Trading NQ via Price Action

[Alpha Trader]

@k p This is a 5-min chart of the NQ from yesterdays close into today.

A - Nothing but trading in a small range with the top line forming "resistance".

B - The previous range broke out to form another range, with B acting as the "support" (A = previous resistance, B = new support).

D,F and E - These are attempts to break out of the bigger range and it FAILS all 3 times. Notice how another support is formed at (C) the same point as B, which resulted from the failure of the breakouts mentioned. Points D, E and F, along with C have now formed a bigger range and if you are good at figuring out the formations of ranges, then this give you a good opportunity to trade the range both ways, whilst you await a breakout or breakdown.

G, H and I - These also form a narrow range. There is a lot of information "hidden" within this, but we shall leave that for the future. The information contained prepares you for future trades with bigger moves and helps you form a bias. There are many who say that a bias is detrimental, but if used correctly AND with having the ability to accept your view as being wrong very quickly, it is actually a benefit.

E - This is the 3rd test of the top of the range and this failure makes me have a bias towards the short side. I am not going to say that I would have shorted here and there as it is all hindsight, but looking at the chart, you could have picked some good moves shorting at E (for range trading or with the view that a 3rd fail would allow a break in the opposite direction). Regardless of what trades you take, you have the bigger picture that the range is broken.

As we speak now, you can see that the figure, a bigger support on an HOURLY and also a measured move "back of the napkin" calculation would have allowed you to cover your shorts at around the 4000 mark, as well as prepare for going in the opposite direction.

 

[k p]

So here is the issue with the platform. I will have to dig into the settings for Multicharts because both platforms are getting the same data, but Multicharts isn't drawing the bars properly. There is a time delay which causes it to not start to draw the bar on time but about 20 seconds later, so when a new bar is already forming on IB, Multicharts is still drawing the previous one.

 

[Alpha Trader]

I am only looking for entries on the 1 minute chart but using the 5 minute for showing trend and changes in trend.

Use the 1-min very "lightly". The bigger picture is what will keep you in the game.

 

[k p]

G, H and I - These also form a narrow range. There is a lot of information "hidden" within this, but we shall leave that for the future. The information contained prepares you for future trades with bigger moves and helps you form a bias. There are many who say that a bias is detrimental, but if used correctly AND with having the ability to accept your view as being wrong very quickly, it is actually a benefit.

E - This is the 3rd test of the top of the range and this failure makes me have a bias towards the short side. I am not going to say that I would have shorted here and there as it is all hindsight, but looking at the chart, you could have picked some good moves shorting at E (for range trading or with the view that a 3rd fail would allow a break in the opposite direction). Regardless of what trades you take, you have the bigger picture that the range is broken.

As we speak now, you can see that the figure, a bigger support on an HOURLY and also a measured move "back of the napkin" calculation would have allowed you to cover your shorts at around the 4000 mark, as well as prepare for going in the opposite direction.

Awesome chart and analysis... thank-you very much!

This is very much in line with how Db would actually discuss what is going on, so I followed along extremely well and it all makes perfect sense. Even in reference to what you say at GHI, the idea of a bias is ok because Db would call this Line Of Least Resistance, LOLR, so a bias might seem like its tied to ego, but seeing where price is more likely to go based on which direction looks easier is I think totally legit.

I would love for you to continue on with what you say is "hidden" if you have the time.

So what you say in E is now the all important element of trading... how do you get in? Even on your chart, with the two spikes up above the outlined range, there is the retracement in the middle to take a long. This doesn't work, so an exit has to be made. But then where is your entry for the short? I outlined on my chart that at N, I could see the short setting up around 4031, but I didn't have reason enough to take it yet.

I think that what ND is doing for me is giving me the rationale for getting into the trade. The 5 minute sets this up nicely, but then where is the entry? If I am going to use 5 minute bars exclusively, then the stops are huge.

