Analyzing Afternoon vs. Morning Ranges in Pine Script

hey Traders first of all happy New Year
hope you're off to a great start for
today's video I'm going to do something
a bit different I recently saw a clip on
Instagram posted by SMB Capital I'll
play the clip in a moment um but first
of all for those of you who don't know
SNB Capital uh they're a reputable Wall
Street prop trading desk and they have
an Instagram page where they share
trading Concepts ideas strategies and in
this particular clip let's have a look
at what they have to say a very very
simple but often misunderstood trading
opportunity if the range after
12:00 is greater than the range before
12:00 so 9:30 to noon noon to four if
the range in the afternoon is greater
than the range in the morning there is a
very low likelihood of continuation in
the direction of the trend a very low
likelihood of that it can happen and
when it happens it happens with intense
magnitude but there's a very low
likelihood of that happening based on
the back testing we've done so there's a
few things I want to mention about this
first of all I was skeptical about this
concept purely because as a Trader we
often hear things where Traders will
just rattle off things as if they're
fact and there's no way for us to verify
that usually in this case we can and in
today's I'm going to write a script that
analyzes this exact hypothesis and we
can see if this is in fact true the
other thing I want to mention is that in
this particular example this sample size
is pitifully small that's why I was
skeptical when I first saw this clip I
thought we don't even have 100 trades
here 26 examples and 28 examples that's
not a comprehensive statistical data set
that's that's like um the amount of
Randomness that can occur in a sense
sample size that small negates any any
findings really from that test and so I
thought you know what I'm going to write
a script I'm going to run it through
pinescript on a bunch of stocks and
we'll see if this hypothesis is true and
I didn't expect it to be true so anyway
let's get into today's script and let's
see what we can find by trying to
emulate this back test so let's jump
over to the charts and I'll break down
exactly what we're trying to analyze
here so what we're looking for
is this first of all we have a bullish
day price action opened here in the
morning closed up here on the final bar
of the day so that's a bullish close on
the daily chart the next thing we're
looking for is range expansion so we
need to get the highest and lowest point
in the afternoon session which is after
12:00 p.m. New York time we measure from
the low approximately to the high gives
us 160 points if this afternoon range is
larger in distance than the morning
range so in this case that would be from
um this low up to this High about 74
points the afternoon range is clearly
larger than the morning range what this
means is that
tomorrow there should be theoretically a
very low
likelihood of price action closing Above
This High because we had range expansion
in the afternoon on a bullish day if
this was a bearish day we'd be looking
for bearish continuation we'd be looking
for a close below the low or I should
say we'd be looking for this not to
happen the the odds of this happening
are a lot lower than price action
consolidating or reversing that's the
idea the concept the hypothesis so I've
made a script that analyzes this exact
pattern in price action and we can see
the numbers we can see if this is in
fact true so we go to spy unhide my
script and what you see here this isn't
intended to be a trading script we don't
use this the script to trade this is
purely to gather data to gather
statistics so it's a bit messy there's a
lot of colors going on but that's okay
what we're concerned with are these
numbers up here and what's happening
here I'll give you an example this red
line is plotting the open to the close
and if it's red then that means that
this day closed
bearish the green
background is the morning session the
red background is the afternoon session
so 9:30 a.m. open to 12:00 noon and then
from 12:00 noon to the market close this
green line you see here is the morning
range so that's from this high down to
this low and then this red line here is
the afternoon range shifted up to the
morning range is high so we can directly
compare them we can actually see at a
glance what the size is so here we can
clearly tell the afternoon range is
clearly larger than the morning range
and it was bearish day so we have
bearish range expansion and so now on
the next day's trading we're expecting
price to not close below the previous
days low very often in this case it did
and we get this big red bearish
continuation label this red line here is
the previous days low and we did in fact
get a close below that low so we did
have a case of bearish continuation but
what we should see if we go back over
historical price action is that about
60% of the time we'll get range
expansion but no continuation and we
have a much larger sample size here of
145 trades instead of 50 or so like on S
SMB capitals video so there is something
here to this concept and at the end of
the video we'll cycle through a bunch of
stocks and we'll see just how often this
actually happens so let's go through the
source code really quick for this script
it's a little bit complicated there's a
lot of lines of code here but the
concept's not complicated but the way I
went around doing this is probably a
little bit convoluted but it's the way
that made sense to me there's probably a
