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Locked-in Range Analysis (LRA)

  • #1
  • First Post: Edited Jan 29, 2018 10:27pm Dec 28, 2017 3:28pm | Edited Jan 29, 2018 10:27pm
Locked-in Range Analysis (abbr. LRA) is the futures market analysis method, described in the ebook "Locked-in Range Analysis: Why most traders must lose money in the futures market (Forex)" by Tom Leksey, which minimizes an uncertainty in the futures market.

LRA is the method of interpreting the price and volume chart to determine the direction of the prevailing volume of open positions, the imbalance of which will enlighten you to future market behavior.

LRA is a cause-and-effect analysis method arising from the basis of the market, therefore, by applying LRA, you will either become one of the professional market participants getting a non-random and repeatable result or you will consciously leave trading for good.

LRA ebook may be published, reproduced or distributed for Free - Download PDF (0.7 MB)

LRA gives you answers for questions:

  1. Why Does Price Change Occur?
  2. Why Do Instruments Correlate?
  3. Value of Trading Session and Time-Frame
  4. Impact of Fundamental Factors on Price

What is Locked-in Range?

Locked-in Range (abbr. LR) is the trading range in which the volume of open positions accumulates, making the price change to the side where the prevailing volume of open positions will be locked at a loss, because the price will no longer allow to close in profits or break-even.

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Resistance LR is the locked-in range in which the volume of open buy positions prevails, and it is profitable for the market maker to quote prices below the range.

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Support LR is the locked-in range in which the volume of open sell positions prevails, and it is profitable for the market maker to quote prices above the range.

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The logic of price changes in the futures markets, where liquidity is provided by market makers

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Open positions, their take-profits and stop-losses are the only true source of information for making decisions on speculative entry into the futures market with the market maker, therefore, those who do not base their trading decisions on it are Lucky-traders.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #2
  • Dec 29, 2017 3:08pm Dec 29, 2017 3:08pm
What is TPSL Levels?

Take Profit Stop Loss level (abbr. TPSL level) is the price level at which sellers and buyers will exit the market, closing their open positions by take-profits and stop-losses.

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If the TPSL level is a signal to exit loss-making positions, then for a part of profitable positions, that will not be closed at it, the level is a signal to make the positions to a break-even (to move a stop loss order to breakeven) as their forecast of the range breakout turned up to be correct and they are waiting for the price to continue moving in the same direction.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #3
  • Dec 30, 2017 2:07am Dec 30, 2017 2:07am
Hello and good start with your new threat.

TPSL1 and the others are some prices which people have the profit/loss , in the book those prices is where in places like last swing or high /low , since most of people use technical analysis and price action. But since TPSL1 is vital for my understanding in order to open a position but there is a problem different time frames especially lower intradays will have much more swings high lows. So in my analysis can i consider those as my TPSL.

Example a TPSL1 for M5 timeframe is 8 pips away , from the other hand a TPSL1 of H1 timeframe is 20 pips away. Which of those i must take as my TPSL1?

Thank you
  • #4
  • Dec 30, 2017 2:47am Dec 30, 2017 2:47am
Quoting stoxos
Hello and good start with your new threat. TPSL1 and the others are some prices which people have the profit/loss , in the book those prices is where in places like last swing or high /low , since most of people use technical analysis and price action. But since TPSL1 is vital for my understanding in order to open a position but there is a problem different time frames especially lower intradays will have much more swings high lows. So in my analysis can i consider those as my TPSL. Example a TPSL1 for M5 timeframe is 8 pips away , from the other...
The LRA time-frame selected for the construction of charts should include the current TPSL levels and the previous trading days at the same time, with a likely significant volume of locked/break-even open positions that influence the formation of prices by the market maker (Example: 1 Hour).

So when we talk about LRA we need to use only 1 Hour time-frame and higher but 5 min never
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #5
  • Dec 30, 2017 3:14am Dec 30, 2017 3:14am
Interesting stuff ...

How do you determine if there are more BUYERS than SELLERS or more SELLERS than BUYERS stuck in the Locked-in range ?
  • #6
  • Dec 30, 2017 4:08am Dec 30, 2017 4:08am
Quoting Mingary
Interesting stuff ... How do you determine if there are more BUYERS than SELLERS or more SELLERS than BUYERS stuck in the Locked-in range ?
From my understading
you cant in range, but you see that when price breaks TPSL 1 if the volume is low then no new positions opened so it will go the opposite direction. If volume in TPSL 1 is high it will continue to that direction as new positions have opened.
  • #7
  • Dec 30, 2017 5:01am Dec 30, 2017 5:01am
Quoting stoxos
{quote} From my understading you cant in range, but you see that when price breaks TPSL 1 if the volume is low then no new positions opened so it will go the opposite direction. If volume in TPSL 1 is high it will continue to that direction as new positions have opened.
You really cant determine in range, and you really need to wait when price breaks TPSL 1, but then we interest in not the quantity of new open positions but in the quantity of LR's stop-losses.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #8
  • Dec 30, 2017 5:05am Dec 30, 2017 5:05am
Quoting Mingary
Interesting stuff ... How do you determine if there are more BUYERS than SELLERS or more SELLERS than BUYERS stuck in the Locked-in range ?
An increase in open interest during the movement of a price within the same trading range leads to an increase in the potential for the subsequent movement of prices after the range breakout: at a strong imbalance – a breakout and movement in the direction opposite to the prevailing open positions; at a slight imbalance / no imbalance – a breakout in one direction and then in another direction, for triggering stop-loss on both sides of the range (range extension).

