A simple price action approach
- Thread starter metal
- Start date
What does "1-min measured move" mean?
-bbc
A measured move is when price makes a push in a certain direction then consolidates. Consolidation can be in the form of a flat range or narrow channel in the opposite direction from the initial push (flag) or a triangle formation (ascending, descending, symmetrical). If price breaks out of the consolidation area in the same direction of earlier push, there is a strong tendency for it to move the same distance as the initial push.
If you look at the 1-min CL chart you'll see consolidation from 12:15 pm through 12:20 pm eastern time, followed by a strong push up to 99.49 resistance. Price then consolidates again for several bars between 12:23 and 12:28 ET.
The low of the earlier consolidation range was 98.60 and the high of the push was 99.49, about 90 ticks.
The low of the later consolidation range was 99.23 and so a measured move breakout should take price to at least 100.13 (99.23 + .90). Since 100.09 was a key resistance level in a larger time frame, that made a move to that level even more likely.
Price got to 100.09 and likely triggered quite a few stops, which took it slightly above 100.21 before a quick pullback ensued.
Price consolidated for quite a long while in the 99.50 zone and the consolidation low was 99.40 (12:53 bar low).
When price breaks out of consolidation a logical initial profit target would be...100.30 (99.40 + .90).
Sure enough that's where price stops cold and then retraces the entire breakout move.
Measured moves can occur in any time frame. The move from the LOD to the initial resistance (98.46) prior to the pullback to the 5-min 20 EMA was around 2.00. If price establishes good support at the 20 EMA and breaks out, you'd expect a move of around 2.00 from the 97.80 EMA support.
One other thing worth mentioning. The 20-period EMA on a chart serves as a mobile S/R level. On the 5-min chart I posted with the parallel channels, notice that once price breaks through the 20 EMA and closes above it, long trades produce the greatest profits because that is a confirmed trend reversal signal and trend followers are in the majority. You always want to trade with the majority because the majority drives price.
If you're a counter-trend fader, your money is made by fading the majority. But you DO NOT want to fade the majority at the level a where a new trend is being confirmed. This is where the good stuff is just beginning for trend-followers and the nightmares are just beginning for inexperienced counter-trend traders who don't use stops because stops are for amateurs. You're doing the right thing shorting the 20-EMA in a strong downtrend, but you have to be ready to switch sides if that level fails to hold as resistance.
During the early channel off the LOD, you treat the channel as a bear flag and can trade either direction. The expectation is that eventually price will break the lower TL and continue down, maybe even make a measured move down. So you want to be positioned short in case that happens. However, there's no reason not to take long positions if the lower TL holds.
Once that 20 EMA breaks, the odds of the upper channel line breaking out increase greatly. Experienced trend-following bears who have been shorting or averaging down into full-sized short positions during the channel pullback will have their protective stops triggered if the 20-EMA fails to hold as resistance and will likely scurry over to the other team. Patient bulls waiting for a confirmed long entry will start buying as soon as price breaks up through that 20-EMA.
Inexperienced traders who have no idea how to recognize a trend reversal and were very likely trying to catch a falling knife the whole way down will likely take a pretty large loss if they didn't accept the small loss that was offered at that mobile S/R level, the 20-bar EMA.
If you're a counter-trend fader, your money is made by fading the majority. But you DO NOT want to fade the majority at the level a where a new trend is being confirmed. This is where the good stuff is just beginning for trend-followers and the nightmares are just beginning for inexperienced counter-trend traders who don't use stops because stops are for amateurs. You're doing the right thing shorting the 20-EMA in a strong downtrend, but you have to be ready to switch sides if that level fails to hold as resistance.
During the early channel off the LOD, you treat the channel as a bear flag and can trade either direction. The expectation is that eventually price will break the lower TL and continue down, maybe even make a measured move down. So you want to be positioned short in case that happens. However, there's no reason not to take long positions if the lower TL holds.
Once that 20 EMA breaks, the odds of the upper channel line breaking out increase greatly. Experienced trend-following bears who have been shorting or averaging down into full-sized short positions during the channel pullback will have their protective stops triggered if the 20-EMA fails to hold as resistance and will likely scurry over to the other team. Patient bulls waiting for a confirmed long entry will start buying as soon as price breaks up through that 20-EMA.
Inexperienced traders who have no idea how to recognize a trend reversal and were very likely trying to catch a falling knife the whole way down will likely take a pretty large loss if they didn't accept the small loss that was offered at that mobile S/R level, the 20-bar EMA.
Quote from bighog:
Many traders that can read a NORMAL retrace can expect a continuation where rookies will be reversing and soon dead meat as the CONTINUATION takes off.
Last post of month, busy boy lately ..
What are the little signs that show that a continuation will occur rather than a retracement. Generally, I'll look for inverse hammers (esp. the aggressive ones) at the LTL, a weak support and/or short support period at the LTL, increased volume as we approach the HTL and a retrace not quite making it down to the LTL. I keep an eye out for all of these, not that it aligns perfectly each time, but it does give some sort of indication.
