Trading NQ via Price Action

[k p]

Quite the surprise to see the open overnight gap up and price shoot up higher. At "A", we have a pretty serious rejection which forms the overnight low at 92, but you can see how price at 94.50 just goes sideways for a bit just above the REJ level and goes right through the PDH. Once again, seeing as Db mentioned that this isn't all that significant, the PDH or PDL, I'm a little bummed out, but I just have to continue to do my own analysis.

A little further down at "B", we find support at this level, which was also roughly resistance earlier, but at the same time, this level cannot be drawn yet until we hit the high at "C" since this midpoint is after all only a midpoint until we have the overnight high at 4007.75. This is pretty much exactly at 4000, so just the fact that this is such a big number is more than likely the reason why traders either find it hard to first cross it, and then are working hard to stay above it.

So seeing as we are above any previous action, traders will have to find resistance levels on the way as there aren't any right now based on previous action since we haven't been this high.

Based on the channel in the daily chart, we bounced off almost the mean at 4008, but the mean isn't as juicy as the upper or lower line since price can either break through the mean on the way up or bounce off for the ride back down. Price spent just over a week out the bottom of the channel, but since we are back inside, using this channel is probably fine until price tells us otherwise.

 

[k p]

A - Seeing this resistance to get above 4007 is really catching my eye here. It is a few ticks below the overnight high thus far, but to even see how the overnight high formed gave me some confidence in thinking that the LOLR was down because the price went sideways for so long in the previous hour that formed the overnight high.

More importantly for me though, I know that if I take my short here, I know that my stop would be just on the other side of the OH, so a 2 point stop would be plenty to see that the short isn't going to work.

B - Coming up to here, same thing... we can't cross 4007. Now of course if I took my short at A, I would be nervous as price came up again, and if I moved my stop to BE, I'd be essentially out just before price goes down again, but hopefully I wouldn't be that paranoid and would keep my stop where it was originally.

C - This little thrust up goes even a tick higher, but its a quick REJ. So now of course I'm kicking myself for really not taking that short, but oh well, the trade is gone, and the open is soon.

O - The open happens at pretty much where the DL gets broken. I take note now of major DLs. Not only are they pretty much the same on a 5 minute chart since the major swing points on a 1 minute chart also show up on a 5 minute chart, but I see how by the end of the day, its these major lines that work the best. I'm of course using this as confirmation to add to my short bias.

D - Anyway, so although we go down, back up we come. A couple of weeks ago, I would have been shorting right at the bottom thinking we just rejected the opening level, but thankfully, I now know that rejections have to be based on rejections of something else, and the opening level isn't rejected yet until price comes up again and turns around here.

So coming up to "D", I notice how price is rolling over a bit, and 2 or 3 bars later, the DL would be broken if one was drawn in just below the lows of these bars that come up. This might now form a lower high, and although it would be hard to catch a short at the tops of the two bars to the right at 4006, we are still fairly close to 4008, above which would be a stop as before to invalidate the short.

E - Before "E", where we formed the swing low and came back up, I started to draw in this hinge. These pokes here at E suggest going higher, but none of these bars close above the hinge. I think I picked this up from NoDoji, the idea that price breaks something you have drawn in but doesn't close above the break. I know its not correct to talk about bars closing and opening since price is continuous, but what this shows is the behavior actually, the inability of traders to keep price above this hinge given that in the same minute that price did go higher, it couldn't stay up there and came back down.

Since Db also says that hinges tend to first exit in the opposite direction, I'm looking at this poke above now as further confirmation that we are going to go lower.

There was an excellent discussion last year about hinge activity when Db was actively posting in his threads, same time that fortydraws was also posting so it was a discussion between them, and it was a nicely laid out thought process as the hinge was forming. If anyone wants the link I can look it up, but its because of all of these great posts from the past that I am trying to focus on looking at things in a similar fashion.

F - So here we drop out below. Now of course the trade was really higher up, and I'd say that if I had confidence in my hinge ability, seeing the poke up and rejection of the exit out the top would be an excellent reason to take a short, so now this poke out the bottom should be of no concern because my short would already be in the money and I could watch it more casually without fear. But now I have to wonder if the poke before is a good reason to short, and then of course wonder where to short and where my stop would be. If the stop would be at the apex of the hinge, its too many points away, so perhaps I could only get in on a RET on the tick chart below the hinge and have the stop at the exit level of the hinge.

