Throughout the technical analysis textbooks - there are references to things that we want to elevate; the books do not bring justice to the value these levels provide and so in this post we will examine these levels more closely.

First - is the idea that we can measure anything. I know that is very “open” - so we will work through some examples. Just keep in mind that these examples are not the whole list of what we can measure because we can measure anything.

In the picture below - we have the ES futures on a daily chart. We could measure yesterday’s range (from high to low or from low to high).

What we can measure

We can measure the last bar left of the current bar. On the daily - this would be “yesterday" and on the weekly it would be “last week.” We can of course measure last month - or even last quarter. We can measure the last 30 min bar or the last 60 min bar and we could even measure the last 15 min bar or the last 1 min bar.

Popular “last bar” measurements at the OEC is Yesterday and Last Week.

We can measure patterns; head n shoulders, cup n handle, range, wedge, flags… patterns are a fantastic “classic” technical analysis thing to measure. Nearly all candle books will discuss measuring these patterns.

Event Bars are also something we can measure. This can be the earnings day, the dividend day, investors day event, the start of a new month, the 5-minute bar formed during the CPI release … the list of events are endless. We can measure out event bars on any timeframe but at the OEC we like to use the 5-min candle for events (when on the intraday analysis).

In the picture below - we have the /ES futures 5-min chart and yesterday’s range is defined with a yellow box. From the lowest to the highest point - that is all of yesterday. In the middle of that range - is the -1/2 back.

Price Swings are also things we can measure. If price has made a run and then pulled back from that run we can measure it and define levels from that. The textbooks often talk about measuring the pullback and the run to project the next leg and the next pullback.

All of these - are valid things that can be measured. Typically - the measurements discussed in the textbooks would use quadrant lines - things like 0, 50, 100, 150, 200. That can also be implied as 0, 0.50, 1, 1.50, 2.0 … you get the idea.

When we measure something - the first thing we should look at is … well… what we measured. The high and low points. This will be 0 and 100. Between them we will have a “half back” (or the 50) level. All the books out there discuss the half back - even if they don’t call it a half back.

HALFBACK

HALFBACK – it is the 50% mark of a move that already happened. Price often retraces it’s path and the 50% mark becomes a level of decision… if price falls under it’s own -1/2 back then it’s likely to go back to the start of the move.

If price bounces off the -1/2 back and holds above it – then it’s possible to get back into the high of the move – or even continue with a new breakout higher.

Because of all that – the -1/2 back level is a KEY LEVEL of interest. While a lot of traders will use this for tradable strategies – it’s still just a technical level.

Exercise

I encourage you to go into the past - and pick a day. Mark the range of that day - from high to low and the mid-point. Put the lines on the next day’s price action and see how price responded at those levels. This is a good exercise to begin understanding why we want to use “yesterday’s” range in todays trading.

Just going from 0 to 100 and back to 0 again (passing through 50) is a good thing to witness. Begin to understand why these levels are valuable - by looking at how they have been valuable in the past.

In the picture above - we have a daily chart of the ES futures. Price was in a range (marked in yellow) and then it had an amazing breakout and a run for the whole quarter! If we were to now start fading - we could perhaps mark the run and measure the -1/2 back for a possible price target and end of the pullback.

As we can see in the picture above - price was defended at the -1/2 back. We can see these examples all over - from large price swings like this example - to intraday candles and intraday ranges. We want to get comfortable with measuring things - not like some cookie-cutter robot - but like someone who is looking for answers.

Measure something - and begin to ask questions. What if price breaks up through the top? What if price moves into the -1/2 back? Where is the possible liquidity?

Measured Move

So - we have the range and the half back. The textbooks also talk about projecting the movement in price. We have 50% of the move and 100% of the move. Most candle books will show examples of measuring the H&S pattern and measuring 50% of that range for the first PT with 100% of that range as the second PT. (PT means price target).

This is also true of anything else we measure. Yesterdays candle, last weeks candle. The intraday leg up … what ever we measure - we can project some breakout targets of 50% and 100% of the move. In this way - if we break out of the range - we have a good idea about where price should go before it pauses again.

If we were to look at past price action - we could show examples of this behavior over and over again. In fact - that is an awesome idea because it will help you build confidence in your ability to define a “thing” - to measure it - and to project the breakout points from it. It will also teach you to understand what the move should look like - and what it will likely look like if that breakout fails.

