Chapter 3 lesson 5 - CBDR Flashcards
What is the role of the London session?
The role of the London session is to create the opposite end, or protraction, of the range; ie the low of the day on a bullish day, and the high of the day on a bearish day.
Why is the opposite end of the range important for traders?
As a day trader, it’s important to get as close as possible to the opposite end of the range, cos then you’ll be a participant in the expansion of the range.
What can be used to measure protraction?
- The Asian range
- Midnight opening price
- CBDR - Central bank dealers range
What is a standard deviation?
A standard deviation is the projection of a range. It will us identify where the expansion of a range is likely to end.
What time range should we use to calculate the CBDR?
2pm - 8pm NY time.
Is the CBDR always valid?
The CBDR should only be used as a measure of protraction if the CBDR is <= 40 pips.
You can either use the bodies of the candles, or the wicks of the candles to plot the CBDR range. As a general guideline, use the method where the range is closest to 30 pips.
What is the Average Daily Range?
The average daily range is the average no of pips movement in the market.
How is the Average Daily Range used?
The average daily range can be used to validate the CBDR.
EG if the 5ADR( Average Daily Range for the last 5 days) = 90 pips, then we can anticipate the market to move by 90 pips on the next day.
The 2-3 standard deviation range should be in line with the ADR in order for it to be valid.
What’s the recommended no of standard deviations that we should use?
It’s recommended to use 3 standard deviations. A 4th std deviation could be added if there is a significant news event.
What is protraction?
Protraction is the move to the opposite end of the target range.
Why do we only consider a CBDR with a range of 40 pips or less to be valid?
A larger CBDR range will increase the protraction range. And a larger protraction range implies a larger expansion range.
The expansion rage should generally be in line with the ADR.
Why is the CBDR important?
The CBDR can be used to measure the protraction range for the next days candle.
It’s important to mark out and monitor the 50% range of each deviation.
More importantly, the 100% and 50% range of each std deviation must be paired up with a logical area like:
1. Previous day low
2. Previous day FVG
3. Midnight opening price.