Bighog, you'll still probably be hanging out by the water cooler till the end of the month
, so hope someone can shed a little more light on this.NoDoji, a good candidate as usual
BigHog taught me "expect continuation". I had a lot of trouble with that. Why would anyone want to buy "way up there" or sell "way down there"? Only dumb people sell low and buy high, right?
Once you take a few trips on the right side of a trend, you become a quick convert!
For me, the most uncomfortable and risky with-trend entry is the pullback entry when the retracement is fairly deep. Shouldn't I be shorting when I see price falling after a strong move up? Sometimes, a counter-trend move is strong and can offer a profitable swing, and if price is trending in a wide enough channel, it's worth playing both sides as a day trader in a volatile instrument like CL.
So, how do you know the pullback is over and the trend will resume at or close to the trend line or moving average?
I have two ways of entering a trend off a pullback. One is to place a limit order around the TL or MA that's been holding as S/R (or that you expect will hold) and use a tight stop. If it fails to hold, then I risk very little. The downside is that these levels often result in false breaks: head fakes that shake you out of your with-trend position, and trigger counter-trend trades in the opposite direction, then fuel the next trending push on the backs of the trapped counter-trend traders and the pissed off with-trend traders that now chase price to get back in. This is one of the most valuable concepts I learned from Al Brooks book. The upside of this method is that if the level holds, you get entry prices that can't be beat and your stop loss is small and easy to calculate. I was long @ 97.83 just before noon eastern time yesterday. My stop on that trade was 97.77.
The other way is to wait for price to break the high or low of the previous pullback bar. You can use a stop order to get taken into the trade, or you can wait for price to pullback after the bar breakout and get in around that level. The downside is you have to use wider stops (a truly survivable stop might be way beyond your average allowable risk per trade), and on strong pullbacks, there will likely be some head fakes. I wait patiently for price to reach a key level (TL or 20 EMA) before trading this method.
The most comfortable way for me to trade a trend for continuation is out of consolidation. If price consolidates on low volume within the confines of the last price bar of a strong push (narrow range consolidation), that is a truly powerful with-trend setup. I'm comfortable entering anywhere near the S level in an uptrend or R level in a down trend. An example of this yesterday was the period of consolidation between 12:50 and 1:05pm ET. I'd be very comfortable putting on a long position anywhere in the 99.45-99.50 area during that consolidation because the strength of the previous move was huge and the pullback was relatively shallow.
If price channels away from the last strong push on low volume, I look to enter at a previous S becomes R or R becomes S level or at a channel line. If that fails to hold, I wait for further confirmation that the trend is still intact. I don't want to see the previous pivot low/high breached or I begin looking for entries in the other direction.
Other consolidation setups are triangles, the CL Redux favorite!
Narrowing price range on low volume with a floor or shelf (descending/ascending triangles) or progressively LHs and HLs (symmetrical triangle) usually means continuation in the direction of the previous trending move, especially in a strong trend. I always look to position myself early using TLs in the direction of the trend, so I'm there for the breakout. If the breakout fails, I will then be ready to reverse to the other side for a trend reversal. Most of the time you get continuation as long as no other key levels are breached.
The bear flag yesterday off the LOD was a rather wide channel. Still, you'd expect continuation down. But once that 20 EMA was breached, followed by the breach of the upper channel line, the flag turned white for the bears
Prior to the upside break of the 20 EMA, there was a key technical clue that the bear flag was losing its power to trigger more downside action: When a channel/flag formation matures it throws a hint that a continuation breakout is soon likely to begin. Between 10:50 and 10:55 ET, price failed to break previous R of 97.36, which printed a pattern of a lower high and a failure to reach the upper channel line. This is normally such a hint and you'd look to be positioned short for the continuation breakout.
The first hint that warns you to move the stop on your short to break even is the fact that the low of the 10:50am bar was not broken. That low should've broken following the upside failure and price should've at least hit the lower TL around 96.90 or so. The fact that buyers stepped in tells you that a ride up to the 20 EMA is now very likely.
At the start of the 11:00am ET bar, price came back to test that 10:50 bar low. Wouldn't it make sense to then short a break of that low? No! At that point a 1 or 2 tick break of the 97.00 zone you run smack into the lower TL of the channel. It would make far more sense to go long there for a ride to the 20 EMA and possibly the upper channel line beyond that.
In a flag or triangle formation you want to position yourself for continuation breakout at the TL that's further from the trend's direction or at a key breakout level, not in a no-man's land area.
NoDoji , if YOU wrote a book, I'd buy it!
Seriously, your writing style is clear, concise, cogent, and reader-friendly.
Write the book.
Your posts are helping me a lot. Thank you.
Ian
Seriously, your writing style is clear, concise, cogent, and reader-friendly.
Write the book.
Your posts are helping me a lot. Thank you.Ian