This setup makes use of another Larry Williams concept called ‘greatest swing value’ (GSV), which is not altogether unlike Dr Alexander Elder’s ‘Elder Ray’ concept. The setup itself is very straightforward, but first you will need to understand how GSV works, and be able to calculate it.
Consider a single day of trading in a futures market. The session will have an open, and at some stage it will make both a high and a low. So the high can be thought of as the maximum level above the open to which the bulls were able to drive price during the day, while the low represents the maximum level below the open to which the bulls were able to move the market.
Here we have a simple measure of the relative power of both buyers and sellers on that day.
The distance between the open and the high is called the ‘buy swing’.
The distance between the open and the low is called the ‘sell swing’.
Now consider the next trading day. If price moves below this day’s open by an amount greater than yesterday’s sell swing, then this indicates that we have a new amount of sellers in the marketplace today. By the same token, if price moves above the open by an amount that is greater than yesterday’s buy swing then new buying power must have entered the market.
If we take an average of all the buy swings over a previous number of days we will have an idea of the amount of buying pressure in the market over a slightly longer (and more representative) period. If price is able to move above its open by an amount that at exceeds this, then it would seem fair to assume that something has changed. Obviously the reverse will be true for sell swings.
There is one final improvement to be made before we have a useable concept. By considering sell swing values for only those days where price closed above the open (in effect the days on where the bulls ‘won’), then we will have arrived at a measure of the amount by which price could decline without triggering a sell-off. These swings represent the bear’s ‘failed’ attempts at sell-offs, and as such we call them ‘failure swings’. Similarly, we can identify buy failure swings by considering only days with a down close.
It is an average of these values that we will use in our setup.
Parameters for buy orders (for sells rules are reversed)
Consider a single day of trading in a futures market. The session will have an open, and at some stage it will make both a high and a low. So the high can be thought of as the maximum level above the open to which the bulls were able to drive price during the day, while the low represents the maximum level below the open to which the bulls were able to move the market.
Here we have a simple measure of the relative power of both buyers and sellers on that day.
The distance between the open and the high is called the ‘buy swing’.
The distance between the open and the low is called the ‘sell swing’.
Now consider the next trading day. If price moves below this day’s open by an amount greater than yesterday’s sell swing, then this indicates that we have a new amount of sellers in the marketplace today. By the same token, if price moves above the open by an amount that is greater than yesterday’s buy swing then new buying power must have entered the market.
If we take an average of all the buy swings over a previous number of days we will have an idea of the amount of buying pressure in the market over a slightly longer (and more representative) period. If price is able to move above its open by an amount that at exceeds this, then it would seem fair to assume that something has changed. Obviously the reverse will be true for sell swings.
There is one final improvement to be made before we have a useable concept. By considering sell swing values for only those days where price closed above the open (in effect the days on where the bulls ‘won’), then we will have arrived at a measure of the amount by which price could decline without triggering a sell-off. These swings represent the bear’s ‘failed’ attempts at sell-offs, and as such we call them ‘failure swings’. Similarly, we can identify buy failure swings by considering only days with a down close.
It is an average of these values that we will use in our setup.
Parameters for buy orders (for sells rules are reversed)
- In a downtrend, calculate an average of the buy failure swings of the past four days with down closes (i.e. below their open).
- At the next open, place a buy stop order with your futures broker at a distance above the open that is equal to 180% of the average buy failure swing value that you have calculated.
- Use a stop-loss equal to 30% of the ATR.
- Exit at the next profitable opening.