Review

So far - we have discussed measuring something and projecting that measurement out 50% and 100%. This is something that all traders can do; scalpers intraday, swing traders, options traders, futures, stock… it does not matter. This is a valuable skill to develop and a piece of the technical analysis world that you want to master!

You will want to develop this skill-set; practice measuring things and projecting the measurement out. See what price does. You may be surprised how much this concept can be adapted! Consider - also … that what we measure can be more ‘focused” than a whole day or a whole pattern like a head n shoulders. We can measure things like - the large 5 min candle when CPI comes in. Or we can measure something like the first 5 min candle of the trading day.

Try it on previous trading days - and see how price responded at those measurements.

Liquidity

With Zero and One-Hundred… we have the range of what we measured. Typically - that implies it is some sort of range or pattern or candle. When we measure this “thing” we want to consider if it is defining the trading range where traders would have stops above and below… what we would call “liquidity.”

Liquidity Resides on the Other Side …

Get used to hearing this phrase - I say it all the time. Liquidity is on the other side of the pivot. We have to use liquidity tools to confirm this phrase or just assume that it’s true until proven otherwise. So - above 100 or below zero - expect to see liquidity there.

Below is a picture from earlier in the post; this is the ES futures on a 5-min chart and yesterday’s range is high-lighted in yellow. If price today breaks out of yesterdays range - where would we expect the liquidity to be?

When we have measured a range and defined the 0 and 100 level - if we breakout … how far past that breakout point should we expect to continue to find liquidity? All the way to the 123.6% mark (or all the way to -0.236% if we are below zero).

Consider the whole zone - what we call the liquidity zone - carefully. It’s 0.236% of the thing you measured - and while that may not sound like a whole lot - it’s a large zone. This zone can be broken into 2 parts, the first zone and the second zone.

One - Eleven would be the first half of that zone. 123.6% would be the second half of that zone.

As the picture above shows - liquidity was under yesterdays low between 100 and 123.6% “exactly where it should be.” The buyers stepped in - right where we expected them to step in. That’s neat, right? Notice that price went right through the one - eleven?

The 111 level is often where price turns and is rejected - so we don’t even make it to the 123.6% level … and that is great when we see a clear example of buyers aggressively defending the low and protecting the one eleven… but if they don’t step in there we need to continue to look for indications of buyers all the way into the 123.6% area.

In this picture above - we have the over-night session on the ES futures (5-min chart). The range is set - and we have the liquidity zone marked out. We can see that earlier in the globex session there were sellers at $5537.75 and we can see that two different attempts were made to get through that price level.

If price attempts to get through that level again - we want to define where to expect sellers again. Using the one-eleven and the 123.6% gives us some visual “cue” as to where these sellers should be.

As we can see in the picture above - using the 1.11% or the 123.6% levels gives us a decent idea of where to expect that liquidity. There is no magic to these levels - they are not what stops price. When price is in a range - long and short traders are getting into the markets.

Those traders often use the edges to define where they place their stops - and that “liquidity” is often what we see on the DOM or the Active Trader in TOS. If we have traders defending that level or if we have liquidity at that level - price will struggle to get through there.

Looking at the picture above - should the drawing be moved now that price has given us a new high in the globex session?

If we want to see the new mid-point - YES. The current mid-point is no longer accurate. If we are only focused on the price attempting a new breakout - then we do not need to move the drawing yet. the 123.6% level was not taken out - so from that POV things are still as they were before.

We can still expect liquidity above the 100 level - maybe into 111% or the 123.6%. We could just turn on the next higher level - the 150%. This would be “50% measured move” of the range - and it would do a good job of showing where price could pause on the next attempted breakout.

When we do turn on that 50% measured move - (shown in the picture above) - we can see that it lines up with $5549.25 … CLOSE ENOUGH to the option level of $5550 that we’d want to use the $5550. But - what if it didn’t line up - or we wanted that new half back level? Let’s move the drawing…

In the picture above we have a new “half back” and new we also have a new One -Eleven and 123.6% level… the 123.6% is at $5546. That is only a few points from the other level! The 50% measured move was really close to this level.

So - if we were moving the drawing to define a new middle point - this was good. If we moved the drawing to try to define where the liquidity zone may be - we have the same info we had before. Price is projected to hit the $5550 resistance level if we break upward again.

Of course - this is all “on the clock” because it’s getting close to the morning economic events and when that data comes up - these levels will not matter at all.