much better way to do this but this is
how I did it first of all we need two
sessions we need the morning session
9:30 to noon and noon to 400 p.m. these
are our two trading sessions we're going
to compare to each other then I have a
start date end date filter I don't use
this um I just added this in um because
it helped with building the script and
and and uh verifying the numbers I could
test over a shorter range and make sure
the numbers added up properly next we
have a custom function that just
determines if a bar Falls within the
specified session so if we pass in one
of our sessions here we're passing In
Session 1 which is 9:30 to noon uh this
custom function will return true if that
bar Falls within this time session and
these numbers here are just days of the
week so we're testing on every single
day you could just put weekdays in here
since we're trading or testing the stock
market but whatever doesn't matter we're
highlighting our sessions so green as I
said is the morning session red is the
afternoon session that just gives us a
visual aid to see what our script is
doing next we're getting the higher time
frame data so we're getting yesterday's
high and yesterday's low this allows us
to check if we had bearish or bullish
continuation which I already went over
what that looks like uh next we need to
detect when the session starts so when
the 9:30 a.m. session starts we need to
detect that so we know that we're now
tracking that morning session and then
we have a different Boolean a true false
value for tracking session 2 now the way
we detect if a session has just started
one way we can detect this there's
multiple ways to do this but this is the
one the way I usually use is we just
check was the previous bar not in our
trading session and is the current bar
in our trading session that gives us the
crossover so this first trading bar of
9:30 a.m. the previous bar was not in
our session the 9:30 a.m. bar was we can
use that information in our script to
know that this is the bar we need to
reset um some of our variables next up
we have our analysis variables so this
is the number of times each um situation
occurred so bullish range expansion this
counts how many times we had a larger
range in the afternoon than the morning
on a bullish day and how many times we
actually got continuation in the trend
next we have our first session variables
and second session variables so in order
to draw a lot of this visual stuff I
needed to track a few extra variables um
purely for drawing purposes so we're
tracking the bar index of the the first
bar our morning session so that we can
draw this line here that connects the
open to the close that's the only reason
we track the index same with the second
bar index that's just used to shift our
second Bar's range size from this bar
all the way back to the start of the
second session so that we can compare
these session sizes the range sizes side
by side we need to track the opening
price and the session low session high
so this is the morning sessions low and
high and I'm just realizing we don't
actually need to track the the previous
sessions low and high um that's from
earlier iterations of this code um I no
longer use this information so we can
get rid of some of this code before we
continue um so we're tracking The First
session's beginning buer index the
opening price for the day and the
morning session low the morning session
High the next session needs to track the
same beginning buer index for drawing
purposes we need to track the low and
the high and a couple of bullan values
so we're checking did we have range
expansion on this day in the afternoon
and then we have a Boolean value that
checks on the next day if we had Trend
continuation and this should actually be
called um check
continuation that's what we're actually
doing with this Boolean so let me rename
this that will be more intuitive so this
Boolean tracks if we had afternoon range
expansion so in this case that's this if
that's true then we do have range
expansion and we are checking for
continuation so here we get range
expansion and then up here we have these
green squares that means that we are now
tracking bullish continuation and if
this bar this daily bar this next day
closes higher than the previous day's
High then we did in fact have bullish
Trend continuation after range expansion
that's what these two variables here
these two flags track for us next we
have our analysis variables and I can
get rid of a couple of those as well um
so all we really need is to check was
yesterday bullish or bearish if it's
true then it was bullish if it's false
then it was bearish and are we
monitoring the first session currently
if this is true then we're tracking the
first sessions high and low if it's
false then we're tracking the second
sessions high and low so next up is our
first sessions analysis so first we need
to detect the start of day's first
session that's this Boolean value here
which we already went over start session
one if that is true then we check did we
have a bullish close so remember the
start of session one is on the first bar
of the next day so close with a
historical operator of one will
reference the close of the bar one bar
back from the first bar of the next day
that gives us yesterday's closing price
so if yesterday's closing price is
greater than yesterday's opening price
then we had a bullish day then we draw a
line between the open and the close and
we color the line based on whether it
was a bullish or bearish day then we
