Trading NQ via Price Action

[k p]

So I'm finally on my way. I originally wrote a few paragraphs about how I got here, and then deleted it all. Bottom line, I want to make money. First I don't want to lose it, then I want to be consistent, and then I want to rake it in. Have been reading for months, looked into so many things, and realized I need to focus on just one.

I will be trading the NQ futures, using price action, as outlined by DBPhoenix. I will have a good 3 if not 4 days a week to watch in real time the first few hours, and of course to wake up early to prepare for the day, but I do sadly still have a real job. I thought candles were so pretty, and especially so when you color them in green and red. I loved how the many books I've read use a 20 EMA as a guide for many setups. But now, looking at just a simple bar chart with nothing on it, no colors or indicators is somewhat minimally beautiful. I will have volume on my charts, but initially I will be following the principles in the straight line threads where volume isn't a factor.

Attached is a picture of the representation of my setup. Two monitors, one external monitor and the notebook screen. On the main monitor, the bigger chart on the left is the one minute bar chart. The smaller one on the top right is the 1 tick bar chart, and below that is the 5 minute chart. On the smaller notebook screen is the hourly chart which shows me about the past 6 days. I keep finding that I want to look at the bigger picture. I might switch this with the 5 minute chart so that the 5 minute is big and the hourly is smaller. When it comes to placing trades, I will have to add in the appropriate window. (A big thanks to fortydraws. He kindly summarized what he does and how he does it, and in there was the nugget of gold about MultiCharts)

As you can see, no support and resistance lines drawn in yet. I spent today just watching price for 3 hours. My observations are that when the market opens, that tick chart really starts to move! LOL.... Also, when I had a mental resistance line drawn in my head, I could see how price shot through it when it did breech. But alas, it didn't take off. There was definitely some force behind it though. There might just be something to these support and resistance lines!

 

[k p]

So since starting this thread just a few days ago, I have been quite busy learning. Going through the all important step of watching!

The chat has allowed me to see things in a completely different light that no amount of studying charts will really prepare me for. Before the open, the trend down from the overnight was so obvious... and that's where I was stuck!

So if I look at the 5 minute chart, the first one posted here, I have the lines drawn in from overnight. The SL gets fanned once the LL is made that eventually gets to 3596. Since we don't have a LSL after this, based on this chart the line cannot be fanned and the SL is broken at 3603. But this chart is of course in hindsight so who really cares about it now.

Besides, I look at the 1 minute chart mostly, so let me see if I can recreate what I saw. I got to the party early and saw that drop at 7:30 (I think my times are a bit off based on time zones). I'm thinking this makes sense, its been down over night. Then it climbs back up. Not that I was drawing trend lines at the time, but here is how I would have drawn it and fanned had I done it. So we have a TL break of that DL, and that makes the earlier SL still valid from the overnight.

So just for the heck of it, lets draw in a steeper SL after its coming off the high at 8:05 or 8:07. It gets broken at 8:23, but we can fan it out a bit once price makes a new low at 8:28 since it was broken, so we connect the SL to the high at 8:23. This SL is broken again soon as well, and we can't fan since we don't make any new lows.

Now here is where it gets interesting. One of the guys shorted earlier, so Db is saying that he should hope for a lower low. It never came, but of course in my head right from logging in i'm thinking its down day. (as if i even know enough to make that call! LOL). Price shoots up fairly quickly at open, and breaks that other longer supply line we had from overnight at 3603.

I still don't make a new DL just cause I'm thinking its a down day. Then we get to talking parabolic moves, and I'm jotting down notes about how price went up so quickly that there will be nobody to support the price as it starts to fall. So once again, I'm just waiting for that fall. And even though my chart stops at a high of 3611, we now sit at over 3650.

I wasn't quite prepared to enter trades yet, so its all good, but man I'm thinking in my head, just one contract and you're ahead over $1000. Now of course even if I bought I probably would have sold at the congestion around 3612 or 3620, just wanting to feel good about making some money. (Don't worry, I'm not doing this to try and feel good about myself) Just saying that I of course in real time would not have held this contract this long to see a 50 point move up.

