Quote from Tonkadad:
Based on the channel you drew on that chart can you mark where the first opportunity is to enter a trade based on how you use channels.
Bruce, I'm not the poster of the chart but was doing some analysis anyway and here are my charts of the same day. Remember this is all hindsight which is always 20/20. I did this as I would try to approach it as the chart unfolds.
Chart 1: We obviously see some weakness here at the top. We've had a nice move up, it's noon time, and we really need to see 842 (black line) broken through if we are serious about a long for another run at the top. I see a lower high so I draw the red line. The red horizontal line at 840 was resistance, and has now become support twice. If it's broken to the downside, I'm looking for a shorting opportunity.
Chart 2: We do break to the downside, and we do so on good volume. Looking better for shorts, so I connect the most recent two high points and place the parallel at the last low pivot (at 12:10 or so) that precedes the high. Perhaps I will short a retest of the 840 level if it fails to break back through, or a revisit of the upper (blue) channel line.
Chart 3: We are looking to be in full short mode now. We have now retraced to the upper channel line, and
IMO this is the best shorting opportunity so far. Stop ideally would be around 840.5, but if shorting a break of the low of the rightmost bar, a stop could be placed at 839.6, but it's quite likely to be at least fished out there. My target would look to be somewhere near the bottom channel line, though I would watch carefully at the 837.9 level as we had a bit of a small double bottom there. Once it got there, stop would be to breakeven.
Chart 4: As the bar which breaks 838 closes (5th bar from right), stop would be to breakeven or even above the high of the bar. Lots of volume and closes in the middle so I would not be surprised to see a bounce up. Fortunately it breaks down. As the next bar (4th from right) closes, the two buying tails would probably alert me to the fact that buyers are coming in and perhaps I would connect the lows to form the red line you see. My stop would be 838.00, and after the next two small bars form (2nd and 3rd from right) on low volume, I would fully expect another drop, yet I would put the stop just above their highs, maybe 837.6. When the next bar closes at that line, I would probably close the trade as the blue channel line at the bottom has not been reached,
we have found support at the red line twice now, and the volume indicates to me that we are nearing a short-term exhaustion, ready for a pull back.
Chart 5: We pull up to the top of the blue channel line again, and a nice little reversal bar (2:10 or so) provides another short opportunity, with the red line again being a target, probably closing 4 minutes later with the quick nature of the drop. Then, after hitting the low of 835.5, we have a nice bullish-looking run with a good volume base to the top of the channel. This, combined with the fact that the bearish 2:36 bar is very weak, would cause me to hold off and see what happens. I'm thinking bullish at this point, as we break the top channel line. However, what we really need to break to shift the thinking to longs is a break of the 838.3, which is the previous pivot high (top horizontal red line). We poke above but look how bearish the rightmost bar is--and with volume to boot. I'm now seeing and draw the up-sloping red line. A break of this to the downside, and particularly the 837.2 bar low, would favor a retest of the low, 835.5. So, I would think about shorting 837.1, but a more conservative approach would be to wait to see what happens.
Chart 6: We break to the downside on good volume, and then a run to 835.5 is expected. After the breakdown bar closes, entering a break of that low, or just a limit somewhere a few ticks higher would work. We plow through 835.5, and the earlier down-sloping red line (adjusted to touch the 835.5 low) becomes an area of support. I would take profits there. It does continue moving down, but it looks a bit exhaustive at this point.
