How does a trend start? How is a trend born?
- Thread starter iamnewuser911
- Start date
Here is ES yesterday. I keep things fairly simple and uncluttered. First we see a Breakout from the sideways PA at the top after several failed BO attempts. The one that succeeded did so on good volume. I slap on a 89 SMA (gray line) on the 5 minute chart and a 20 EMA (blue line) on it. As long as intraday price trades below the 89 SMA I look for shorting opportunities on PB (see arrows) back towards the 20 EMA. I consider the 89 SMA as an intermediate trend guideline. At the bottom if I were still short I would be out on that big reversal bar and not short at that PB to the 20 EMA as I would consider that a probable ...at least two leg ...move up. So I would not short that but I would exit any shorts I had and wait. Other guidelines I use are when I see wedge bottoms fail then usually subsequent price move will be pretty good size and probally be at least a two legged continuation move on down, in this case. When you have multiple failed wedge bottoms then price is weak still and usually indicates more move down as successful wedge bottoms are reversals back up for at least a few legs. Eventually a wedge bottom will succeed and we see that at the big reversal bar (circled). If I did decide to countertrend trade and enter long on the reversal bar I would not follow price up too far as the context to the left showed a lot of weakness nevertheless it ended up still be a satisfactory countertrend trade up to the close. Anyway that is how I see it. Begins with a BO o then other info i.e. PB ...failed wedge bottoms...price staying below 89 SMA and most of the time PB shy of 20 EMA ..together all point towards continuation until we see the big reversal bar on good volume. I did not trade that day as I was busy working on a house. BTY I trade ranges AND trends. And Channels which is really nothing other than a slanted range and a weaker trend than a BO or spike. Some just trade trend. Others just ranges. I trade both...whichever the market gives me.
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I am sure the question will arise as to when do you know when a BO will be successful or fail since 70% to 80% of attempted BO's from a range usually fail and price goes right back up into the range? Well, generally, you can look at the first PB or two after a BO on good volume and if price IN the PB stays below the bottom of the range then probability favors a successful BO. Especially, if price stays below the bottom of the range and ALSO below the 20 EMA then that is when you begin to look for shorting as long as price is also below the 89 SMA.
See the circle at the top of the chart. Notice PB never returned to the bottom of range and price also stayed below 20 EMA.
See the circle at the top of the chart. Notice PB never returned to the bottom of range and price also stayed below 20 EMA.
Too much guessing, personal interpretation and uncertainties too me.
If you should reproduce the signals for the last 30 days three times in a row, you will have three times different entries and exits, and probably even other trades (some additional and some missing because of the interpretation). Entries and exits should always remain the same, no matter how many times you reproduce the past signals. Signals should be clear and fix. Looks like you follow more the rule "it should be more or less...probable...70-80% wrong...".
And then you say:"since 70% to 80% of attempted BO's from a range usually fail and price goes right back up into the range?" It means you need huge profits in the winning trades to even just compensate the losses from the fake moves. Problem is that if you even have so much problems to see less then 70-80% fake BO's you will have the same problem in trying to avoid them. A big number of these fake BO's you will take and generate a loss. Using high losing rate basics to start from is bad. You need a basis that gives you already a high probability of becoming a winning trade. 70-80% of fails is much too high. It should be 70-80% of good signals. Good final returns come for part from missing losing trades, which first have to be recovered before the real profits are coming in. If you lose 5 points you will have to make 10 points profits to end up with 5 points profits end of the day. Each loss will reduce your final profitability heavily, but many underestimate this negative impact.
Friday I had three signals:
- 1 to go short, and it was good
- 1 to go long, and it was good
- 1 to close my long end of the day, and it was good
You should try to have only a very low number of signals (rather areas for a signal) but they should be good. So as long as you can not find these signals as they follow the big moves of the day, you should not go further but first find this.
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OP, listen up. The above is the best advice you've gotten so far, and is the best you'll ever get as being the place to start.
Every trend, on whatever time frame it is occurring on, begins - then builds - then exhausts - then reverses - all based on traders getting trapped and stops getting hit. Stops are what fuel every move in the market. True story.
The market is symmetrical.
It operates in a dual auction process for the purpose of facilitating transactions. The number of transactions is a measure of the number of participants that see value from their individual perspectives. These perspectives have different timeframes and are based on different interpretations of data. When the transaction volume has decreased, fewer and fewer participants see value at the current price levels.
A long trend is defined by a succession of HH's and HL's until point of exhaustion.
A short trend is defined by a succession of LH's and LL's until point of exhaustion.
When a trend progresses through the market's OOE, until it can no longer progress in a certain direction, then the auction process continues in the opposite direction.
This is one side of the coin.
The other side of the coin could be described as a trend will no longer progress in a certain direction when no matter the volume price will go no further. This includes DU of volume as well as extremes of volume.
Something that can be observed is that trends overlap. The start of the new trend is ALWAYS contained within the prior one. The only exception are one-off events.
Trends are fractal in nature. What this means is that there is a repeating pattern at all scales. In every timescale there are three fractals. Tapes, Traverses and Channels.
Every trend is composed of a Dominant move, a non-Dominant move and a return to a Dominant move. The only time this is false is when a trend is interrupted by it's natural progression by a surge of Dominance in the other direction.
If one engages in MADA, one quickly observes changes in Accumulation and Distribution occurring about twice as fast as changes in volume. Changes in Volume occur about twice as fast as changes in Price.
If one does not engage in some form of documenting what they observe during RTH, then lot's of wasted opportunity for growth and clarity is the anticipated trend.
The market IS inherently uncertain. You simply cannot box it in with certainty of "good signals". We all want certainty. Cannot be found in the markets. We only work in probabilities. Thats it. No two trends are alike. No two ranges are alike. You have to wait for P.A. to show when a B.O. is PROBABLY GOING TO BE SUCCESSFUL. Even then you got a 60% chance or so that it will indeed be successful. Slight edge. But that is the way it is. You just play the edge and if it falls off the cliff into the 40% you exit and take what it gives you. NOTHING is ever certain in the market and trying to devise only good signals does not increase the certainty to the point of eliminating all uncertainty but it can increase the edge, ever so slightly. Everybody has their own way of looking for edges. Good signals get stopped out just like bad signals. If we could have good signals that do not fail we would not need stop losses. Everything fails in the market at some time. Nothing works all the time. Sorry but the market is uncertain and full of subjectivity. That is just the way it is. It is the ocean we operate in. The wind can blow from any direction and the waves can get to any height and we may get rain or we may get sunshine. We may catch a fish or we may starve that day as we drift along and react to whatever the ocean and environment is giving us to deal with that day. Just having a good motor and gas does not insure we will reach land with a boatload of fish but it does increase our chances of at least reaching land and maybe finding fish. Every wave is different. Every wind is different. Every group of fish move differently..who knows a shark may show up and the fish scramble. The uncertainty is to be embraced and enjoyed. It creates challenge. It is life!
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