So what did I learn? Exactly what I've read about and what I intellectually know yet have to over come. Who cares what I think about the price, it will do what its doing so just watch it. I have to remain so flexible that it doesn't matter what its doing, I just follow it.

I do hope to be able to learn very quickly what is a sign of trouble versus what is just a ledge where price is resting before it goes up. But most importantly, I know that I have a bit of fear... (there I said it!!!!)... to lose money. I hope that as the days go on in chat and I trust this system of SLA and see that if I take each trade the losses will be minuscule compared to the gains. But being very analytical, I have to see it to believe it. I'm still so new and tomorrow is a brand new day, and maybe next week I will make some money!

 

[k p]

And of course the other thing that I missed.. but its ok since I didn't know I was really looking for it, was the slightly higher low that Db pointed out just before the open. It of course makes perfect sense in hindsight that sellers couldn't make a new low, so along with the supply line breaks its even more reason to go long, but oh well, next time.

 

[dbphoenix]

Hurry slowly.

 

[k p]

So today... more learning! First, I know my times are a bit messed up, but not sure what to do. I can either have my charting be in local time, which makes it 3 hours behind NY time, or I have the option of using the exchange time, which is now 2 hours behind my time, and 1 hour behind NY time. I wish I could just use NY time so that everyone is on the same page, but I don't have that option.

Anyway, I was confused right off the start today! (This is what I was thinking at the time... and keep in mind, I was tired since its 5:30am for me!) When I looked at my charts, I just didn't know which which line was more important. Do I use the longer demand line from the overnight low as pictured in the 5 minute chart, or do I use the shorter supply line drawn from that LSH at 630am??? I was obsessed with fanning that demand line below the low of 3653 at 0700am so that it appeared the market was going up since that was the overnight move.

So as I'm putting my charts together for my journal, and after having taken a nap, the answer hit me. The supply line cannot be fanned because we haven't made a HH than the high of 3659.50 lets call it. The demand line therefore had been broken, and the supply line was in play. Now of course I know this, but it just didn't come to me in real time. I was in a rush to figure out what was going and just didn't start off right. As pictured, I was also trying to figure out which swing low can i use for my supply line. In hindsight now, I can see that it wouldn't matter. If you start with the lowest low, the line isn't that much different than if you just use the lows from roughly 2am and 3am. And even using that steeper demand line just makes it be broken even sooner. I do wonder though which low is more appropriate. If I load up 1 minute charts, no way am I seeing that first low from overnight connecting 2300 and 0200am... so if I use more recent lows, my demand line will be steeper.

Anyway, in this case, any demand line would have been broken and the supply line at the point of waking up would be in play. So this problem I think I fixed myself just now!

Second issue, the bigger issue, is those damn levels! So numbers are being throw out in chat about the 60 level, and the 50% at 49... and since I started off already confused, it just didn't help.

Looking back at the charts now, if I use the low of 3638 and a high of 3659.50, this is a roughly 22 point move, and 50% puts this exactly at 49. So are we talking about the 50% retracement of this overnight move up?

I asked Db before about support and resistance, but it was from the point of view of swing highs and lows. The reply was that it doesn't provide S or R until there are a few instances of price doing something at that level. So I got that. And I get that these levels come from areas where lots of trades have been made, where both buyers and sellers see value. But I do also see that people are on the look out of overnight highs and lows. Hmmm.. is it that a swing high or low within an intraday chart doesn't mean much until its tested... but a high or low from a bigger time frame like overnight is something to watch out for? I'm just trying to figure out how people are calling the levels to watch for. Sometimes it also comes from the mean of a hinge... or the 50% retracement of a move.... or the mean of a channel that is drawn over months using daily bars. Why are there so many levels???? Maybe they all mean something???

So I will start reading the Ghost thread and those links contained within and finish off the older SLA threads after I'm caught up with this more current thread. I've got all weekend and Monday, so 3 days to figure it out before I see you all Tuesday morning.

Good thing is that I'm watching real time, I'm seeing the lines, I can tell if there is a break in the SL or DL.. and I know what it means to enter in the opposite direction on the retracement with a stop order 1 point away to be swept into the trade. And it has only been one week and barely 3 live chat sessions! Maybe over the weekend I will print out a 1 minute chart in detail, and use a ruler to plot out every line and take every single trade as outlined by this method and see where it gets me.

