Flat 200 Opening Surges: Narrow States and Five-Bar Confirmation

Video: WHEN THESE 3 THINGS ALIGN, I WANT THE TRADE
Creator: Oliver Velez Trading
Original Video: Watch the original video
Difficulty: Advanced

The Big Idea

Oliver Velez describes an opening setup built around market location, moving-average geometry and a forceful price event. Both the 20- and 200-period averages are relatively flat and close together. The opening move begins near the 200-period average, then surges away. A bar clearing the highs of at least five preceding bars adds the confirmation he particularly values.

The lesson is to identify the environment before deciding whether the first opening bar deserves attention. A large candle alone is not the full setup. The source emphasizes where that candle begins and what it clears.

Velez makes strong claims about the setup’s power and consistency. The supplied transcript contains selected examples and explanations, not a complete trade record or a reproducible statistical comparison. Those claims should remain attributed to the presenter rather than treated as established performance facts.

The Three-Part Alignment

The transcript’s chapter label identifies the flat 200 SMA setup. The baseline below uses simple moving averages for both the 20 and 200. That implementation choice should be confirmed against the actual chart settings if attempting a closer recreation.

Velez describes averages as zones rather than thin lines. A stock can originate near an average without touching its exact plotted price. That is a useful visual distinction, but it does not supply a numerical tolerance. Defining the zone with a volatility measure is one possible research convention, not a parameter stated in the video.

Prepare the Watchlist Before the Open

The presenter proposes examining a master list roughly five to ten minutes before the open. Look at the indicated or premarket trading price and identify names likely to open near a relatively flat 200-period average. Move those names onto a focused opening watchlist instead of searching for the entire pattern after trading has begun.

A watchlist candidate is not yet a trade. An indicated opening price can change, and an actual opening bar can fail to surge or clear the required highs. Premarket selection organizes attention; it does not establish that the final event will occur.

The source explicitly separates observing premarket price from including extended-session bars in moving-average calculations. For this setup, Velez wants chart averages calculated from regular-session bars only. On a two-minute chart, the preceding five bars at the opening normally come from the previous regular session when extended hours are excluded. They should not silently become the last five premarket candles.

The Five-Bar Clearing Event

Find the highest high of the five completed bars immediately before the event candle. The bullish clearing event moves above that reference. The presenter illustrates this on opening examples involving BABA, Square and Uber, while discussing PayPal as a less ideal variation that begins farther below the 200.

That PayPal discussion matters because the framework permits visual variation. A bar splitting across the 200 is not automatically rejected by the presenter, but he considers origin location a quality distinction. A mechanical research test must choose whether to admit that variation in advance rather than relaxing the rule only for winning examples.

The phrase “elephant bar” also needs definition. The transcript conveys a forceful bar, but gives no universal minimum body size, average-body multiplier or volume requirement. The baseline supplies its own body-size threshold and reports it openly.

Anticipation and Confirmation Are Different Trades

Anticipation entry: Velez describes entering within the first two-minute bar, after its first minute has elapsed, as it clears the five-bar reference. He also discusses entry approximately 10–20 seconds before the candle closes. The candle is still forming, so its final high, low and close are not yet known.

Confirmation entry: Wait for the event candle to finish, then seek a later bar trading above its high. This gives a completed event-bar reference at the cost of a later, potentially higher entry.

These choices cannot be merged into one historical signal without changing the strategy. A two-minute OHLC bar does not reveal when, within its two minutes, the clearing occurred or what its low was at the earlier decision moment. Testing the anticipation entry accurately requires suitably detailed intrabar data and explicit rules for the evolving stop.

The source places the bullish protective stop below the event bar’s low. With confirmation, that low is already known. With anticipation, a later lower low would make the final candle’s low different from the information available at entry. Using that final low retrospectively would misrepresent the risk originally taken.

Adding on Confirmation Changes Total Risk

The presenter allows a confirmation add after an initial anticipation entry if the combined position remains within the trader’s maximum-loss rule. The second entry is not a free addition to a successful trade: a higher purchase price with the same stop adds more stop-distance exposure per share.

For illustration, 20 shares bought at $100 with a $99 stop represent $20 of planned price-distance risk. Adding 20 shares at $101 with the same stop contributes another $40, making the combined planned risk $60 before fees and slippage. A $50 budget would be exceeded even though the first entry is showing an unrealized gain. These numbers are illustrative, not recommendations.

