There's a lot going on to the left of your chart. There's no need to wonder if price will break through or reverse. Find a few dozen instances of this in old charts and calculate how many times price broke through and how many times it reversed. This will give you a probability you can then forwardtest. Until all of this is done, you have no idea what the probability of success for the trade is likely to be, much less whether or not the trade is "excellent". You may find instead that you're better off waiting until price exits the range entirely.
Trading NQ via Price Action
- Thread starter k p
- Start date
There's a lot going on to the left of your chart. There's no need to wonder if price will break through or reverse. Find a few dozen instances of this in old charts and calculate how many times price broke through and how many times it reversed. This will give you a probability you can then forwardtest. Until all of this is done, you have no idea what the probability of success for the trade is likely to be, much less whether or not the trade is "excellent". You may find instead that you're better off waiting until price exits the range entirely.
Thank-you Db. I will do exactly that. I imagine that as I do this I will be focusing on looking for that reversal to put me back into the range. It just seems too juicy to not trade reversals within a range, especially one that is well defined. But certainly a BO out of the range could end up being the more profitable trade. I will make sure to be open to anything that price is telling me, and I will also try to perhaps make note of whether overnight action is any different than a range intraday.
Will report back to my journal the results of this specific backtest hopefully in the next day or over the weekend at the latest.
So the day ended up being more interesting after all. First is the hourly chart with some levels drawn in. (copied from Db but, but looking back at price, it makes sense where these levels come from)
The blue horizontal lines are just the trading range from today. Changed the color so as not to confuse with the reddish lines that are the more prominent levels carried over from price action many days ago.
Onto the second image. When I noticed something interesting happening, it was that price had broken out of the range and had just bounced off that 23 level (first pink box). It didn't go far and came back down again, but it does seem as if this price level provided a bit of a ledge. I was of course thinking that this bounce would be a reversal, but obviously not.
This drop was quite neat and tidy when you look at it though. There are retracements there to get in all along the way. I said to myself, Ok... you missed the first part of the move, but lets see if I can get in on a retracement. I was going to put a sell stop in at 19.25 (just a mental stop, but shown in the second red box), only getting in if price cleared the low of 19.50 at that retracement just above the small red line. And would you know it, it would have hopefully filled and price didn't come back. Perhaps this counts as forward testing, selling the down move on a retracement just below the previous low. I always think to myself what if this is the bottom, and I thought this at least 4 or 5 times on the way down.
Price ultimately hit a low of 9.25, but I haven't look back yet to see if there is something special about this level. This level will be plotted though to see what price does as it comes down to this level again.
When it turned to go back up, the intensity of the buying was obvious, and had I been short, I think just seeing the strong action would have been enough to close my short, never mind waiting for a higher low. If we count the down more as starting from roughly 29 when it left the range, then a 50% retrace puts you at pretty much 19, where price came to rest on the up move.
It gets a little sloppy, but that first hinge pictured really stood out at me. There appears to be a fake BO to the bottom, quickly reverses to the top but doesn't get far. That second hinge, although not perfect, was also observed. Perhaps more interesting though is that this 23 level is where price one again stalled. There are a series of lower highs, even if only by a tick. but price does eventually fall to the bottom coming to rest at that 50% retracement level of 19 from the down move.
The blue horizontal lines are just the trading range from today. Changed the color so as not to confuse with the reddish lines that are the more prominent levels carried over from price action many days ago.
Onto the second image. When I noticed something interesting happening, it was that price had broken out of the range and had just bounced off that 23 level (first pink box). It didn't go far and came back down again, but it does seem as if this price level provided a bit of a ledge. I was of course thinking that this bounce would be a reversal, but obviously not.
This drop was quite neat and tidy when you look at it though. There are retracements there to get in all along the way. I said to myself, Ok... you missed the first part of the move, but lets see if I can get in on a retracement. I was going to put a sell stop in at 19.25 (just a mental stop, but shown in the second red box), only getting in if price cleared the low of 19.50 at that retracement just above the small red line. And would you know it, it would have hopefully filled and price didn't come back. Perhaps this counts as forward testing, selling the down move on a retracement just below the previous low. I always think to myself what if this is the bottom, and I thought this at least 4 or 5 times on the way down.
Price ultimately hit a low of 9.25, but I haven't look back yet to see if there is something special about this level. This level will be plotted though to see what price does as it comes down to this level again.
When it turned to go back up, the intensity of the buying was obvious, and had I been short, I think just seeing the strong action would have been enough to close my short, never mind waiting for a higher low. If we count the down more as starting from roughly 29 when it left the range, then a 50% retrace puts you at pretty much 19, where price came to rest on the up move.