So how do you go from seeing what is happening on your chart to putting on trades? Just beyond E, where price breaks out the bottom of the range, it comes very quickly back inside. The fact it didn't make it to the top of the range could be reason enough to consider a short below any of those bars on the way back up to the midpoint, and then you can be in a short once it drops out the bottom, but given that price is rising, after bouncing off the bottom of the well defined range, are you really preparing for a short?

So this chart analysis, as much as I love it, still doesn't solve the problem of how to enter a trade. How would you do that based on this excellent 5 minute analysis chart you show? I had your level of D marked on my chart as the overnight high, but where would you short?

 

[Alpha Trader]

This is very much in line with how Db would actually discuss what is going on

Ironic, since I've always thought that my style is more similar to @NoDoji I'll still take it as a complement as I think that @dbphoenix is a decent trader

I would love for you to continue on with what you say is "hidden" if you have the time.

Time can always be found when help is needed. For now, it's better that you concentrate on exactly what you're doing, as I think you're making good progress. I would hate to over complicate things for you. If the term "hidden" is arousing your curiosity, believe me it's no big "secret" or the "Holy Grail". All it is, is analysis on a micro-level. You're not focusing so much on set-ups, TLs, S/R etc; all you are concentrating on is the bar formation and price action, and it's analysis. It is one of the reasons as to why I use candlesticks as opposed to HLCs.

A set of 3-4 bars would allow for a 15 - 20 minute (verbal) analysis and would be better done via other modes of communication.

So what you say in E is now the all important element of trading

Not at all. It is just another setup that could have been taken, if it is part of your plan. The only reason it holds a little more weight, is because it came up to test the range the 3rd time. Without looking at the volume, the PA is showing a lot of conviction. The second last green bar gets slapped down, but it's ready to march on and so it goes to test the top of the range. This time it tests the top 3 time (as Al would say, "close is close enough"). That failure AND the double top formation may allow you to take a short with very little risk. It's a good setup to where you can be "lazy" and get filled on a limit. You may be able to find a more desirable entry on a 1-min, but with time, the 1-min will become less relevant as you are looking at the bigger picture and going for bigger moves.

Stick this paragraph somewhere and bring it up back in time, as it is what will give your trading a real good shot. This is the way in which you will find those 1:6 and occasionally, 1:10-15 risk/rewards ratios.

How do you get in? Even on your chart, with the two spikes up above the outlined range, there is the retracement in the middle to take a long.

There is no long trade for me here. Only a short, and even that is not with the highest probability.

I outlined on my chart that at N, I could see the short setting up around 4031, but I didn't have reason enough to take it yet.

WHY? This is your "ultimate high probability" trade right here, should it take the bottom off (which is to be seen, but in this case it did)!

I think that what ND is doing for me is giving me the rationale for getting into the trade.

@NoDoji is a very talented woman in many different ways. She does a lot of different things for a lot of different people . She's definitely one to have around.

The 5 minute sets this up nicely, but then where is the entry?

There are quite a few ways you can enter this. This will be dependent on your level of experience and the probability you want (remember the post where we spoke about early entry = lower probability and vis-versa?). Your safest entry would be a stop entry below 4030 with a stop at 4034/4036 dependent on your risk tolerance.

I can see how you could have been stopped out from this trade with the small breakout spike (N on your diagram) had you tried to get in earlier. If that was to happen, the second entry below N would have given it a n even higher probability (second mouse as they say)

If I am going to use 5 minute bars exclusively, then the stops are huge.

I agree. a 1-min chart may have it's place until you can read the bigger picture and become lazy!

The fact it didn't make it to the top of the range could be reason enough to consider a short

You answered your own question here. That and also the fact that it's the 3rd test, along with rejection of such conviction prior to it. I'm sure you can find many other reasons if you are looking at the 3-min and 1-min charts.

but given that price is rising, after bouncing off the bottom of the well defined range, are you really preparing for a short?

Price will rise; it's just a normal occurrence caused by scalpers covering, algos realigning etc.

Usually, something that is trading in a range will fail and come back into the range. Most times, you would be playing the failure of that. However, there are certain things here, that would have beed worth your while taking a position on.