 

[djmartin]

"Good thing is that I'm watching real time, I'm seeing the lines, I can tell if there is a break in the SL or DL.. and I know what it means to enter in the opposite direction on the retracement with a stop order 1 point away to be swept into the trade. And it has only been one week and barely 3 live chat sessions! Maybe over the weekend I will print out a 1 minute chart in detail, and use a ruler to plot out every line and take every single trade as outlined by this method and see where it gets me".

If you do this this is what you call hard work. Remember eat, sleep, shit, and live the markets. You may get to a point when you think your doing enough, nope you can always do more. Keep up the good work.

 

[k p]

So I'm working my through all the reading material so that not only do I understand it, but also so I don't look stupid!

I emailed db a few days back asking about support or resistance as possible levels to look out for. I was under the impression that random swing highs or swing lows meant something. I did get an answer that explained it well, but working my way through one of his PDF's today about Wyckoff and Auction Markets - The Box, I couldn't help but think wow... there is my answer right there in plain sight.

"I'm sure everyone has noticed that swing highs and lows and the previous days’ highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume**. Price then reverts to an area where the trader finds it easier to close that trade. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down. "

Working hard now to learn how to call out the important levels... I bet its all right there too somewhere!

 

[niko]

I bet its all right there too somewhere!

Yes it is

 

[k p]

So not much of an update to be honest. I have been there right there, every day, watching before the open and at least the first 2 hours since my last update.

Perhaps I'm not quite sure what I am wanting to see. I can follow along just fine, but as was mentioned today or yesterday, don't miss the forest for the trees. So what is the big picture when you step back?

If I start with the Descartes approach, "I think therefore I am", if I strip most things away, what do I know?

1. Price moves because of supply and demand
2. Traders see value at certain levels
3. When at this level, price tends to move sideways because it is in equilibrium because of the actions between buyers and sellers
4. Trades are best made in areas of the extreme, when prices moves to another level

So this trading venture seems to have a 2 step approach. You need to step back and see where price has been, in terms of the monthly, weekly and daily charts. You need to figure out those areas that acted as support or resistance. This could be a price that keeps getting tested but isn't breached, or it could be an area where lots of trading occurs. Not sure if these two are quite distinct, but I've learned that both of these areas you should watch out for. Oh, and of course the mean is another important level, so the mean of a channel perhaps.

So once you figure this out, you then need to see what is price doing right now. Just because it is at the top of a channel doesn't mean it can't keep going up. So you have to learn to read price action to see what is happening. If buyers aren't interested, and sellers are dominating, then you look lower for the next area where price is likely to go, likely to find value. But the whole time, you have to be watching price to see if the sellers are still in charge and will get it there.

Well, that is my forest, at least how I think I see it. But putting it all together escapes me.

I spent quite a bit of time in the past 2 days trying to figure out what to do about the time limitation of these contracts. My broker, IB, doesn't offer continuous contracts, and my charting platform, MultiCharts, will only let me load up 2 instruments since I'm using the free version, so I can't even build a continuous contract. So it looks like I will have to use the charts at Investing.com as Db does to show the long term trends, but it seems like it would be nice to be able to plot these lines into my charting software.

Although I can draw a line and I'm good at knowing when to fan it and when the line gets broken, there seems to be an art to these channel and to finding these zones of congestion, to figure out what is important and what isn't. You can't have 12 horizontal lines running across your chart with diagonal lines for the channels because it will just clutter everything up. So I'm just not sure at this point what is important and what isn't.

While watching price, its also confusing because sometimes a bottom looks like a bottom, which is followed by a higher swing low, and so it looks like yes, that is the bottom because of the subsequent higher low now, but bam, price drops again. Maybe I'm looking for absolutes to show that price is for sure going up or down, but I still sit there now and even though price looks like its doing one thing, I would be too scared to buy or sell because I tell myself that it can just as easily do the opposite.

So that's where I'm at. So much to work on, but still going full steam ahead!

 

[dbphoenix]

Get rid of the lines.