It gets a little sloppy, but that first hinge pictured really stood out at me. There appears to be a fake BO to the bottom, quickly reverses to the top but doesn't get far. That second hinge, although not perfect, was also observed. Perhaps more interesting though is that this 23 level is where price one again stalled. There are a series of lower highs, even if only by a tick. but price does eventually fall to the bottom coming to rest at that 50% retracement level of 19 from the down move.
What a day. First chart attached shows the overnight high and low marked in blue. I will use blue horizontal lines for less significant levels, and keep to red lines for areas that appear more on daily charts that may be more significant.
First surprise was the big jump before open. Found out later this had to do with numbers being released, so I'm gonna make a mental note of not looking for trades this time every Friday. Will also look at at previous Friday's one hour before the open to see what happens. Trading a news release is probably just gambling. Just wait to see how the market reacts and then look for trades if possible.
What's funny is that at open, this good news wasn't well received and price dropped without looking back. Since I already had my overnight lows and highs plotted, I was curious to see what would happen here. In the first pink box, its interesting to see that both the upper and lower level were tested. I will have to investigate how often overnight highs and lows provide support or resistance, but here, it seems to have had an affect. Once price left this range though, it just kept going.
Onto the second chart. The 3702 level has been marked from much earlier, and price had no problem getting through. Perhaps as a coincidence this level looks to be the mean of the ledge that forms, but I better not try and look too deep here. What did strike me though is this series of higher lows (second pink box). I had seen this very similar behavior before, just yesterday or the day before in reverse, lower highs. Here it shows that for the moment, buyers are stepping in, not letting the price get below the previous low.
Price rallies up and starts to form somewhat of a hinge as outlined. Just as I was drawing the lines in, price falls out the bottom, next pink box, and comes back up to test and then continue the dive. I've seen this exact behavior mentioned before, the drop, the test, and then the continuation. But I have also seen the fake drop, reverse, and out the other end. So even though in a way I am looking for trades somewhat, I talk myself out of every one! (this is of course a whole other issue besides understanding price action)
Price hits a bottom, not sure if this is a significant level, and the rallies a bit into a trading range. It is outlined by the green lines. Of note is this 3702 level which provides resistance, pink box. The little spike on the top of the second test sure seems like it is bit taller than other spikes. This means that the price was quickly rejected and didn't linger. I will have to look to see if spikes like this that are bigger than average do in fact show that for the time being, this level is rejected by the buyers. Price makes a go for the 3702 level again and fails. This makes slightly lower high. Price then settles into what appears to be the mean of this little trading range before falling out the bottom.
Just so everyone out there can learn from my fear and ignorance, I am of course telling myself now that price can still turn around and go back into this trading range. Had a short been taken, the drop down was 10 points, so certainly good enough for a trade I think. Maybe Db is onto something when he says to look at buying a break of the trading range! (and I say onto something in jest because he clearly knows!)
The low just below 86 is damn close to the next level we have outlined, the 84 level. Price tests this, and back up it goes, stopping of course at the bottom of the trading range it just left. Could we make a case for another hinge here? Its not exactly tight and doesn't last long. What seems more important is outlined by the yellow line, the series of higher lows.
I actually was already typing all this up and kept redoing the charts, adding more stuff as it came up like the possible hinge and this yellow line. Still two hours to go so who knows what will happen!
First surprise was the big jump before open. Found out later this had to do with numbers being released, so I'm gonna make a mental note of not looking for trades this time every Friday. Will also look at at previous Friday's one hour before the open to see what happens. Trading a news release is probably just gambling. Just wait to see how the market reacts and then look for trades if possible.
What's funny is that at open, this good news wasn't well received and price dropped without looking back. Since I already had my overnight lows and highs plotted, I was curious to see what would happen here. In the first pink box, its interesting to see that both the upper and lower level were tested. I will have to investigate how often overnight highs and lows provide support or resistance, but here, it seems to have had an affect. Once price left this range though, it just kept going.
Onto the second chart. The 3702 level has been marked from much earlier, and price had no problem getting through. Perhaps as a coincidence this level looks to be the mean of the ledge that forms, but I better not try and look too deep here. What did strike me though is this series of higher lows (second pink box). I had seen this very similar behavior before, just yesterday or the day before in reverse, lower highs. Here it shows that for the moment, buyers are stepping in, not letting the price get below the previous low.
