NOTE: Mark Ansel's Night Owl™ has been providing intra-day trading advisories on crude oil (CL) and the Euro (6E) futures for several years. The following article is a compilation of forum posts that Mark made from 3-18 March of this year.
During the past week or so, major futures markets (ES, NQ, YM, 6E, 6Y, CL, GC, others) have seen huge intra-day swings. Analyzing markets during such unusual occurrences can be challenging. Such analyses definitely require more time.
In the case of Night Owl™, its methodology doesn't change, due to such bigger-than-usual swings. But the necessary time for determining its nightly setups does lengthen.
In those instances when the nightly post for the recommended Night Owl™ setups may occur after the Hong Kong opening time (20:00 ET), markets might already have moved somewhat away from their 18:00 opening prices.
Night Owl™ must factor such situation into its determination. That is, has market moved “too far” in the Night Owl™ predicted direction? Has market moved against the Night Owl™ predicted direction to come close to its stop?
The latter was the case on the evening of March 2. By the time Night Owl™ had determined the higher-probably side to play was the long side, the Mar 6E market had fallen from its 1.11545 opening price to around 1.11295. The @ line for recommended MIT entry was at 1.11310. Upon dipping below 1.11300, market immediately bounced back to the 1.11340-1.11360 area.
In such situations, when @ line has elected around the same time as the post of the setups (which could be delayed due to internet issues for which neither Night Owl™ nor Aeromir can foresee, prevent, or control), each Night Owl™ trader must decide for himself/herself whether to wait for market to retrace back to the @ line a second time or to “chase” the market.
A practical solution for such situations would be to use an OCO order for your entry, to thereby minimize the chance of missing any move in the Night Owl™ predicted direction:
Using the Mar 6E setups posted on the evening of March 2 as an example, one leg for such order would be to buy Mar 6E at 1.11310 (or faded 1.11330) on an MIT. The other leg would be to buy Mar 6E on a stop at 1.11370 (the next line higher in the price array).
Of course, by doing this, if the stop entry were to elect first, and then if the MIT price were to elect subsequently, you would have a few more ticks of risk on your play (and a few fewer ticks of potential profit). On the other hand, if the MIT price were NOT to elect a second time, at least you wouldn't be the proverbial passenger left on the platform as the train would pull out from the station.
Each trader must decide for himself/herself how to handle such instances, whether trading Night Owl™ or recommendations from any other advisory service. Bear in mind that if you're more accustomed to trading options rather than futures contracts, you rarely must deal with such swift possibilities. Futures markets can (and often do) move very fast, so traders of futures contracts must be nimble on their feet.
Using an OCO order in the Night Owl™ price arrays is a simple way to accomplish that. I hope your trading platform offers you this OCO functionality. If not, consider subscribing to a charting application, such as NinjaTrader, CTS (Cunningham Trading Systems), or Sierra.
Another “compromise” solution in such situations as described above would be to simply take a market entry order. In that case, you'll have a certain entry, although it will be with slightly more risk than the @ line. But again, you will have no risk of missing a winning play.
When someone refers to my Night Owl™ invention as a “system”, I tend to correct them. Night Owl™ is not a “system”; it is a mathematical model.
What is the difference?
A system usually is specific, but it almost always is rigid, inflexible, and unable to adjust to changing market dynamics: Enter at this price; exit at that price, which usually is some inflexible, fixed-in-place amount away from the entry price (for example, always 50 cents away from the CL entry price); and a stop-loss price, which usually is another inflexible, fixed-in-place amount away from the entry price in the other direction (for example, always 75 cents away from the CL entry price).
On the other hand, a model is considerably more robust. It “breathes” as it provides trading opportunities that take into account changing market dynamics, such as changes in volatility, intra-day price swings, and liquidity.
In the case of Night Owl™, it uses Square-of-Nine pricing and multiple target possibilities to allow for such changes. When market volatility increases, for example, Night Owl™ might recommended seeking exit at the first Target C to elect following election of its respective entry price line, rather than the first Target B. At historically low prices, such as we see now in CL, Night Owl™ might even recommend seeking exit at the first Target D to elect following election of its respective entry price line.
Another way in which Night Owl™ “breathes” is that it allows market to tell it where to place a stop-loss. Rather than using some fixed-in-place rule of always using a 75-cent stop, for example, Night Owl™ often advises placement of its recommended stop-loss behind some nearby Market Profile® previous Price of Control (PoC). The price array line corresponding to that previous PoC might be as few as one line behind the @ line in the Night Owl™ price array in one instance, and it might be even eight or nine lines behind the @ line in the next instance.
In that latter situation, Night Owl™ might recommend an intermediate stop-loss line between those two Square of Nine levels and then identify a second @ line. The
document “How to Interpret Night Owl™ Nightly Blog Posts” (available here:
discusses the possibility of multiple @ lines. In those cases, one can notice that each stop-loss line often is closer to its respective @ line than Target B. The significance of this is that such cases allow for the possibility of an overall winning play, if the first @ line were to stop out but the second @ line were to attain its profit target.
