switching gears to Price Action via SLA

[gears]

So I'm starting a journal as a way to track my SLA (straight line approach) journey to becoming a successful trader. I have quite a road ahead of me. Yup - I've been looking at the market for some time, have a lot of ideas and theories in my head and have some repeated failure in my history, so I've got to work at ridding myself of learned behaviors, letting go of ego/fear and sticking to a predetermined plan.

I will be posting my understanding of SLA, a plan for trading and my thoughts as I learn to read the market.

I admit that I'm not well-versed in Support & Resistance, but I absolutely CAN draw a straight line!

 

[gears]

To give a better idea of the path being taken and what I'm hoping to get out of this, dbphoenix has suggested that the following questions be answered:

What do I want to accomplish?
I want to learn how to read the market in real time and make consistent and appropriate trading decisions based on my read of the market.

What kind of trading is most comfortable to me?
Short-term day trading

Time of day to trade?
First few hours surrounding the NY open

Instrument to trade?
Futures - NQ

Timeframe to trade?
Primarily 1-min, but also use the 5-min and hourly timeframe to provide a larger scope of what's happening
Edit: 1-min refers to a bar interval.

System to use for trading?
SLA. Want to concentrate initially with exiting at the break of a supply/demand line, but get more comfortable with my price reading to allow price the opportunity to resume initial trend movement.

Strategy to use?
Spot retracements and enter in the direction of the trade. Reversal and breakouts will be used after comfort with retracements occur.

 

[dbphoenix]

Timeframe to trade?
Primarily 1-min, but also use the 5-min and hourly timeframe to provide a larger scope of what's happening

"Timeframe" refers to the span of time in which you're interested: a day, a week, a month, etc. The 1m, 5m, etc, refer to the bar intervals to be used to illustrate the price movement within the timeframe of interest.

 

[gears]

Trading should be like going to a game where you know nothing about either of the teams and couldn't care less who scores, much less wins. Having a trade on makes this more difficult, but the principle remains. To do otherwise implies trading with the ego, and that state clouds perception and judgement.

This was posted in "game's" making of a method thread and it really resonated with me. I've never thought of it that way because I always assumed/wanted/hoped that price would do 'such and such' because it's what I wanted or needed. Enlightening stuff...

 

[gears]

I worked through the morning of 12/3/13 to watch price and see how it behaves. Attached is my chart with areas marked and what was going through my head at those places. I can honestly say that I don't know if my SL and DLs are drawn correctly, if I've fanned when appropriate, if I've assumed a real direction change when I should have still been considering the previous direction. But here are my thoughts:

• EOD on 12/2/13, there was a pretty aggressive down move.
• Bit of a rebound overnight, but the balance seems to favor the sellers before the open.
• The low from 12/2 had been met, exceeded, bounced off of, etc. (solid red line). That price point was returned to repeatedly. Will that be a point of congestion going forward?
• Buyers and sellers have settled into a 3-5 point range in the few hours prior to the open (dotted red line).

1. First breakout of that range occurred at 0918. Buyers trying to take the lead.
2. Trendline break. Not sure if it can count as a DL yet as it's the first time price exited the prior range.
3. HH - seems to validate the DL
4. Immediate DL break
5. HH - price moved above and below the DL
6. Price is quite a distance from DL, but fanning it would seem to defeat the purpose of having it.
7. Price retreats all the way back to the original DL.
8. Feels like the bottom dropped out. Definitive break of DL and down TL can be drawn.
9. Red line again met and exceeded
10. SL break but couldn't make LL
11. Significant retrace followed by LL
12. SL broken, retrace and the dog barked - DL in place
13. Minor retrace - well inside the DL
14. HH and DL break
15. Definitive DL break
16. Same high - fan DL or only do so if HH?
17. Retrace, but couldn't go lower than LSL
18. HH - permission to fan DL - big price push - would tend to expect seller pressure in response
19. DT?
20. Exits DL, but now lower than LSL
21. Can draw down trend line. Definitive DL exit. Sharp price rise. Thinking RET, but not sure if it would be for an up move or a down move. No certainty felt here.
22. If turning south, strong pressure to bring prices back up, but no HH.
23. HH - expect decent pull back. With new HH, drew 'revised' DL from #21 area.
24. Close outside revised DL
25. RET for either up or down
26. LL - dog barked??
27. Immediate SL break
28. DT or previous up thing?
29. Feels like a hinge
30. Hinge fakeout?
31. SL break

I'm trying to draw conclusions regarding price movement. Drawing conclusions is not so I can predict patterns, but so I can be aware of behaviors. When an aggressive move occurs, there tends to be an equal, but opposite movement. Looking for that opposing movement helps me to feel more comfortable with it rather than fear it. I need to keep working with that thought in mind. I used the word, 'expect' in that regard as it helps me to plan for it rather than be surprised/disturbed by it.

