Hi guys, hi from Andrea Unger! Today, I’d like to talk about a well-known setup: Larry Williams’ Oops.
Larry Williams is a great trader and an insatiable student of the markets. I think he’s really incredible. He puts a lot of effort into studying what the markets do and figuring out how to beat them. And he’s obviously successful at that.
One of his best-known setups is called “Oops”. So, I’d like to show you how it works.
Suppose we are waiting for the market to open. We take as a reference the daily bar of yesterday, with its open, evolution and close. When the market opens, suppose a gap up occurs.
For those who don’t know it, a gap up takes place when the open is higher than the highest point that was reached on the previous day. Instead, a gap down occurs when the open is lower than the lowest traded point of the previous day.
When a market opens at a very high level and there’s a gap up, it’s very strong. So, we obviously suppose that it goes up. It will probably do it but, if for some reason it starts to fall and then reaches the highest level of yesterday, it’s as if it said, “Oops, I was wrong. I’m not strong, but weak.”
In this case, we open a short position at this level. We enter short because we imagine that the market (and the players in the market) realises it isn’t that strong. Actually, the market is weak, so it will go down.
To use this setup, we obviously need a stop-loss whose size depends on the market we are trading.
Then, how do we close this position? Williams proposed a bailout exit he called first profitable open. This consists in staying in position until, on the following day or days, the market opens somewhere below the entry level (because we are short). When that happens, we close the trade.
According to Williams, the open of markets is from the public, normally, and the close is from the pro. As the public sometimes make mistakes, if we have an edge in the open that makes us be in profit, we’d better close and take the money home.
This is the basic concept behind this setup. So, the position goes on day after day until we get the profit on open or, obviously, we are stopped out. We can also close the position at the end of the day, using other kinds of close. The one suggested by Williams is however the best one, although it sounds quite weird. Believe me, the first profitable open is a very effective close.
This is the basic version of the Oops. Anyway, I know Williams made some tweaks to it.
The Oops works, but today this specific setup is quite rare. The reason is that many markets trade for 23 hours a day now. So, it’s quite hard to have a heavy gap in just one hour. Maybe, you can have one after the weekend, but normally it’s not there.
However, we can still use it with certain markets such as the DAX in Europe. The DAX closes at 10 PM and opens at 8 AM on the following day. So, there’s plenty of time when anything can happen. The Oops setup works very well and effectively on this market.
It works even better if you set a minimum size for this gap – maybe 15-20 ticks. In this case, you’ll get a very effective setup that has been working very well for years and continues doing so.
Have a look at this setup and search our blog for more!
Stay tuned and ciao from Andrea Unger!