There is no sense in trying to forecast the prevailing open positions in the locked-in range; it is necessary to analyze the price and volume changes after the range breakout and in proximity to the TPSL levels, which will allow to join the further profitable price changes for the market maker.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #9
  • Dec 31, 2017 1:28am Dec 31, 2017 1:28am
Quoting t8936
{quote} An increase in open interest during the movement of a price within the same trading range leads to an increase in the potential for the subsequent movement of prices after the range breakout: at a strong imbalance – a breakout and movement in the direction opposite to the prevailing open positions; at a slight imbalance / no imbalance – a breakout in one direction and then in another direction, for triggering stop-loss on both sides of the range (range extension). There is no sense in trying to forecast the prevailing open positions in the...
"There is no sense in trying to forecast the prevailing open positions in the locked-in range"
Why ?
and why forecast ? there is no need to forecast IMO. Once the range is determined (albeit arbitrarily) then the OI can be calculated and the imbalance can be measured.
If you hope to analyze the price and volume changes after the range breakout and in proximity to the TPSL levels ... then it's too late
  • #10
  • Dec 31, 2017 2:32am Dec 31, 2017 2:32am
Quoting Mingary
{quote} "There is no sense in trying to forecast the prevailing open positions in the locked-in range" Why ? and why forecast ?
Have you already studied the method before making similar conclusions?
LRA method is fully described in the book called Locked-in Range Analysis: Why most traders must lose money in the futures market (Forex) by Tom Leksey.

Capabilities of Market Makers

To understand the capabilities of market makers, one should know the limited market depth available to any participant: 1) Data featuring the nearest (best) placed 10 bid and 10 ask limit orders shows the price and number of contracts (Level 2). 2) Data featuring each transaction made shows the price, time, and number of contracts (Time & Sales).

CME Group market makers use the full market depth available to the exchange, namely:
1) Data featuring all existing placed limited orders.
2) Data featuring all existing placed stop orders.
3) Data featuring all open positions: price, volume, and side of order (buy/sell).

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Market makers collectively create a market for each futures, centrally managing its common pool of positions to prevent conflicts of interest that would arise when working separately, when instead of earning the spread and self-quoting, market makers would get a large volume of positions that would not have a counterparty to close before the expiration of the futures. (Example: Speculator buys 1 cash settlement contract on the market, and his counterparty is Market Maker #1; then, the same speculator decides to exit the position and sell his contract; this time, his counterparty is Market Maker #2. As a result, the speculator does not have a position, and the market makers have 2 open positions that they can close only with each other; in this case, one of them will suffer losses.)

According to the latest information, only market makers know the current open positions (volume, side of order) and we can only forecast but this is enough to make money in the market using Locked-in Ranges, Degree of imbalance, TPSL Levels

Quoting Mingary
{quote} then it's too late
No. You are not right. After the range breakout the locked-in range still has open positions and it is not profitable for a market maker to return the price into LR, so that loss-making positions cannot close at break-even levels.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #11
  • Dec 31, 2017 2:51am Dec 31, 2017 2:51am
Quoting t8936
{quote} Have you already studied the method before making similar conclusions? LRA method is fully described in the book called Locked-in Range Analysis: Why most traders must lose money in the futures market (Forex) by Tom Leksey. Capabilities of Market Makers To understand the capabilities of market makers, one should know the limited market depth available to any participant: 1) Data featuring the nearest (best) placed 10 bid and 10 ask limit orders shows the price and number of contracts (Level 2). 2) Data featuring each transaction made shows...
"No. You are not right. After the range breakout the locked-in range still has open positions and it is not profitable for a market maker to return the price into LR, so that loss-making positions cannot close at break-even levels."

==> Traders on the wrong side are locked in only up to their stop levels ... then it's a new game. Therefore there is no edge in waiting to see what happens at the TPSL levels.
Overall, the strategy has merits, but the execution is faulty.