G - Price seems to turn around just above the mean I have outlined. The little double bottom of the two bars isn't really at any special place, but here at "G" I do bring forward the previous swing low from overnight. Its tough to say if price turns around because of the mean, or the swing low, of perhaps because 4000 is such a lovely number that traders paused at before, but price does go back into the hinge and goes up quite strongly.

H - Coming to H now I'm thinking if I should even consider a short. The move up is strong, so a reversal here would be putting the full breaks on real quick to go into reverse. On the tick chart, I don't even think an opportunity came up to even consider a short.

The sad part of course is that since this is a fairly prominent level, what I would call an extreme given how it provided resistance for quite a while, I know that taking a short or long is a solid trade, so if the short is out of the question, the long should be strongly considered because once we cross this level of resistance, going up should the LOLR.

I - I mark in what would be an SLA long. What's nice about this is that its a long at an extreme level, not in the middle of nowhere, and when the fill would happen two bars later, you can even see a little test down of the 4007.75 level and price bouncing off, so the long looks quite solid.

J - The long didn't go far, but on the way down we stop here. Certainly taking profits higher up would be prudent before even seeing how low this goes. I just noticed now that this trek down to J is way above the 50% if we consider this most recent move as being from 4000 to 4013, and if RETs are less than 50% of the preceding move, the move is considered strong.

We do go a bit sideways after this, and I'm getting tired. Clearly I'm not ready yet to put on more trades so its time to pack up.

SUMMARY

Based on my analysis, which was mostly done in real time, I think today would have ended up to be quite a good day. I had lots of confidence in the short below 4007, and after we came back into the hinge above F, I wasn't in any way married to my short that I couldn't have seen price going up. Waiting at H to see what would happen was also solid, and even if I did take a short there, I knew clearly where my exit was. Trading at the extremes I really like because exits are well defined. I don't have to hold through a 3 or 4 point stop because some random swing point that I want to use as a stop is so far away.

So as it stands right now, after doing so much studying, I am trying to dial in the criteria I will use for when I will take trades based on behavior, such as around the hinge action, since this doesn't happens at an extreme level, and when I will take trades such as at A B or C simply because they happen at a top. Trading at the extremes in my head is much better defined, which I like, but if I learn to read behavior well, this too will provide lots of opportunity, and give me something to do if the original trade is gone or we are nowhere close to extreme levels that I have outlined. (And if PDHs and PDLs aren't really good enough extremes levels, then I need more to go on)


As I'm finishing up, we are really having trouble going above 4013, and its been sideways for almost an hour now so I'm not losing out on much right now. But after I left to take a nap yesterday, we did have a 40 point drop... so who knows what's in store!

 

[k p]

Not much to say about the overnight today. It looks like we have a nice bounce at 4019 which is the PDH, and a quick run up to 4028, but that was rejected on a definite volume spike.

Its hard to overlook how on the hourly chart, after hitting the bottom at 3826 just over 10 days ago on Aug 8, just buying one contract and walking away is almost a 200 point move. Of course if you are trading well there were over 200 points to be made in this same time frame, but this would certainly have been less work!

So going into the open, it looks like there is some good support at 4019, and that spike going up to 4028 that could be some resistance. This is a fairly tight range so we should be hitting one of those levels which should set up a nice trade.

 

[k p]

O - So at the open, we try down but that is rejected. Doesn't even make it to the previous spike down which went below 22 overnight.

A - The climb up to here I was thinking would set up a solid short. Price would have only been up here for a couple of seconds, but an automatic sell order one point below the OH at 28 I think could be a good strategy (since the bulk of what I'm seeing now is taking reversals at key levels). Getting in on a trade within one point of the outlined level makes for a nice tight stop. The high of this bar is just 3 ticks below 4028, and since there was this same high that was rejected 6 or 7 minutes earlier, I think this can be taken.

B - Same thing happens here. The low at 23 is rejected which matches the low at the open perfectly.

C - Shocked to see it happen here again.

D - Here we aren't even able to make it back up to the highs at A.

E - This is a REV trade to go long that I wouldn't want to take anymore given the 4th attempt to try down. Sure on the one hand we can look at this as a 4th failure to go lower, but given the lower high at D, I also see this as price chipping away at this level until it does break through.

I guess sellers gave up when they realized nobody wanted to trade below 4023.

F - When we get here, we do go ever so slightly above the previous highs at A.

