A simple price action approach

[dv4632]

Here is what I did.



In chart1 I took no action.

In chart2 I passed on the long. The reason was because the breakout above purple line resistance wasn't able to hold at all, and retraced sharply back below the resistance line. So I considered that a sign of weakness. The long failed, so I saved myself some money by not taking it.

In chart3 I took the long. Took a loss when it failed to reach target before stopping me out.

In chart4 I passed on the long. The reason was that price had been going sideways for several hours, upside momentum seemed to be stalling. The most recent high only exceeded the prior high (which was lower than the 5:30 high) by a few ticks and couldn't hold, leaving wicks behind. The trade ended up making target.

In chart5 I passed on the long. For basically the same reasons as chart4, but also in part because I thought it might be "too late" to keep playing that channel. I would have been stopped if I took the trade. 2 bars later, a wick dipped 2 ticks below the low of that red bar second from the right edge. That's where my stop would have been. After that, though, price rallied and made it to the upper channel line target.

 

[dv4632]

Quote from oraclewizard77:

Might be easier if you create a little arrow on where you think the trade is, and then I am willing to comment.

Otherwise in real time, I might have gone long the engulfing candle if I was watching the chart at that time or the re-test of the moving average.

Of course these charts don't show my indicators so I am basing my replies on price action.

In each case, the trade is at the far right edge of the chart.

But yeah, if you use indicators then you wouldn't really be able to honestly say what you could have done.

I'm mainly gearing this toward those here who are trying to teach trading on price action and nothing else, as that is what Metal's original intent was. I also thought it would be helpful to other PA students if I posted the trades this way.

 

[Xspurt]

Quote from dv4632:

In each case, the trade is at the far right edge of the chart.

But yeah, if you use indicators then you wouldn't really be able to honestly say what you could have done.

I'm mainly gearing this toward those here who are trying to teach trading on price action and nothing else, as that is what Metal's original intent was. I also thought it would be helpful to other PA students if I posted the trades this way.

Well done. You missed some clues that should make you ask questions and help simplify matters. See attached chart. You are possibly getting into something Metal wanted to look at later and that is using minor lines, but first let's get the major swing control in place.

* Why did PA fail to hit the red dashed top line (1st blue X)?
* Is it warning of a weakening of momentum? Better add a new TL to monitor it.
* Failure sets in on the 2nd X and looks like confirming the new channel
*This reverse sets in a marker as it is a more powerful swing so redraw the channel
* Now you have the orange channel as more likely to be in control.
*The white line is warning of the potential of further weakening requiring a new white channel
*This white line is taken out with a push back up to confirm the orange channel
*The move thereafter is traded the way Metal showed

 

[dv4632]

Thanks - that's great info.

I'll have to study this some more, and will try more actively monitoring channels and testing possible alternative TLs.

One issue I'm stuck on is whether to draw lines that respect the candle wicks, or go right through them. In your chart, if I drew the orange lower limit at the wicks of the 2:15 low then I would not have been able to play that 4:00 long trade. I'd have to have drawn it at the candle bodies (as you did) in order to see that trade. For now, I've been dealing with it by using minor lines if wicks are present.

 

[Xspurt]

Quote from dv4632:

Thanks - that's great info.

I'll have to study this some more, and will try more actively monitoring channels and testing possible alternative TLs.

One issue I'm stuck on is whether to draw lines that respect the candle wicks, or go right through them. In your chart, if I drew the orange lower limit at the wicks of the 2:15 low then I would not have been able to play that 4:00 long trade. I'd have to have drawn it at the candle bodies (as you did) in order to see that trade. For now, I've been dealing with it by using minor lines if wicks are present.

It's a bit of testing and experience. Look out for things like decreasing range, decreasing bodies, increasing tails etc. Little nuances.

 

[NoDoji]

Quote from dv4632:

What is your plan of action here? Do you short if the low of this bar is taken out? What if there is a breakout on the next bar, do you go long? Or do you not see any trades here?

I would either already be long a break of the interim resistance (the little move up that left a lower high, but found buyers at previous support). And I would've had a sell stop to go short if that previous support broke.

If I wasn't long the break of that interim R, I'd have a buy stop above the previous high, because that would be a break of the larger down trend line as well as of the previous high. I'd treat it as a breakout trade, meaning I'd use a tight stop in case of a failure.

 

[NoDoji]

Quote from dv4632:

In this example, we see price near the lower rail of the up channel. The last bar of the pullback closed green, and its high has been taken out.

Are you long here?

Yes, I'm long a break of the second to last bar's high with a profit target being a break of the previous high. As much as I'd like to hold for move to the upper channel line, the last high didn't make it that far, so I'd be watching closely to see if there was increasing buying strength on the breakout and if not I'd be ready to take profit quickly if the break fizzled.

My stop would be a break of that last bar's low and it would be a stop-and-reverse play because a failure to make a new high would reflect a "failure to thrive" and the break of that last bar would be a breakdown of the 20-EMA, a solid trend reversal signal.

 

[NoDoji]

Quote from dv4632:

Once again, answer to the last question can be found on the left of the chart.

Here, we have price seeming to form a new up channel. The dashed up channel doesn't seem to be working, so I've made it dashed, last step before deleting it.

So here we have price at the lower rail of the up channel. It has been trading in a sideways range here for almost half an hour.

Are you looking for a long here? If price takes out the highs of the sideways range, would you buy?

Well, there's a nice argument for stopping and reversing when a trend reversal signal appears

The setup now doesn't have a lot of clarity for me. I'd normally look to buy a break of that last bar's high, but that 6th bar back was some serious selling off the new high, and buying a break of that last bar takes me very close to the "previous LTL becomes R" zone.

I'd be watching a smaller time frame (1-min) to see if it provides some clarity. I'd likely watch for a range break and see what happens next before trading further.

 

[NoDoji]

Quote from dv4632:

These are just potential trades I saw during my walkthrough of one days action. Should be interesting to see if anyone else saw anything different.

In this chart we have another up channel. The lower limit has just been touched. Long entry if this bar's high is taken out?

Yes, definitely long a break of that last bar's high. There are trapped shorts based on the previous few bars' PA and we should at least get a move to test previous R. If price tests previous R, watch very carefully for a stop run (that's where all the shorts will likely have their stops). Since a break of previous R would appear to take price right into the upper channel line, you want to see previous R break with conviction or take your profits quickly. A failed b/o would indicate a stop run, meaning there were plenty of sellers waiting to sell into strength, the strength coming from many stops being triggered.

I would have a stop loss below that last bar and would reverse short there as well.

 

[NoDoji]

Quote from dv4632:

Another chance to go long at the lower rail of an up channel. This is the fourth touch of the line. Too late in the move, or do you take it?

That last bar is small, meaning low risk stop placement, so I'd go long and look to reverse short a break of the previous bar's low.