The baseline below uses a single confirmation entry and no pyramiding. That makes the entry hypothesis easier to evaluate before introducing the separate questions of adds, total risk and stop management.

Transparent Rules for a Research Baseline

This is a long-only, two-minute stock-chart proxy using regular-session data and standard candles. It evaluates the first regular-session bar after that bar closes. Both averages’ pre-open state is measured from the last completed regular-session bar, so the opening surge does not itself determine whether the prior state was flat.

• Flatness: Each SMA changes by no more than 0.15 times prior ATR over five prior bars.
• Narrow state: The prior 20/200 separation is no more than 0.25 times prior ATR.
• Origin: The opening price is within 0.25 times prior ATR of the prior 200 SMA.
• Power: The bullish event body is at least 1.5 times the average body of the preceding 20 bars.
• Clearing: The completed event close exceeds the highest high of the preceding five bars.
• Entry: A buy-stop order one tick above the event high, valid for the next chart bar only.
• Stop: One tick below the completed event low, fixed for the trade.

The ATR length is 14. All numerical geometry thresholds, the close-based clearing requirement and the one-bar order expiry are independent research choices. The video supplies no values for these thresholds and does not require its clearing event to close above the reference. The script therefore evaluates one explicitly defined confirmation variant rather than claiming to duplicate Velez’s live entries.

The excerpt does not specify a complete profit-taking or exit system. To make the experiment executable, the baseline closes after ten bars including the fill bar, or at the final regular-session bar if earlier. It has no profit target. This timed exit is a research assumption, not a rule attributed to the creator.

Pine Script Research Baseline

//@version=6
strategy("CandleChasers Flat 200 Opening Confirmation Proxy", overlay=true, initial_capital=10000, default_qty_type=strategy.percent_of_equity, default_qty_value=10, pyramiding=0, commission_type=strategy.commission.percent, commission_value=0.05, slippage=1)
// Use a standard, regular-session-only, TWO-MINUTE stock chart.
// Numerical geometry and the timed exit are independent research assumptions.
if not timeframe.isminutes or timeframe.multiplier != 2 or syminfo.type != "stock"
    runtime.error("Use a two-minute stock chart with standard candles and regular-session data only.")
if barstate.isconfirmed and not session.ismarket
    runtime.error("Extended-session bars detected. Switch the chart to regular trading hours.")
slopeBars = input.int(5, "Slope comparison bars", minval=1)
flatATR = input.float(0.15, "Maximum SMA change / prior ATR", minval=0, step=0.05)
narrowATR = input.float(0.25, "Maximum SMA separation / prior ATR", minval=0, step=0.05)
originATR = input.float(0.25, "Maximum opening distance from 200 / prior ATR", minval=0, step=0.05)
bodyFactor = input.float(1.5, "Event body / prior average body", minval=0, step=0.1)
holdBars = input.int(10, "Research time exit: bars including fill bar", minval=1)
s20 = ta.sma(close, 20)
s200 = ta.sma(close, 200)
atr = ta.atr(14)
meanBody = ta.sma(math.abs(close - open), 20)
priorFiveHigh = ta.highest(high, 5)[1]
firstBar = session.isfirstbar_regular
ready = not na(s200[1 + slopeBars]) and atr[1] > 0
flat = math.abs(s20[1] - s20[1 + slopeBars]) <= flatATR * atr[1] and math.abs(s200[1] - s200[1 + slopeBars]) <= flatATR * atr[1]
narrow = math.abs(s20[1] - s200[1]) <= narrowATR * atr[1]
near200 = math.abs(open - s200[1]) <= originATR * atr[1]
power = close > open and close - open >= bodyFactor * meanBody[1]
clears = close > priorFiveHigh
signal = barstate.isconfirmed and firstBar and ready and flat and narrow and near200 and power and clears
var float pendingEntry = na
var float fixedStop = na
var int eventBar = na
if signal and strategy.position_size == 0
    pendingEntry := high + syminfo.mintick
    fixedStop := low - syminfo.mintick
    eventBar := bar_index
    strategy.entry("Confirm long", strategy.long, stop=pendingEntry)
    strategy.exit("Event-low stop", "Confirm long", stop=fixedStop)
// Confirmation order is valid for the immediately following chart bar only.
if not na(eventBar) and bar_index > eventBar and strategy.position_size == 0
    strategy.cancel("Confirm long")
    strategy.cancel("Event-low stop")
    eventBar := na
if strategy.position_size > 0
    strategy.exit("Event-low stop", "Confirm long", stop=fixedStop)
    fillBar = strategy.opentrades.entry_bar_index(0)
    if barstate.isconfirmed and (bar_index - fillBar >= holdBars - 1 or session.islastbar_regular)
        strategy.close("Confirm long", immediately=true, comment="Research time/session exit")
plot(s20, "20 SMA", color=color.blue)
plot(s200, "200 SMA", color=color.yellow)
plotshape(signal, title="Qualifying opening event", style=shape.triangleup, location=location.belowbar, color=color.green, size=size.small)
plot(strategy.position_size > 0 ? fixedStop : na, "Frozen event-low stop", color=color.red, style=plot.style_linebr)