G - Although its obvious we have hesitation at going above the OH, each low here is a higher low, so once again, we are building up pressure.

H - Its a solid break above the OH, but really, we only go 2 points above. I think I said earlier when I started to focus on these levels that if a REV trade off the level doesn't work, look to go long 3 points above the level. Here we only get 2 points above before turning down, so a long would never be triggered.

I did actually try to enter a long here mind you (the 3 point rule is just a guess at this point), but it was never triggered. For a few seconds I kept lower the buy stop as I was tracking price down, which was good because if filled, I would be getting in closer and closer to 4028, but ultimately, after a few seconds price just wasn't coming back up so I quickly took that trade off. The idea would be to be stopped into a trade at the bottom of the retracement, but since price never came up, there was no RET to go long.

J - We have these series of lower highs here, so just not enough buying interest after going above the OH.

Its interesting that if I did enter a short right around 28, I doubt I would still be hodling on the move up to 4030, but if I did have a rule where perhaps I give price at least 2.5 points of room, then I wouldn't have been stopped out. These days though, 2.5 points is just too much, and since I am looking to trade at precise extreme levels, the tick chart should be telling me all I need to know about when to get out, and as long as I'm quick with a re-entry, I think this will be better than holding on for too long and taking a deeper loss.

K - This bounce here you can say is roughly the midpoint of the range we were trading in after the open (4023-4027). But this isn't something that is as clear as a solid extreme level, even though midpoints do matter.

L - Although we have a bounce here at the OH again, I'm not sure what to think of an extreme level once it has been penetrated successfully. I guess it was only a penetration of 2 points, but price did spend almost 10 minutes above this level so I think for me it has less significance now. All I would say now is that this forms a lower high.

M - Looks like we are forming another range here.

I can't believe that up till now we have exactly a 7 point range, and if you shave off the extreme levels, most trades are happening within a 5 point range really. I guess that on a higher time frame chart, this looks like the "rolling over" action where the stready climb starts to slow down and pause after a successful and continued rise up from August 8th as mentioned in prep. We are roughly at the mean of the hourly channel, so I it makes sense that we take a pause here.

N - Can't go above the previous high at 4030, but lets see if the swing lows at K and M hold if we make it down again that far.

SUMMARY

Well, that's it. I'm sleepy. I'm not missing out on much at the moment, and still not ready to go forward with taking live trades, but I think what I'm focusing on now should get me to profitability.

 

[k p]

So this is where we are at this morning. Fairly tight overnight range between 28 and 38. Curiously, just within the last hour, there was some serious volume on a down spike outlined at A. Must be a news item perhaps. Then 10 minutes later, at B, there is what I would call a test of that spike down and price reversed higher even before matching the low. I wouldn't usually think much of it, but the heave volume is hard to miss. It is only 2 points above the overnight low, so at least opportunity shouldn't be too far away.

Similarly, the overnight high is only 2 points below the PDH. Looking at the hourly chart, and contrasting it with the previous week or two, that slow and steady march up seems to be running out of steam. I mentioned this yesterday and the day did end up going higher, but no progress has been made during the overnight today so lets see what happens at the open.

 

[jsmacksem]

Good prep. I know I shouldn't be biased, but I wouldn't be surprised for a quick retest of yesterdays LOD around 15 followed by a continuing uptrend on 60 min. Uptrend made a lower high over night too which also points towards exhaustion like you said.

 

[k p]

Good prep. I know I shouldn't be biased, but I wouldn't be surprised for a quick retest of yesterdays LOD around 15 followed by a continuing uptrend on 60 min. Uptrend made a lower high over night too which also points towards exhaustion like you said.

Surprisingly we found good support at the bottom of that spike down. But after looking at this chart some more, a level of support higher up at C also jumped out at me, and it has now turned to resistance after it broke through during that spike down to A. So at the moment... anything can happen! (when isn't this the case.. hahaha)

 

[k p]

So things were a bit interesting even before the open so I'm going to start there. The lettering is a bit off because I wanted to keep the same letters are for my prep, but then I went backwards in time a bit.

C - (Can't see this now since the chart is too long, but its basically a swing low that allows a rough support line to be drawn) After my prep I saw this support line that I could draw in with this low here at C. I exnteded it forward and price broke through on the spike down to A.

D - Here, which is I think what made me see this level, we have price bouncing off, a case of support turning into resistance.

