Assuming that this is directed to me, none of this is on my radar. There's a short after price fails to make a higher high at 0834, and a long after it makes a higher low at 0839. But after price fails to hold on to the higher high at 0848 and falls back below the OH at 0855, there are no more trades here for me as I don't like trading chop.
Making of a method
- Thread starter game
- Start date
Assuming that this is directed to me, none of this is on my radar. There's a short after price fails to make a higher high at 0834, and a long after it makes a higher low at 0839. But after price fails to hold on to the higher high at 0848 and falls back below the OH at 0855, there are no more trades here for me as I don't like trading chop.
Price fails to make higher high at 0834. Just a few questions to get clarity on definitions:
1) Would the short at 0835 be a straight Reversal entry since there is no RET to get into the short side here? Except within the 0835 bar itself.
2) In this context, the Open fails to make a higher high with respect to the premarket high. So this is the Opening high. So a reversal off this zone is considered a Reversal off a Resistance level?
Now that I have practiced on a few replays, I realize how much more there is to learn. I have to take it a piece at a time and try to gather data on all of the following.
A map of price action would have the following markers:
Trend/Chop
- Distance and duration of extensions and counter moves.
Demand/Supply
- The quality of price movement in real time via it's pace and range.
Support/Resistance
- The relationship of pace, range and time to existing levels of transactions.
Pace and range are making sense. The better opportunities seem to come during periods of volatility that momentarily experience a range contraction, indicating hesitation.
My toughest period to trade has been after about 9:15 or so when the opening back and forth has finished and a trend established. At this time, range reduces and so does pace. This pulls me into getting stopped out, not because the setup is incorrect, but because I am expecting movement like it was still 8:39.
A map of price action would have the following markers:
Trend/Chop
- Distance and duration of extensions and counter moves.
Demand/Supply
- The quality of price movement in real time via it's pace and range.
Support/Resistance
- The relationship of pace, range and time to existing levels of transactions.
Pace and range are making sense. The better opportunities seem to come during periods of volatility that momentarily experience a range contraction, indicating hesitation.
My toughest period to trade has been after about 9:15 or so when the opening back and forth has finished and a trend established. At this time, range reduces and so does pace. This pulls me into getting stopped out, not because the setup is incorrect, but because I am expecting movement like it was still 8:39.
1. Yes.
2. Yes, if it does in fact act as resistance and the reversal is successful. But you won't know that in advance. You just play the odds.
The terms you use are not particularly important except for communicating with others (though you first have to get everyone to agree on the meanings of the terms) and for keeping records. What matters much more is defining the environment in which you will trade. If you don't want to trade chop, then you have to define that environment and avoid it.
"To be perfectly original one should think much and read little, and this is impossible, for one must have read before one has learnt to think."
Byron
Ideas for Reversal entry conditions:
Existence of strong Support or Resistance which has been proven by price being rejected back with conviction. Conviction can be shown by multiple failed tests or by a gradual strong bring back or by an immediate strong bring back. Different variations will convey different odds that will determine the aggressiveness of the entry.
A lower high/low
A crossing of DS Line
Time: Not too much lingering, action should be fast, showing that the S/R level is genuine and strong. Congestion around S/R level will reduce Reversal odds.
A lack of previous congestion ahead of price's path, showing that price will have some room to run if the Reversal takes place.
Stronger trades taken on straight Reversals. Weaker trades will need reduction of information risk and taken on RET's.
Ideas for Continuation RET entry conditions:
The right wave structure. No over-extended waves or those with slowing momentum.
No first RET's on parabolic moves.
No strong and recently validated S/R level in the way of price. (unless I am anticipating a Breakout). So no longs near a major proven R level or short near a proven major S level - unless the presence of such a level is diluted by an overwhelming trend. For example: Trying a short on a RET as price moves to re-test previous low that was rejected twice (showing Support). But there has been a strong downward trend, and sellers are trying to aim for a bigger Support level down below, so trend and gunning for Support below overrides recent Support in the way of the short. But this will generally be the exception.
Range: Natural S/R level should not be more than x points away from entry
Ideas for determining Chop
A clear lower high and higher low within a 6 point Range.
No attempts to get in on trend if major moves have been missed and price is now showing slow pace and small range.
Ideas for exits
Establish If/Then for the following:
If a good position has been established early, look to give the trade room by using swing levels instead of DS line breaks for exits.
If trade is showing loss shortly after initiation, then look for natural S/R levels, which may include the DS line break, or if the line is too steep, may be found at short term S/R shown by most recent bar range.