I welcome comments from those working with SLA on my thought process.

 

[niko]

Just some minor advice, try not to extend the lines once you daclare them broken, that used to cause a lot of confusion at first for me.

Regarding fanning, you need the trend to prove itself, therefore you need a HH or LL before fanning, sometimes a steep trend might turn into a microTC your lines must allow you to see that change in momentum, some other times the trend will launch into a parabolic move and your lines wont be of much help, also take that into account.

 

[dbphoenix]

I'm trying to draw conclusions regarding price movement. Drawing conclusions is not so I can predict patterns, but so I can be aware of behaviors. When an aggressive move occurs, there tends to be an equal, but opposite movement. Looking for that opposing movement helps me to feel more comfortable with it rather than fear it. I need to keep working with that thought in mind. I used the word, 'expect' in that regard as it helps me to plan for it rather than be surprised/disturbed by it.

I welcome comments from those working with SLA on my thought process.

This is the phase that I wish so many others would not skip. I know people who've been at this for months, or more than a year, who don't see what you see because all they can think about is entries.

Take care, however, that you not become so entranced with the lines that you forget to think about who's in charge. The lines are there to help you do that, but they can easily become an object in themselves, which can take on all the aspects of a game of Twister.

For instance, when you find yourself with a series of overlapping bars, the lines don't matter so much as the fact that you have overlapping bars, i.e., nobody's in charge, nobody has the upper hand. On the other hand, if a line is broken, who's in charge? If a lower low is made, wic? If that lower low is rejected as if price had touched a hot stove, wic? If price runs for daylight, wic? That doesn't mean you know where to take a trade, or even if you should take a trade at all. But you're laying the groundwork for the hypotheses you'll be testing when you get around to looking at what's worth taking a chance on and what's not, after which you'll be looking at exactly where those entries should be taken and how the trade should be managed.

 

[gears]

Just some minor advice, try not to extend the lines once you daclare them broken, that used to cause a lot of confusion at first for me.

Thanks for that advice - will do. As I indicated above, I'm still not 100% sure if the lines are 'correct' as Demand and Supply lines. But I'll keep working at it - and work on highlighting the current rather than focusing on what came earlier.

 

[gears]

Take care, however, that you not become so entranced with the lines that you forget to think about who's in charge. The lines are there to help you do that, but they can easily become an object in themselves...

I could see that happening. I'm not nearly comfortable to think about a chart with ZERO lines, but I also don't want my screen to become cluttered and ONLY see lines and not see behavior.

For instance, when you find yourself with a series of overlapping bars, the lines don't matter so much as the fact that you have overlapping bars, i.e., nobody's in charge, nobody has the upper hand.
On the other hand, if a line is broken, who's in charge?
If a lower low is made, wic?
If that lower low is rejected as if price had touched a hot stove, wic?
If price runs for daylight, wic?

The questions you've asked are all things that I think I should know, but I don't. Is context involved in all of those situations? I mean, lines are broken quite a bit, but often it's just a tease (action/reaction kind of thing) and price resumes the original direction. If a LL is made, I'd assume for that a certain amount of time, sellers were in charge. But if the LL were made and the bounce off was as you said, "like touching a hot stove", I'd say that buyers were in charge. If price runs for daylight, I'm thinking that buyers are again in charge.

I guess I'll have to keep watching and get a feel for what happens. I went and looked at this day afterwards and price just kept going down and down and down. One pullback early and another around the red line, but mostly just down movement. In some ways, I'm glad I looked at the open as nothing (to me) was definitively clear. For trading purposes, the trending days are great. For learning really and truly what you're looking at and what your hypotheses might be, this was a good exercise.

Thanks for taking the time to read what I've posted.

 

[dbphoenix]

Is context involved in all of those situations?

Pretty much. If price breaks through a line, it does so because the balance between buying pressure and selling pressure has shifted. That shift may have something to do with what's gone before, or it may come out of nowhere. What is most important in the moment, however, is that the balance has shifted. Eventually you'll have to figure out what to do about that.

Thanks for taking the time to read what I've posted.

Happy to. It's unusual to see somebody going through the process rather than rush ahead.