With the recent and historically large intra-day price movements we have seen recently, how can one take advantage of them while keeping risk under control while also missing few of those moves? Given the high accuracy rate of Night Owl™ for predicting correctly the direction of the predominant move of the next session, this is a good question. What can a Night Owl™ trader do with those price arrays to benefit him or her?
First, remember that Night Owl™ not only provides a recommended limit or MIT entry (i.e., the @ line), but it also provides a second recommendation – the ~ line. Whereas the @ line almost always is behind the 18:00 ET opening price, the ~ line almost always is in front of it. The ~ line is meant for stop entry, not limit entry. Thus, if market should fail to elect the @ line before making its move in the Night Owl™ predicted direction, one can seek entry in that direction at the ~ line.
Remember that Night Owl™ will deactivate its price array at the first Target B to elect following election of its respective entry price line (or first Target C or first Target D, as specified in the post). Thus, due to the nature of a stop-based entry, that deactivation price will be closer to that stop-based entry price line.
Another way a Night Owl™ trader can try to profit further from these historic price movements is to use a trailing stop. Night Owl™ does not recommend trailing a stop right away. Rather, its stop remains as specified in the post until price array deactivation. But if you were to choose to trail your stop, rather than exit your trade at price array deactivation, you could adjust your stop-loss to breakeven at deactivation of the Night Owl™ price array. If market should then attain the next lettered target price (for example, Target C following deactivation of price array at Target B), you then could employ a trailing stop from there onward. This is what some Night Owl™ traders do as a matter of routine already.
A third technique that would take advantage of the high accuracy percentage of the ability of Night Owl™ to predict direction correctly would be to use a Market on Close (MOC) exit order, rather than exiting your trade at any specified exit price. As with all things in trading, this technique has its good points and its undesirable points. But on those days on which market will close near its high or low – as we have seen often
recently – an MOC exit can produce impressive results.
The fourth suggestion I'll make here pertains to stop-out:
If you’re stopped out, consider placing a reentry order in the Night Owl™ direction on a stop entry that’s one or two lines ahead of however far against the Night Owl™ expected direction market may go. Watch your x-minute chart for this. (Night Owl™ uses 10-minute and 20-minute charts in performing its routine analyses.) Combined with a trailing stop, on strong intra-day swings, such as we have seen recently, this technique sometimes can yield a positive result that will exceed your earlier stop-out (if your stop-out caused a loss, that is).
Please keep in mind that markets are making historically large swings, which render the usual processes of analysis more difficult. Bear in mind that these historic moves have few precedents, thereby suggesting the possibility of lower likelihood of predictive accuracy.
If you choose to increase your lottage in those situations in which Night Owl™ might select a nearby line for its stop-loss, realize that you do so at your own risk. Keep in mind also that brokerage firms are tightening margin requirements, due to increased market volatility. Some firms will do this on an intra-day basis and require you to cover margin deficits immediately by liquidating some or all of your positions. And such liquidations often occur with losses.
The ~ line always has been available in every Night Owl™ post I have ever made. It is nothing new. I even recall discussing the ~ line in the old Capital Discussions video at the Aeromir site, which admin Tom Nunamaker has kept posted there.
Also, the Night Owl™ rule to deactivate its price array upon attainment of the first Target B (or Target C or D, as specified in each post) is nothing new. That has been a rule since the very beginning of Night Owl™ development more than 8 years ago. Each post always has stated that, too.
Thus, if the deactivation price (Target B, C, or D, as specified) for some line in front of the @ line were to elect following election of its entry price line and before election of the @ line, Night Owl™ will deactivate the price array for that session. Each Night Owl™ trader must pay attention to this possibility on his/her own. Every experienced Night Owl™ trader about whom I know uses the alert mechanism in his/her trading platform for this, except for those who use the Topstep Trader proprietary platform. This is what I have done, too.
The idea of the ~ line is to enter in the Night Owl™ direction only if the @ line has not elected first. Thus, one could use an OCO order to accomplish that. Because the @ line is a limit (or MIT) entry, for an effective OCO, the ~ line would need to be a stop entry, unless you would choose to play each possibility manually.
Some Night Owl™ traders use half lottage at the ~ line, as have I. To accomplish this, one must use ONE OCO order with half lottage on each leg (~ and @ lines), plus ONE limit (or MIT) order at half lottage for the @ line. Thus, one of 3 things will happen – either you'll reach target price attainment with half lottage, or with full lottage, or incur a stop-out with full lottage. Bear in mind that the stop-out possibility could occur either with the ~ and @ line combo elections or only the @ line election. The former would be a larger loss. That is its downside.
Consider also that the ~ line will be closer to the deactivation price. Usually that will be the first Target B to elect following election of that Target B's respective entry price line, regardless of whether it will be in front of or behind the @ line. When volatility becomes extreme, Night Owl™ moves its deactivation price to the first Target C or even to the first Target D – not on the same day, but in subsequent trading sessions.
For that reason, if you were to decide to use the ~ line as an alternate entry, either to use it in conjunction with a trailing stop or with an MOC exit could be more effective than simply exiting at the deactivation price – especially when price movements become extreme, such as we've seen during the past couple weeks.
Remember, these are historic times for all markets, not just ES, NQ, CL, or 6E. So, almost nothing we have seen during the past couple weeks has been “usual”.