Byron
Ideas for Reversal entry conditions:
Existence of strong Support or Resistance which has been proven by price being rejected back with conviction. Conviction can be shown by multiple failed tests or by a gradual strong bring back or by an immediate strong bring back. Different variations will convey different odds that will determine the aggressiveness of the entry.
A lower high/low
A crossing of DS Line
Time: Not too much lingering, action should be fast, showing that the S/R level is genuine and strong. Congestion around S/R level will reduce Reversal odds.
A lack of previous congestion ahead of price's path, showing that price will have some room to run if the Reversal takes place.
Stronger trades taken on straight Reversals. Weaker trades will need reduction of information risk and taken on RET's.
Ideas for Continuation RET entry conditions:
The right wave structure. No over-extended waves or those with slowing momentum.
No first RET's on parabolic moves.
No strong and recently validated S/R level in the way of price. (unless I am anticipating a Breakout). So no longs near a major proven R level or short near a proven major S level - unless the presence of such a level is diluted by an overwhelming trend. For example: Trying a short on a RET as price moves to re-test previous low that was rejected twice (showing Support). But there has been a strong downward trend, and sellers are trying to aim for a bigger Support level down below, so trend and gunning for Support below overrides recent Support in the way of the short. But this will generally be the exception.
Range: Natural S/R level should not be more than x points away from entry
Ideas for determining Chop
A clear lower high and higher low within a 6 point Range.
No attempts to get in on trend if major moves have been missed and price is now showing slow pace and small range.
Ideas for exits
Establish If/Then for the following:
If a good position has been established early, look to give the trade room by using swing levels instead of DS line breaks for exits.
If trade is showing loss shortly after initiation, then look for natural S/R levels, which may include the DS line break, or if the line is too steep, may be found at short term S/R shown by most recent bar range.
If I may, a couple of things.
If after six weeks you are still interested in this approach, I suggest first that you begin to take a wider view of S&R. Picking a day at random to observe price movement in order to gain sensitivity to traders' behavior is one thing. But picking a day at random to develop a trading strategy is quite another. If you're going to get down to the strategy/tactics phase, you're going to make things far more difficult than they need to be by plopping yourself down in the middle of nowhere, particularly if you're going to rely on S&R. In order to succeed at this, you're going to have to develop a thorough understanding of trend, and to get that, you're going to have to back off to provide yourself with at least some context.
Therefore, I suggest that once you've selected your day you zoom out of it to see the entire day, using perhaps a 5m or 15m bar. Then include the next day and the day after that. Determine from those three days where the levels are that price regularly turns back. Determine also the trading ranges, if any (the two may be the same). If three aren't enough, do four or five or more. But look for the important S&R levels (if price happens to be trending during that period, there likely won't be any and you'll have to choose another set of days). Once you have them, project them forward into the day you're going to trade via replay rather than just start with no more than a brief sample of premkt data. You will find separating the important from the trivial to be much easier.
Second, now that you've "played" with this for a while, stop trading and go back to the observation stage, incorporating what you've learned about price movement into what you will now observe. Doing so will help you avoid sliding into the mechanization trap and perpetual tinkering. And what may have puzzled you before may now seem perfectly clear.
If after six weeks you are still interested in this approach, I suggest first that you begin to take a wider view of S&R. Picking a day at random to observe price movement in order to gain sensitivity to traders' behavior is one thing. But picking a day at random to develop a trading strategy is quite another. If you're going to get down to the strategy/tactics phase, you're going to make things far more difficult than they need to be by plopping yourself down in the middle of nowhere, particularly if you're going to rely on S&R. In order to succeed at this, you're going to have to develop a thorough understanding of trend, and to get that, you're going to have to back off to provide yourself with at least some context.
Therefore, I suggest that once you've selected your day you zoom out of it to see the entire day, using perhaps a 5m or 15m bar. Then include the next day and the day after that. Determine from those three days where the levels are that price regularly turns back. Determine also the trading ranges, if any (the two may be the same). If three aren't enough, do four or five or more. But look for the important S&R levels (if price happens to be trending during that period, there likely won't be any and you'll have to choose another set of days). Once you have them, project them forward into the day you're going to trade via replay rather than just start with no more than a brief sample of premkt data. You will find separating the important from the trivial to be much easier.
Second, now that you've "played" with this for a while, stop trading and go back to the observation stage, incorporating what you've learned about price movement into what you will now observe. Doing so will help you avoid sliding into the mechanization trap and perpetual tinkering. And what may have puzzled you before may now seem perfectly clear.