Price Action - Buying Support/Selling Resistance

B

bearmountain

Basic Question: What are some of the methods that Price Action traders use to buy Support and Sell Resistance? I am asking about entry methods, so once you determine that price is near a major Resistance, how do you enter a short trade?

I have been using the 3 Bar Reversal method, but find I very often miss trades. As I understand it, one has to wait for the 4th bar to break the low of the 3rd bar by one tick for the setup, then an order is placed in the middle of the 3rd bar. I find very often my orders are not filled.

here is a good screen shot of 3BR Reversal Pattern. Thanks.


http://www.elitetrader.com/vb/attachment.php?s=&postid=1557683
 
You have a few options:

1) Enter 'aggressively' through a limit or market order when you believe your level will hold.

2) Enter 'conservatively' after some sort of confirmation (as you illustrated).

Neither is right or wrong. #1 looks great when your level does in fact hold - you will get in at an optimal price. #2 looks great when #1 fails due to lack of confirmation.

As for what that confirmation could be, the sky is the limit from your standard indicators to other areas of confluence. For example, in your illustration was there other reasons telling you to get long and short other than just the pattern?
 
Quote from bearmountain:

Basic Question: What are some of the methods that Price Action traders use to buy Support and Sell Resistance? I am asking about entry methods, so once you determine that price is near a major Resistance, how do you enter a short trade?

I have been using the 3 Bar Reversal method, but find I very often miss trades. As I understand it, one has to wait for the 4th bar to break the low of the 3rd bar by one tick for the setup, then an order is placed in the middle of the 3rd bar. I find very often my orders are not filled.

here is a good screen shot of 3BR Reversal Pattern. Thanks.


http://www.elitetrader.com/vb/attachment.php?s=&postid=1557683
More...

OUR DOUBTS ARE TRAITORS
AND MAKE US LOSE THE GOOD
WE OFT MIGHT WIN
BY FEARING TO ATTEMPT

--THE BAIRD

If you've identified a S/R, why wouldn't you just TRADE IT without hesistation? Use limit orders to add liquidity and receive decent fill.

>:)
 
Very good question.

It depends if you're looking for a trend reversal or a pull back break out, and your chart show both types of setup.

Concerning the long trade, this is a pull back breakout. If the previous trend was strong (and it looks like), any high 1 or high 2 within the pull back is enough to consider an entry.

In case of a trend reversal, I like to first look for a trendline break
AND a failed test of the previous swing High / Low.

The bar 4 is a great short setup because it does both at the sametime: it fails to break above the previous bar and break the mini trendline.

I like to enter such trades with a Stop Entry order 1 tick below / above the previous bar.
 
Thank you all for your replies. I am an old trader, but new to Price Action. So far I believe, I am getting pretty good at identifying trends and then buying/selling pullbacks within the trend.

I like to take the next step and start to trade range bound days as well. This is where I am running into difficulty. I am having a hard time objectively identifying 'Reversals'.

Someone mentioned that word again - confluence. So far what I have in my notes is S/R, trendline break, 2nd failed attempt to take out S/R. I guess I am having some difficulty with 'reversals' showing up on a dime without a build up.

I have attached a chart. This is by a Price Action trader who is suppose to be pretty good. I don't quite understand the first(10AM), second (11:15AM) and thrid (12:15PM) long trades. They all look very agressive. The price seems to reach S and a trade is initiated.

What are your thoughts? How would you have traded that day, based on S/R. Thanks for your time.

http://www.elitetrader.com/vb/attachment.php?s=&postid=2004738

the blue horizontal lines I believe are S/R from the previous day.
 
Quote from bearmountain:

Thank you all for your replies. I am an old trader, but new to Price Action. So far I believe, I am getting pretty good at identifying trends and then buying/selling pullbacks within the trend.

I like to take the next step and start to trade range bound days as well. This is where I am running into difficulty. I am having a hard time objectively identifying 'Reversals'.

Someone mentioned that word again - confluence. So far what I have in my notes is S/R, trendline break, 2nd failed attempt to take out S/R. I guess I am having some difficulty with 'reversals' showing up on a dime without a build up.

I have attached a chart. This is by a Price Action trader who is suppose to be pretty good. I don't quite understand the first(10AM), second (11:15AM) and thrid (12:15PM) long trades. They all look very agressive. The price seems to reach S and a trade is initiated.

What are your thoughts? How would you have traded that day, based on S/R. Thanks for your time.

http://www.elitetrader.com/vb/attachment.php?s=&postid=2004738

the blue horizontal lines I believe are S/R from the previous day.
More...

First, you got to learn (understand) what "tends" to cause reversals and I'll list a mixture of fundamental reasons and price action only reasons.

* Key Economic Report Release - don't worry about what's in the report...just keep track of the time of the report release.

* Key FED Speeches - you know it will be important as in well watched by the markets if there's been hyped about the speech for a few trading days before the speech. Like the economic reports...only keep track of the time of the speech instead of its content.