Use a standard two-minute stock chart set to regular trading hours. The script rejects detected extended-session bars and other chart timeframes. It uses 10% equity exposure, not fixed dollar-risk sizing, with illustrative 0.05% commission per order and one tick of slippage. Different event-bar sizes therefore produce different amounts of stop-distance risk.

Validation status: This is a complete Pine Script v6 research baseline, but it has not been compiled in TradingView or backtested here. No profitability, win-rate or drawdown result is claimed.

Execution Details That Can Change the Result

The confirmation stop-entry is placed after the event closes. It can fill on the following bar, including at a worse price if that bar opens above the requested entry. The event-low stop is submitted with the entry order and remains fixed. A gap below the stop can produce a larger loss than the planned price-distance risk.

The code cancels an unfilled confirmation order when the following bar finishes. If it fills during that bar, the cancellation test does not remove the open position’s protective stop. Historical bars touching both the entry and stop require particular attention because the chart alone cannot establish the true intrabar sequence.

The ten-bar exit counts from the actual fill bar and is modeled at the closing tick with an immediate close instruction. That is a modeling convention rather than a guarantee of a live closing-price fill. The session exit also depends on the final regular-session bar being present in the data. Sparse symbols or missing bars can affect that behavior; inspect trades near the close rather than assuming overnight exposure is always eliminated.

The chart’s regular-session setting is essential. The script does not reconstruct a clean regular-session history from an extended-hours chart. Excluding those bars changes both the averages and the five-bar clearing reference, so maintain the same session configuration throughout the comparison.

How to Evaluate the Idea

Start with a fixed, documented stock universe and dates selected without hindsight. Record all qualifying opening events, not just the examples producing the largest moves. Separate event quality from trade results: a setup can meet every defined rule and still lose.

Compare the full alignment against controlled variants that remove one condition at a time: flatness, narrowness or proximity to the 200. Hold the entry rule, exit, costs and stock sample constant. This tests whether each condition contributes rather than attributing every winner to the complete narrative.

Report trade count, net expectancy, drawdown, average event-bar risk distance, gap fills and session-exit behavior. Use later out-of-sample data after choosing the thresholds. If small parameter changes reverse the conclusion, the apparent result may depend on tuning rather than a stable relationship.

A faithful anticipation-entry experiment is a separate project. It needs data fine enough to enforce the after-first-minute timing rule and to track the stop available at each decision. A daily-candle conversion would lose the opening sequence and should not be presented as a backtest of this two-minute setup.

Final Takeaway

The source combines a flat and narrow 20/200 state, an opening origin near the 200, and a forceful clearing event. Its practical value is a structured way to focus attention before the open and distinguish a large bar from a large bar appearing in a specified context.

Anticipation, confirmation and confirmation adds carry different information and risk. Define those choices before measuring results. The script above supplies one transparent confirmation experiment; it does not establish that the setup is the strongest available trade or reproduce the presenter’s discretionary results.

Risk Disclosure

This article is educational and is not personalized investment advice. Trading can produce substantial losses. Stops do not guarantee execution prices, opening moves can reverse rapidly, and gaps, spread and slippage can exceed planned risk. Historical simulations and selected chart examples do not guarantee future results.

Independence

CandleChasers is not affiliated with Oliver Velez Trading or TradingView. This guide summarizes the supplied transcript and distinguishes independently chosen research rules from the creator’s explanation. The script is independently written; it does not reproduce proprietary indicator code or imply an endorsement.