Initial imbalance is key.
  • #12
  • Dec 31, 2017 3:36am Dec 31, 2017 3:36am
Quoting Mingary
{quote} "No. You are not right. After the range breakout the locked-in range still has open positions and it is not profitable for a market maker to return the price into LR, so that loss-making positions cannot close at break-even levels." ==> Traders on the wrong side are locked in only up to their stop levels ... then it's a new game. Therefore there is no edge in waiting to see what happens at the TPSL levels. Overall, the strategy has merits, but the execution is faulty. Initial imbalance is key.
I have to admit that is kind of true, since market is several auctions, if we move from one to an other there is always very small space until we rich the next auction/balance which for sure we don't know what will happen. And there is also the Risk/Reward, in order to make profit in any market you need to buy sell high. But if we trade after TPSL1 which is above the high of the auction we essentially trading like breakout trades and we buy high and we sell low.
  • #13
  • Dec 31, 2017 3:38am Dec 31, 2017 3:38am
Quote
t8936

I am only skeptical about one thing. If we reach the TPSL1 with volume and everything is as it should be with the LR rules, what is that, that tells me that the price will continue (so i can profit), i mean why even some stops have been take out we the others will continue that push?

I think we need a couple real world examples to analyze together. On tuesday markets will open again i will post some screenshots of LR i find so we analyze them.

Happy new year to everyone!
  • #14
  • Jan 1, 2018 4:44am Jan 1, 2018 4:44am
Quoting stoxos
{quote} I am only skeptical about one thing. If we reach the TPSL1 with volume and everything is as it should be with the LR rules, what is that, that tells me that the price will continue (so i can profit),
It's very simple and and follows from the logic of price changes in the futures markets, where liquidity is provided by market makers

The logic means it's not profitable for a market maker to return the price into LR if there is remaining prevailing open positions until they be closed by stop-losses or current volume imbalance be changed to opposite.

Nothing tells you that the price will continue, but you can be sure that the price will be located and accumulated new open positions above support LR and below resistance LR. That is the cause and effect of price formation.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #15
  • Edited Jan 3, 2018 12:13am Jan 2, 2018 2:41am | Edited Jan 3, 2018 12:13am
Locked-in Range Analysis looks like below:

Example: E-mini S&P 500 Period: December 2017

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Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #16
  • Jan 3, 2018 12:13am Jan 3, 2018 12:13am
Example: E-mini NASDAQ 100 Period: December 2017

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So, we use Locked-in Range as support or resistance zone to open new positions or to protect our stop-losses
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #17
  • Jan 4, 2018 12:32am Jan 4, 2018 12:32am
Why Does Price Change Occur?

Instead of creating liquidity, by definition of CME Group, a market maker earns the spread, but earning the bid-ask spread is only possible with the same volume of ask and bid transactions at a constant price; the limitation of the specified length of futures trading time adds the condition that half of the transactions at ask/bid price should be the opening of new positions and the other half should be the closing of the previously opened positions. Continuously providing liquidity, the market maker cannot achieve such a ratio. Therefore, market maker scales the principle of earning the spread from a constant price to a trading range, and guided by open positions, their potential take-profits and stop-losses, the market maker accumulates open positions at the same price range, and locks the prevailing open positions (by shifting the price in the direction opposite to the range and quoting the price within market maker’ break-even zone) when there is an imbalance or loss of interest of market participants in current prices, thus insuring against losses in the event of simultaneous closing of open positions.

This principle of price change is the basis for futures with a market maker. LRA allows to determine the locked-in ranges and the future price changes that are profitable and permissible for the market maker.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #18
  • Jan 4, 2018 9:56am Jan 4, 2018 9:56am
Quoting Mingary
{quote} Traders on the wrong side are locked in only up to their stop levels ... then it's a new game. Therefore there is no edge in waiting to see what happens at the TPSL levels.
"locked in only up to their stop levels" you are right and so we use that to determine the prevailing side of open positions, but not all positions closes at TPSL 1 Levels, because the part can close later. And that is why LRA has Degree of Imbalance.

Properties of the locked-in range depending on the degree of imbalance

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Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #19
  • Jan 4, 2018 10:29pm Jan 4, 2018 10:29pm
Why Do Instruments Correlate?

Market correlation is a statistical measure that determines how assets move in relation to each other (positive correlation – same direction; negative correlation – opposite direction).

Correlation is not permanent and is due to the fact that market participants make decisions on entering a separate trading instrument based on the value of others (they buy index futures forecasting the growth of other indices; they sell currency futures forecasting the strengthening of the dollar against other currencies), or open positions simultaneously on several instruments in the same direction.
Don't be a Lucky-trader! Just make cause-and-effect trades!
  • #20
  • Edited 10:57am Jan 5, 2018 12:41am | Edited 10:57am
2018-01-05 LRA of Canadian Dollar Futures (CAD/USD)

Preference:
Long positions above support LR 80035-0.79770 & support LR 0.79285-0.79100 with TPSL 2 High as target.

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Don't be a Lucky-trader! Just make cause-and-effect trades!
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