* Opening and Closing times of other key markets (e.g. regular trading session closure of Eurex and U.S. Bond markets while the Eminis are still open).

* Breaking News that has impact on the price action of key markets "at the same time" (e.g. financial bank announcing bankruptcy).

* Gap Fills in your trading instrument or within a highly correlated trading instrument.

* Surprise earnings announcement result of a heavily weighted stock within the Index

* Volatility Breakouts (breakouts of contraction) - all the highlighted trade actions on that chart you posted involves Volatility Breakouts or withing the price action zone of a prior Volatility Breakout although the trader you know may be using something with a different name along with not noticing his method involves basic "contraction/expansion analysis"...price action on that chart are also in combo with other stuff I mentioned above.

A great way to trade by the way.

There's other reasons behind a "reversal", "swing point" or "reaction low/high" but the above is enough to keep anyone busy for the next 20 years. :cool:

Mark
 
Hi, i try to put my thoughts on Susanna's longs:
the first one: combined information: gap up and almost filled the gap;
a higher high around previous support; A triangle potential;
All these information gives a good R:R for first long, she would be right or wrong, but it worthed a shot.
The second long: She thought the market was still on the uptrend, and price hesitated around previous support;
The third long may be based on the same reason as the second one.

Quote from bearmountain:

Thank you all for your replies. I am an old trader, but new to Price Action. So far I believe, I am getting pretty good at identifying trends and then buying/selling pullbacks within the trend.

I like to take the next step and start to trade range bound days as well. This is where I am running into difficulty. I am having a hard time objectively identifying 'Reversals'.

Someone mentioned that word again - confluence. So far what I have in my notes is S/R, trendline break, 2nd failed attempt to take out S/R. I guess I am having some difficulty with 'reversals' showing up on a dime without a build up.

I have attached a chart. This is by a Price Action trader who is suppose to be pretty good. I don't quite understand the first(10AM), second (11:15AM) and thrid (12:15PM) long trades. They all look very agressive. The price seems to reach S and a trade is initiated.

What are your thoughts? How would you have traded that day, based on S/R. Thanks for your time.

http://www.elitetrader.com/vb/attachment.php?s=&postid=2004738

the blue horizontal lines I believe are S/R from the previous day.
More...
 
Quote from wrbtrader:

First, you got to learn (understand) what "tends" to cause reversals and I'll list a mixture of fundamental reasons and price action only reasons.

* Key Economic Report Release - don't worry about what's in the report...just keep track of the time of the report release.

* Key FED Speeches - you know it will be important as in well watched by the markets if there's been hyped about the speech for a few trading days before the speech. Like the economic reports...only keep track of the time of the speech instead of its content.

* Opening and Closing times of other key markets (e.g. regular trading session closure of Eurex and U.S. Bond markets while the Eminis are still open).

* Breaking News that has impact on the price action of key markets "at the same time" (e.g. financial bank announcing bankruptcy).

* Gap Fills in your trading instrument or within a highly correlated trading instrument.

* Surprise earnings announcement result of a heavily weighted stock within the Index

* Volatility Breakouts (breakouts of contraction) - all the highlighted trade actions on that chart you posted involves Volatility Breakouts or withing the price action zone of a prior Volatility Breakout although the trader you know may be using something with a different name along with not noticing his method involves basic "contraction/expansion analysis"...price action on that chart are also in combo with other stuff I mentioned above.

A great way to trade by the way.

There's other reasons behind a "reversal", "swing point" or "reaction low/high" but the above is enough to keep anyone busy for the next 20 years. :cool:

Mark
More...

Interesting way of looking at Reversals, swing point, or reacation low/high. I know very little about contraction/expansion analysis, just Linda Raschkes NR7. Could you please elaborate on contraction/expansion analysis. Thanks.

PS.The chart above was from an ET poster SusannaDT. I found her charts while searching PA.
 
Quote from luckylucy:

Hi, i try to put my thoughts on Susanna's longs:
the first one: combined information: gap up and almost filled the gap;
a higher high around previous support; A triangle potential;
All these information gives a good R:R for first long, she would be right or wrong, but it worthed a shot.
The second long: She thought the market was still on the uptrend, and price hesitated around previous support;
The third long may be based on the same reason as the second one.
More...

Great job channelling Susanna! I think you are right on.

Too bad good price action posters like Susanna, stealth trader etc got into pissing matches with other posters here on ET and then stopped posting. ET tends to wear people down...
 
Quote from bearmountain:

Interesting way of looking at Reversals, swing point, or reacation low/high. I know very little about contraction/expansion analysis, just Linda Raschkes NR7. Could you please elaborate on contraction/expansion analysis. Thanks.

PS.The chart above was from an ET poster SusannaDT. I found her charts while searching PA.
More...

Here's the theory in layman's description...

Contracting price action is usually followed by Expansion price action and then followed again by Contracting price action. Many different methods are derived from such and the trick is trying to determine the duration of the contraction or expansion will last. In addition, trying to determine when will there be contraction or expansion.

Mark
 
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