Learning to read Price Action with P&F Charting

could you paraphrase your explanation of the "ultimate" pnf signal and the post on "why you wouldn't sell", i didn't really understand those two thanks?

also do you use volume at all when trading?

thanks, Happy EASTERRRRR
 
Well it is 5:30 am on Easter Sunday. For some reason I couldn't sleep. Hell who knows, it may be this thread.:D I really don't feel like I am explaining this very well so I will try to improve this in the future.

In terms of where I live, I live in Houston, Texas. So I guess we have at least two texans in this thread.


Someone asked about volume, and all I can say is volume is of no consequence on a pnf chart. Many believe that volume is an important aspect of trading, and it may be to them because they see something I fail to see. For me price is all you need. I've said this before. Volume has never entered my brokerage account.

I want to make a generalization about pnf charts that may help you understand the philosophy of them.

It may be helpful to look at a pnf chart like a football game. When the current column is an x column and you happen to be long you are on offense. The offense stays on the field until it turns the ball over (a reversal), or it surpasses the previous x column (your target). If it turns the ball over before it reaches the previous x column then it turned the ball over with good field position to the other team.

If right after that turnover the other team makes it past the last column of 0's they are now a team with the ball, they have good field position, and they now have momentum.

If you see a column of x's that are pretty much equal to the last column of 0's then you can assume that no team is in control of the game. Your mission as a trader is to observe which team is gaining the upperhand (momentum), and the potential strength of that gain.
 
Quote from staffpro:

could you paraphrase your explanation of the "ultimate" pnf signal and the post on "why you wouldn't sell", i didn't really understand those two thanks?

also do you use volume at all when trading?

thanks, Happy EASTERRRRR
More...

I have to say it is my ultimate pnf signal because you will not find it in any book. So should you ever lose money on it you have me to blame and no one else.

What I am looking for is an uptrend.

The uptrend actually forms a double top buy signal.
As soon as that signal is given you place a sell order at one box lower than the previous 0 column. If it get's hit, hold on for the ride down because it will be fun.

Now I should mention the odds of a reversal from that point are not likely, and I may actually take the double top buy signal and go long if the next target is a decent risk reward, but should there be a reversal, it is going to be EXTREMELY STRONG.

Normally I place both orders at the same time to go long and short and cancel the one that doesn't get hit.

I should also mention it doesn't even have to give you a buy signal. If it equals the last x column and then reverses below the last 0 column you have yourself an excellent trade.
 
There is also one thing I want to forward test, and I will start next week.

If I take a buy signal my inital stop is at the point where we have some kind of bearish signal. This changes the state of the chart from bullish to bearish.

What would happen if we had NO TARGET. Our target is the first bearish signal , or the end of day which ever comes first.

You would keep your original stop until you get a o column that is then reversed. You now move your stop to 1 box below that 0 column.

Now you do risk watching a profit turn into a loss, but as long as you are not risking anything more than your original stop loss it would seem to be a viable strategy.
 

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Quote from HolyGrail:

I have to say it is my ultimate pnf signal because you will not find it in any book. So should you ever lose money on it you have me to blame and no one else.

What I am looking for is an uptrend.

The uptrend actually forms a double top buy signal.
As soon as that signal is given you place a sell order at one box lower than the previous 0 column. If it get's hit, hold on for the ride down because it will be fun.

Now I should mention the odds of a reversal from that point are not likely, and I may actually take the double top buy signal and go long if the next target is a decent risk reward, but should there be a reversal, it is going to be EXTREMELY STRONG.

Normally I place both orders at the same time to go long and short and cancel the one that doesn't get hit.

I should also mention it doesn't even have to give you a buy signal. If it equals the last x column and then reverses below the last 0 column you have yourself an excellent trade.
More...

Thanks, that cleared it up.
 
Ok, as threatened, I thought for my benefit certainly, but hopefully to help others who might have the same confusion, I'd run through my series for price changes and the PnF structure that accompanies them.

I have a .02 box size and a 3 box reversal.

My stock is trading at 3.10 and rises to 3.20.
I start a column of X's and put an X at 3.10, 3.12, 3.14, 3.16, 3.18, and 3.20.

Next day (bar) my stock reverses back down to 3.10
I start a new column of O's and put a O at 3.18, 3.16, 3.14. 3.12, and 3.10.

Next day (bar) my stock trades down from 3.10 to 3.02.
Here, I CONTINUE to column of O's, adding another O at 3.08, 3.06, 3.04, and 3.02.

Next day (bar) my stock trades back up from 3.02 to 3.08.
So, I start a NEW column of X's and put an X at 3.04, 3.06, and 3.08.

If price continues to rise without at least a 3-box reversal, I just keep adding to the column of X's. But, if I get a reversal by at least three boxes, then I start a new column of O's. The O's would continue in the same column unless I get another rise of at least 3 boxes, in which caes, I start a new column of X's.

Have I got it, HG?
 
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