I really like NoDoJi's posts from ES Journal - 2013 in the below. The chart discussed in the conversation is also attached.
By Huyang:
May you please point to a link on how you would enter a strong trend? Thank you very much.
By NoDoJi:
I don't have a link to all my posts about entering a strong trend, but what I do is this (based on intraday scalping using a 5-min main chart and 1-min chart for with-trend entries):
1. On the 5-min chart, I wait for a high or low of the day, a key trend line, or a narrow range consolidation, to break with conviction (more than just a few ticks).
2. I then watch the 1-min price action for a pullback toward the 1-min 20-period EMA.
3. Finally, I position in the direction of the breakout during the pullback.
There are several ways to position during the pullback and it's best to backtest these ideas on whatever instrument you're trading to determine the method that has the highest odds of success within your personal risk:reward tolerance.
One way is to trail a stop order a tick above/below the close of each pullback bar.
Another way is to simply buy or sell the close of the first pullback bar.
A third way is to place a limit order a tick or two from the value of 1-min 20EMA.
If the breakout is especially strong, there may not be a defined pullback. Price may simply consolidate by printing an inside bar or two (small triangle), or by printing several narrow range bars (flag), in which case I'd buy or sell a break of the previous new high/low if the instrument you're trading is known for its momentum moves (oil, gold, and currencies come to mind).
So looking at ES prior to the open today, there's a channeling uptrend, not a strong trend. In other words there are pullback bars on the 5-min chart. During a strong trend, no 5-min bar high or low breaks in the opposite direction by more than a few ticks, if at all.
However, once that pre-market lower trend line breaks with some conviction during the 9:44 ET 1-min bar, I'd look to get short for an eventual test of the overnight low by trailing a sell stop below the pullback bars. The first pullback bar prints at 9:50 and I'd be short during the 9:51 bar at 1740.25 for a test of the overnight low around 1737.00.
By Huyang :
That is very kind of you to write in details on how you trade with trend. I will definitely spend time to digest your thoughts after which i may need to get back to you for further questions.
Regarding today's ES, i have one question: when i found out 9:35 EST 5m bar (9:38 1m bar) is at 1741 which would break pre-market weak up TL. I just shorted 1741 without waiting for 5m bar close. Immediately i got a heat of 1.75points when 5m bar is closed. Then i scratched out at 1m 9:50 bar high where you were waiting for short since i didnot want to have the second time painful heat and then missed the whole down move. You waited for break down TL with conviction and i did not wait for the conviction. May you please give me advice on my entry and exit?
How do you think of shorting bar 9:44 when it breaking down bar 9:43 low? lower high, L2 (B9:35 L1) and pre-market weak bulll channel. Thank you very much for your time.
By NoDoJi:
The initial break of a trend line is far more often than not a failure. Unless it breaks off of a narrow consolidation from a far lower high (or higher low in the case of a downtrend reversal), chances of a fake out breakout are pretty high, so that's why I watch the initial breakout for the reaction, then decide if and how to approach the entry. ES breaks out 9:35/9:36 and it's weak. Trends don't die easily, so expect price to give it another upside try. I'd short a break of the 9:42 bar as a 1-min 1-2-3 pattern, early entry for a 2nd test of the LTL, or wait for the initial failed breakout to break and then look to get short using a pullback method I described yesterday.
Shorting a break of the 9:43 bar is a bit late for the 1-2-3 early entry approach because there's not much "airspace" to work with. When I'm anticipating a reversal instead of waiting for actual signs of one, I like to at least have some airspace to the nearest price level that's likely to be defended by the group that's been in control.