Price rallies up and starts to form somewhat of a hinge as outlined. Just as I was drawing the lines in, price falls out the bottom, next pink box, and comes back up to test and then continue the dive. I've seen this exact behavior mentioned before, the drop, the test, and then the continuation. But I have also seen the fake drop, reverse, and out the other end. So even though in a way I am looking for trades somewhat, I talk myself out of every one! (this is of course a whole other issue besides understanding price action)
Price hits a bottom, not sure if this is a significant level, and the rallies a bit into a trading range. It is outlined by the green lines. Of note is this 3702 level which provides resistance, pink box. The little spike on the top of the second test sure seems like it is bit taller than other spikes. This means that the price was quickly rejected and didn't linger. I will have to look to see if spikes like this that are bigger than average do in fact show that for the time being, this level is rejected by the buyers. Price makes a go for the 3702 level again and fails. This makes slightly lower high. Price then settles into what appears to be the mean of this little trading range before falling out the bottom.
Just so everyone out there can learn from my fear and ignorance, I am of course telling myself now that price can still turn around and go back into this trading range. Had a short been taken, the drop down was 10 points, so certainly good enough for a trade I think. Maybe Db is onto something when he says to look at buying a break of the trading range! (and I say onto something in jest because he clearly knows!)
The low just below 86 is damn close to the next level we have outlined, the 84 level. Price tests this, and back up it goes, stopping of course at the bottom of the trading range it just left. Could we make a case for another hinge here? Its not exactly tight and doesn't last long. What seems more important is outlined by the yellow line, the series of higher lows.
I actually was already typing all this up and kept redoing the charts, adding more stuff as it came up like the possible hinge and this yellow line. Still two hours to go so who knows what will happen!
I should also add that watching the down move, the pace was quick, and the retracements were slow. I'm not sure if we can use the feeling of the force behind a move in our ability to analyze price action. It certainly shows a desperate behavior. My fear of course is that when it starts to move down so quick, it can just as easily stop or reverse so quick. Wow... and something just hit me. A quote I read here just the other day, something about how once you take your emotions out of it you can see the emotions contained within the market. Hmmm....
Sorry BonScott.. i was thinking that as well. I didn't start it for this chart cause I thought it would all be neat, and then just more and more got added. Don't follow me too much though.. maybe I have no idea what I'm talking about! LOL
Are you giving up on SLA?
If you are learning to trade PA, news will reflect on PA no matter what. Why are you excluding them without seeing how PA moves at those times.
You received and advise yesterday about S/R if you want to ignore it, you will probably suffer a lot.
Much better.
Think of S/R as advanced physics and SLA as physics 101, if you try to take both courses at the same time you might get a little confused.
Whenever you feel creative about defining trades, just kill the idea right away, it will eat you alive and wont let you see the PA behind your imaginary simtrades.
I have been at this learning phase a lot, (stupidity mainly
), so unless you wanna be trying to get it 2 years from now I suggest you listen to what DB is telling you.Have a nice WE.
Are you giving up on SLA?
You received and advise yesterday about S/R if you want to ignore it, you will probably suffer a lot.
Think of S/R as advanced physics and SLA as physics 101, if you try to take both courses at the same time you might get a little confused.
Whenever you feel creative about defining trades, just kill the idea right away, it will eat you alive and wont let you see the PA behind your imaginary simtrades.
I have been at this learning phase a lot, (stupidity mainly
Have a nice WE.
Ah.. looks like I'm in the weeds already!
I certainly am not giving up on SLA at all as it is quite obvious that it works so well. In fact, I am at a loss as to tell you why I don't just turn my brain off and let it do its thing. It works especially well in trending days like today.
I guess the best answer I could give is that I am just trying to filter a bit when I would apply the SLA. I figure I don't want to be buying just as we are about to hit resistance from an overnight high for example, if it will even act as resistance obviously.
As you say, I am absolutely trying to incorporate S/R with SLA. I am also trying to have double confirmation for a trade, where both the S/R levels and the SLA tell me that its logical to put on a trade.
I think I initially went into the weeds because the SLA seems just too darn simple. Then of course in the chat and some of Db's posts and charts the levels were introduced and so I was on a quest to understand that as well. Its hard to forget about S/R once you see their power.
All the talk about backtesting also made me wonder about what I should be backtesting when this SLA method is essentially already backtested and shown to work very well indeed. (If you stick with a the simple break of the SL/DL and enter one point away from the retracement. If you are going to define your own entries and exists then I can see having to backtest this).
So I guess its just a matter of so much info all at once before I was ready for it. Will work on making changes for next week.