check if the afternoon sessions high and
range size so this gets our range size
in points if this range is greater than
the range in the morning then we did
have range expansion so that's set to
true and we plot a label that this blue
label that just signifies that we had
range expansion on that day this
afternoon session was larger than the
morning range expansion label is is
drawn if this is not true if we did not
get range expansion then we set range
expansion to false and we just wait to
see how the next day plays out so at the
end of each day or more accurately at
the beginning on the first bar of a new
day we check if yesterday had range
expansion ideally we would check this on
the last bar of the trading session but
it's a lot easier to detect this first
bar of a new day because we can have
different trading hours on some days
some days the market closes sooner than
other days and you know we have holiday
days Etc that can throw things off so by
waiting for the start of a new day we
always get the closing price of
yesterday
accurately so after we check if we had
range expansion we save the first bars
index and we reset our session low and
session high and we set our flag for
monitoring the first session so that we
can track our morning sessions low and
high as it unfolds and we save today's
opening price so so remember this code
is being executed on the very first bar
of a new day so if we save the open of
that bar we're getting today's open
price next up we check did we have range
expansion yesterday if so check if we
continued in Trend so if check
continuation is true then we check was
yesterday bullish if so then we check if
yesterday's closing price was greater
than the day before high that gives us
uh Trend continuation so in the case of
a bullish trade we're looking for price
to close
here we just barely barely barely get
Trend continuation see this closing
price is above this green line the green
line is yesterday's high we barely got
bullish continuation there so
yesterday's close was greater than
yesterday's high we increment or add one
to our bullish expansion count so that's
uh this counter here we add one to this
number we draw a line signifying
yesterday's high so we can see visually
if price closed above yesterday's high
and we color that line based on where
the price actually closed above or below
it if price closed above it the line's
green if it closed below it it's um gray
and for bearish continuation the line is
red if we got bearish continuation or
it's uh gray if we didn't so just
another way to visually analyze what our
script is doing so here we had bullish
range expansion on the previous day but
price closed below our high for that day
so remember this is a whole new day
we're analyzing what happened on this
day compared to yesterday we're tracking
yesterday's high we did not get a close
above that high so we did not get
bullish continuation on this day so
that's what all this code here does and
then we do the same thing for the
bearish side so check continuation will
be set to true if we had range expansion
then we need to check if that day that
created the range expansion was a
bullish or bearish day then we need to
check if today's closing price continued
in the trend of the day that created the
range expansion it's bit hard to to wrap
our heads around I know if you're
anything like me your head's probably
spinning right now took me a lot longer
than it should have to even write this
script because um just wrapping your
head around all the different things
we're tracking in Pine script is a
little bit um tricky but anyway the
concept is simple as I said all this
code is doing is tracking range
expansion and then seeing if we had
Trend continuation on that next day so
if this Line's green and we got bullish
range EXP men we want to see the next
day close Above This High uh anyway
moving on we then reset our check
continuation variable and we save
whether or not today was a bullish or
bearish day next we track the first
sessions range so this is very simple
all we're doing is saying are we
tracking the first session if so our
chart will be green if the chart is
green we are just saving the highest and
lowest value throughout that session and
then we do the same thing further down
for the second session so if we're not
monitoring the first session the morning
session then we must be monitoring the
second session and then we just track
that session's high and low so that we
can get our range sizes when the next
day starts uh but finally the last thing
we need to do is detect the start of the
day's second session the afternoon
session we need to save the previously
monitored sessions range and actually we
can get rid of step two that's not
accurate all we are doing is detecting
the start of the second days range and
resetting uh the second range as
variables na so the session low and
session high and then we're saving the
session bar index for drawing purposes
and then we're tracking if we need to
check for continuation on uh when this
second session ends so at the end of
this red period of time that's when we
track if we had continuation and that's
it for this script the all the rest of
this code is just drawing code so we
have um the analysis of our range
expansion information so we have the
total expansion range count which just
adds up the bullish the bullish days
with expans expion and the bearish days
with expansion and then we calculate the
total expansion chance so we combine
these two metrics to get this percentage
