined by Market Logicians (software). They are, respectively, the Tail, the Range Extension, and the TPO Count. When you have all three conditions present, you have a very strong short term trend signal.

A Tail occurs when the market immediately moves away from the opening price, and never returns to that level for the rest of the day. This is graphically represented by a series of (at least two) single prints (of one of the opening letters) at either the top or bottom of the profile. In this case, it means that buyers came in right at the opening, and rallied the price higher, then supported it enough so that it never came back down (7154-58 on the chart).

Range Extension occurs whenever a market makes new daily highs (lows) after the first hour of trading. The first hour, also known as the ‘initial range’, is the time given for locals and brokers to establish the daily range, based on the initial order flow. The locals want to keep the price confined within that range all day, so they can make money-scalping bids and offers as the market just goes back and forth. A breakout from the initial range after the first hour signifies fresh buying orders coming in from outside traders, lending additional strength to the market (new highs at 7169 in period C on the chart).

The TPO count is found by identifying the level at which most of the trading took place for that day, the price line that has the most letters associated with it. This is the point of control (in layman’s terms the ‘fat’ part of the bell shaped curve) which represents ‘fair value’ (point 7177 on the chart). Then, count all the trading activity (the total number of letters) above and below this point. If the number below is higher than the number above, it means more people are willing to buy (at lower prices) than they are willing to sell at higher prices. This is a final indication of the underlying strength of the market.

If all three conditions are present, as on this chart, then you can feel safe in buying and holding overnight, as there is an approximately 70% chance that the underlying strength will carry over and lead to a higher opening the next day. If the market is already in a longer term uptrend, this percentage increases to almost 80%. And, of the 20-30% of the time that the market opens against you, there is still more than a 60% chance that you can scratch the trade for breakeven before it goes 1 N against you. Again, the 3-I day is a very reliable short term indicator.