E - That spike down from A provides very good support here.

F - After climbing back up, taking a REV trade just below the now solid level would have been a good trade. It doesn't go far, but clearly this price level is prominent for many trades now.

G - And here is another bounce, just one tick below the level as before. For the half hour before the open, price is in a tight range, and so going into the open I seem to have a firm level of support at 4030 and resistance just below 4035.

O - The open is roughly here. Price really started to move where I drew in my O, but the opening bar opens a bit lower just 30 seconds later.

This open broke thorugh 4035 but each time price comes back down.

H - Wow... a bounce at the OH exactly to the tick.

I - As we are coming down from H, I notice that I can draw in a DL connecting the higher lows down below. This gives us a DL and price does stop falling here at "I" for a couple of minutes. Once we break through this line, it is further confirmation of that short, but for me going forward, the best place to short really was at the OH.

We only make it down to the midpoint of the overnight range, but hey, this is good for at least a few solid points if I was taking each and every REV trade from the outlined levels.

J - Here we have a couple of bounces that are just below the level, and the tough call is, do you take them? If you can get into a short right at 38.25, you probably only have to risk a point by having an exit one point above this level. But if price doesn't even reach this level, you might have to take the short a little lower down. The lower down you go, the greater your risk is. But if you don't take it, price might never come back up again, so its a tough call.

Here at J we get to within 2 ticks and go down, but only by a couple of points before coming back up again.

K - Then we do have this slight penetration, but only by two ticks, so a short is perhaps still not exited for a loss if entered again right at the OH level. Its hard to miss the higher lows down below though.

L - So now I draw in this DL, and we will either have to break the DL and in fact go lower, or we will have to eventually break the OH with force and go higher.

M - So it looks like we do break lower, but man, price keeps getting bought up after the bar that breaks through the DL.

Here is the beautiful thing though. If I took the short at J, I was only at worst 1 point in the negative before price turned back down, and so all of this indecisiveness at M wouldn't bother me too much as its below the entry for my short and hence I can observe while being in the positive.

N - So we go lower.. but stop here. Why? Bringing forward a swing low from that tight range half an hour before the open does seem to match up well, but ultimately who knows! And this line I draw in yellow because I wouldn't call it support as with my cyan lines since it hasn't really been confirmed yet. It took me a long time to learn the difference between some random swing point and an actual level that did provide S/R. I still may not know the exact difference, but I think I'm getting better in this regard.

P - So coming back up, we appear to stop at 50% of the down move. This would suggest weakness since we can't retrace more than 50% of the down move.

Q - Oppps.. spoke too soon. We go higher.

Its funny because as we were dropping, that fairly big bar which goes through the dashed line, which is the overnight midpoint, I was starting to feel like I'm missing out and really wanted to just get into a short. Of coruse the best entry was already long gone from the OH, but I figured if we drop 50 points today, I'm only missing out on the beginning. But turning around at N would have been pretty much at exactly the same place as where I was itching for my short. I would have perhaps waited for a couple of more ticks, wanting to really be below the range before the open, but regardless of where, it woudln't have turned out well.

I'm reading "How to Buy" by Justin Mamis right now. Its excellent! What he describes about taking emotinoal trades is exactly where I was at. I wasn't really taking them by the outlined SLA rules, and I waited for far too much confirmation of the move before wanting to get in, hence the entry was based on missing out, and look, I'm down $2000, so this clearly wasn't working. Anyway, its great how something written 30 years ago hasn't changed much.

R - So we make it to within 3 ticks of the OH. Of course now since we did make it to 38.75, this could in fact be the new level to watch as a place to take a REV trade since the OH was already penetrated. Hmmm.. what to think... hmmm.. what to do!

SUMMARY

Well this is turning into one big trading range... getting bored... and need to leave time today to actually hammer out a solid trading plan. Going forward now with looking for REV trades at key levels I'm quite enjoying, and as outlined over the past few days, taking the trades as discussed would have led to consistently profitable days... so its time to go forward with this, just have to come up with solid entry and exit parameters.

 

[jsmacksem]

We hit that 40 high! I'm calling a top! jk. and now the massive institutional sell off in 4 minutes. Won't that be funny if that happens.

 

[k p]

So here is what I'm looking at for today. Big shock, we bounced off the PDH, so my overnight high and PDH lines are stacked together. We didn't go down far, so we have a fairly 3 point tight range before the open.