chance and then we calculate the bearish
and bullish odds individually then we
have our debug data window plots so this
is purely for tracking what the script
is doing all of these plots here draw
exclusively into this debug window where
we can track um the different metrics so
I can hover my mouse over here for
example and we can see the numbers
change we can see that on this green bar
our total bullish range expansion count
goes up but our bullish range
continuation counter does not go up
because we did not get continuation and
so this is just a way to debug our
script and just see what it's doing on a
bar by bar basis and then down here we
have our table this is the code that
displays all of this information up here
in into our table and that that is the
code for this script I know it's a bit
convoluted I probably didn't do the best
job of explaining this because um it's
it's quite a complicated thing to do in
Pines scripts the concept is simple but
the code um has a lot of overlapping
analysis over two different sessions and
then the previous day price action um so
it's it's a bit tricky to write this in
a way that's intuitive to understand but
as always the source code will be below
in the pin comment below so if you want
to better understand the script go and
um copy the source code into your editor
and play around with it but anyway let's
wrap up the video by having a quick look
at how this performs in practice so what
I'm going to do here just to save time
ideally what we would do is just go
through a bunch of markets and track the
percentage um chance properly uh but
what I'm going to do just to get a rough
idea of how accurate this hypothesis is
I'm going to cycle through 30 or 40
maybe 50 of these stocks and I'll write
on a notepad on my desk two columns any
Market or stock that has a total
continuation chance after range
expansion of 50% or higher will go in
the right column any markets that are
below 50% will go in the left column and
we'll just see out of curiosity how many
markets out of that sample size do in
fact continue in Trend After
experiencing afternoon range expansion
and how many didn't so I'll fast forward
through this and give you my findings at
the end
all right so I just went through 100
markets here and this is an outdated a
couple of months out of date but this
list here tracks the S&P 500
constituents so the the members of the
S&P 500 so I just went over them
whatever order this list is in I don't
know it's not very important but out of
100 stocks we had 12
stocks have a 50% or higher chance of
continuation in the trend after range
expansion in the afternoon so I think
it's safe to say that this hypothesis is
true ideally I'd like to do the full 500
would be a great sample size but 100
stocks 12 of them had a chance of 50% or
higher and two of them were right on 50%
which is obviously neutral so maybe we
shouldn't even include those two so in
that case we only had 10 stocks with it
greater than than 50% chance of
continuing in the trend after range
expansion in the afternoon so in other
words when a stock trades more distance
in the afternoon than it did in the
morning there is a statistically
significant chance that it will not
continue in that Trend the next day it
will not close higher than its previous
day's High that's useful information to
know I'm sure you will all agree if
you're a day trader in particular like
the guys at S&B Capital tend to be uh I
mean it's pretty useful to know that if
if this happens you've got a better
chance of trading against momentum the
next day you've got a better chance of
price moving in your favor if you trade
against momentum after afternoon range
expansion on that next day that's pretty
useful information to know it's not
obviously not going to work all the time
a lot of these numbers were close to 40%
on most stocks so there's still a 40%
chance that the market will close higher
but just in general good to know that
this hypothesis is true basically this
lesson was just to show you guys the
power of validating things you hear from
Traders especially if you're skeptical
when I first heard this I um looking at
their sample size I was not convinced
that this was true but now I am and now
I personally don't day trade um US
Stocks because trading starts at
midnight for me where I live so I just
don't trade the US market on an intraday
basis I do on a daily end of day basis
but anyway that's outside of today's
lesson scope but for those of you who do
trade the US market especially intraday
keep this in mind um it might be worth
downloading the script the source code
and adapting it so that you can be aware
when a market had this afternoon range
expansion on the previous day and you
know that there's a statistically
significant chance that price will not
continue in yesterday's Trend it will
not close higher than the yesterday's
high in the case of bullish range
expansion I thought this was interesting
hopefully you guys did too I'll speak
with you in the next video best of luck
with your trading and your coding take
care a very very simple but often
misunderstood trading opportunity if the
range after
12:00 is greater than the range before
12:00 so 9:30 to noon noon to 4: if the
range in the afternoon is greater than
the range in the morning there is a very
low
likelihood of continuation in the
direction of the trend a very low
likelihood of that it can happen and
when it happens it happens with intense
magnitude but there's a very low
likelihood of that happening based on
the back testing we've
done