ES Trend Following

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False breakouts cannot be entirely avoided. They happen, and it happened on my last trade, too. But I avoid trading a breakout while the market has been in an uptrend for an extended period already. Take a breakout when the market is shifting from a bearish to a bullish move. And take breakdowns when the market is shifting from a bullish to a bearish move. To get to the core of my message: Join a trend only at its beginning stage (trade reversal), not in the middle stage. Fakeouts are much rarer there.

It's hard for me to explain how I draw S&R areas. If you look back on the charts I posted, you will notice how they take shape in a matter of around 2-5 days and become very striking prior to the break. It's because price reacts to it repeatedly until one group loses out on the other group and capitulates. You connect the lines and take a position when it breaks. This has been my tactic so far. I'm just exploiting the moment when the authority over the market is handed over. With my new charting setup including the Rainbow Moving Averages in the 4H, I can see the trends much clearer now. Already excited about the next trades using them.
 
nice, thanks
Quote from Bombardier:

False breakouts cannot be entirely avoided. They happen, and it happened on my last trade, too. But I avoid trading a breakout while the market has been in an uptrend for an extended period already. Take a breakout when the market is shifting from a bearish to a bullish move. And take breakdowns when the market is shifting from a bullish to a bearish move. To get to the core of my message: Join a trend only at its beginning stage (trade reversal), not in the middle stage. Fakeouts are much rarer there.

It's hard for me to explain how I draw S&R areas. If you look back on the charts I posted, you will notice how they take shape in a matter of around 2-5 days and become very striking prior to the break. It's because price reacts to it repeatedly until one group loses out on the other group and capitulates. You connect the lines and take a position when it breaks. This has been my tactic so far. I'm just exploiting the moment when the authority over the market is handed over. With my new charting setup including the Rainbow Moving Averages in the 4H, I can see the trends much clearer now. Already excited about the next trades using them.
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Bombardier, good thread ! I bookmarked it a few days ago and started looking into your charts closely. Midway into the thread it appears your entries happen about 2 points before the S/R line you define yourself in your posts, and definetely as many points before a beginning of a breakout.

Can you explain how you enter ? Do you wait for a break out than expect a few points retracement to enter or expect the break out and enter at that time (in which case you should be stopped out more often right after entry when the the S/R line reacts the other way ) ?
 
Quote from Bombardier:

Short @ 1229.00, Stop @ 1241.75

Finally I spotted an entry opportunity again after idling many days! I figured that the former resistance area at 1227 was of importance and price actually reacted to it perfectly at the beginning of today's trading session. Once we turned around in the afternoon, I took the chance to exploit the downside. I am fully aware that we are expecting some announcements from Bruxelles tomorrow, but that shall not bother me much because I trade what I see. The trade's risk is limited to the intermediary top.
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This is one instance, you're considering a resistance at 1227 yet manage to short @1229, 2 points before the resistance.
 
Quote from luisHK:

Bombardier, good thread ! I bookmarked it a few days ago and started looking into your charts closely. Midway into the thread it appears your entries happen about 2 points before the S/R line you define yourself in your posts, and definetely as many points before a beginning of a breakout.

Can you explain how you enter ? Do you wait for a break out than expect a few points retracement to enter or expect the break out and enter at that time (in which case you should be stopped out more often right after entry when the the S/R line reacts the other way ) ?
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Thanks, luisHK. We have to understand that a breakout is a breakout. Plenty of market participants will be rushing to enter the market or reversing their losing trade. Just as it's nonsensical to trade against this stampede, I don't believe in holding off and waiting for price to come back either (which might never happen). So I am in as soon as it happens or even prior to the break as you correctly observed. When a break is imminent, you can always observe how the speed at which price moves is increasing fast. I'm not a volume reader, but I am fairly sure that the number of exchanged contracts rises fast at the same time.

Imagine a crowd ramming a sealed door repeatedly with increasingly greater force. At the first few tries, the door won't budge, but after several hits and pushes, you will start to see cracks while the door might even begin to bend. You do not know the exact moment it breaks open, but can anticipate with great certainty that it's going to very soon. Eventually the crowd will land on the other side of the room and anyone standing in its way will get crushed. That's the picture I have in mind when I see a breakout happen.

If you wanted to put it in rules, I'd refer to the Rule of 4. Prior to a breakout, there will have been 3 touches to the S&R or trendline. The 4th happens shortly after the 3rd touch and will generally lead to a break. All in all, these are just technicals and not crucially relevant to trade trends successfully. It definitely helps in optimizing your entry, though.
 
Quote from Outlawed_One:

Great thread man. I'm still a little unclear about your definition of support & resistance. How far back do you take the 1H chart?
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Support and resistance to me is a visibly determinable area in which a break would lead to a shift in authority. Bulls would surrender and yield to the bears if support is broken, and bears would surrender and yield to the bulls if resistance is broken. The losing side will only enter the market at a larger number again at the next S&R, for an attempt to re-gain authority over the market. I mentioned in a previous post that it usually takes 2-5 days for such a support or resistance to take shape. I only look at what is directly relevant to the current trend, not any S&R from the distant past.
 
I'd like to remind you of the IRC channel I opened a few months ago. I'll be available to chat in the afternoon session and would love to see it turn into a lively place purely for trend following.

Please find the channel on OtherNet IRC #ES
 
Quote from Bombardier:

Thanks, luisHK. We have to understand that a breakout is a breakout. Plenty of market participants will be rushing to enter the market or reversing their losing trade. Just as it's nonsensical to trade against this stampede, I don't believe in holding off and waiting for price to come back either (which might never happen). So I am in as soon as it happens or even prior to the break as you correctly observed. When a break is imminent, you can always observe how the speed at which price moves is increasing fast. I'm not a volume reader, but I am fairly sure that the number of exchanged contracts rises fast at the same time.

Imagine a crowd ramming a sealed door repeatedly with increasingly greater force. At the first few tries, the door won't budge, but after several hits and pushes, you will start to see cracks while the door might even begin to bend. You do not know the exact moment it breaks open, but can anticipate with great certainty that it's going to very soon. Eventually the crowd will land on the other side of the room and anyone standing in its way will get crushed. That's the picture I have in mind when I see a breakout happen.

If you wanted to put it in rules, I'd refer to the Rule of 4. Prior to a breakout, there will have been 3 touches to the S&R or trendline. The 4th happens shortly after the 3rd touch and will generally lead to a break. All in all, these are just technicals and not crucially relevant to trade trends successfully. It definitely helps in optimizing your entry, though.
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Thanks Bombardier, interesting description.
 
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