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D o the relationships between day-to-day closing prices predict the next day's price moves and, if so, is
it possible to isolate these profitable chart patterns and incorporate them as entry signals in a larger
trading system? In pursuit of these answers, I have tested all two- through five-day close-to-close patterns
in the T-bond futures market from 1978 to 1987 (Figure 1) and discovered the beginnings of some
excellent low-risk entry techniques. My tests assumed that trades were entered on the last close of the
pattern and exited on the next day's close. Stops were not used.
Figure 2 is an example of the --++ pattern listed as number 24 in Figure 1. The pattern is two lower
closings followed by two higher closings, all relative to the close immediately preceding it. Figure 1
shows this pattern is most profitable as a sale. Entry is taken on the close of the last day which, in this
case, is higher and the trade is exited on the next day's close.
...if a wide spread day occurs on the last day of the close-to-close
pattern and the sell is taken on the higher open there is a dramatic
improvement ...85% profitability.
The % Profit column in Figure 1 indicates a pattern's intraday "bias" or tendency to move in a particular
direction and the Gross Profit column (before slippage and commission) verifies just how effective these
trades are. The larger these numbers, the stronger the bias. A strong bias is the signal to further pursue
system development.
The T-bond chart in Figure 3 illustrates five close-to-close patterns, of which a, c and e were profitable
References
Crabel, Toby [1988], "Opening Range Breakout, "Stocks & Commodities, Volume 6: Market Timing, pp.
337,366,462.
Crabel, Toby [1989], "Opening Range Breakout, " Stocks &
Commodities, April-July.
Crabel, Toby [1989], "Price pattern studies, " Stocks & Commodities, September.
FIGURE 1
FIGURE 2: Two lower closings on days 2 and 3, followed by two higher closes on days 4 and 5 create
a --++ pattern. To the right is the same pattern as it would appear on a conventional bar chart.
FIGURE 3: Close-to-close patterns a, c and e were profitable while b and d were losers.