I had your level of D marked on my chart as the overnight high, but where would you short?

It's giving you many chances at 36 and 38 with a stop above 40. You would have to enter this on a limit. A stop entry for this one is not clear cut and would also have a skewed R:R. If your plan only allows you to enter on stops, than let the trade go and prepare for the next one. Conserve your energy!

 

[k p]

Wow... such a great reply and so much to reply to. My skills for the fancy formatting like you have are limited... but let me try to just answer each comment as best as I can.

Ironic, since I've always thought that my style is more similar to @@NoDoji I'll still take it as a complement as I think that @@dbphoenix is a decent trader

I think that ND might very well analyze like this also, she talks about noting S/R levels often, but doesn't discuss them much, and this may very well be to focus strictly on the entry.

A set of 3-4 bars would allow for a 15 - 20 minute (verbal) analysis and would be better done via other modes of communication.

I hope to take you up on this offer later as it turns me on to analyze! But you're right, in due time, especially when I get comfortable with entries and with the market going against me by only a tick!

It's a good setup to where you can be "lazy" and get filled on a limit. You may be able to find a more desirable entry on a 1-min, but with time, the 1-min will become less relevant as you are looking at the bigger picture and going for bigger moves.

Excuse the amateur question, but when you mean limit order, you mean entering a short on my DOM above where price is, so as price comes up, the limit order is filled for the short? This way, it seems that instead of being "swept" into a trade by entering a stop sell in a retracement for example, I am entering a sell limit above a current price so that I'm swept into the trade on a high point with a stop loss just above where I think the upper limit or this trading range is?

I have often thought this as well. Why I am shorting in retracement, why not just short a little higher, this way, if price goes higher still, my loss isn't that high. (this way though I don't have confirmation of price coming down at least to hit my stop limit entry, I'm only entering based on a hunch that it will come down and getting in at a better price)

WHY? This is your "ultimate high probability" trade right here, should it take the bottom off (which is to be seen, but in this case it did)!

Well, I was only trying to focus on one type of trade today, the 5 min trendline break with 1 minute entry. But ND did post this to my journal a few weeks back and so this is what I was thinking when I saw this setting up, I just didn't act on it. Price didn't make it quite high enough to that upper trend line... but of course as you say above, close is close enough. The good thing is that if I took it, I had a clear idea of where my entry was, and where my stop loss would have been placed. In other words, I did feel good about this trade, just didn't take it.)

I agree. a 1-min chart may have it's place until you can read the bigger picture and become lazy!

I love how a higher time frame chart means that you can leave this "sweating every tick" crap behind. This also helps you focus on the big picture as Db keeps pushing.

You answered your own question here. That and also the fact that it's the 3rd test, along with rejection of such conviction prior to it. I'm sure you can find many other reasons if you are looking at the 3-min and 1-min charts.

Sometimes I don't think quickly enough in real time. Plus, I tried putting on trades via "thinking" and it didn't work too well for me. So now I need clear rules, until maybe one day my thinking and putting on trades that are setup with clear parameters go hand in hand. (perhaps my thinking is much clearer now than months ago where I put on stupid trades though).

It's giving you many chances at 36 and 38 with a stop above 40. You would have to enter this on a limit. A stop entry for this one is not clear cut and would also have a skewed R:R. If your plan only allows you to enter on stops, than let the trade go and prepare for the next one. Conserve your energy!

Did I do a good job of summarizing what I think the limit order is? Or if I got it wrong, do you have time to explain?

Thank-you so much for such an amazing response. There really is lots of amazing info in here that fortunately doesn't contradict anything I have in my head and it adds another great layer of understanding.

 

[k p]

Driving myself crazy here....

So first my charting issue I can't get help with because the free version of Multicharts I was using is no longer supported. So I have to upgrade to the newer version for IB users, and of course here I can't place live trades. So not sure what to do for tomorrow morning. Will more than likely stick with old version, and have up my IB chart right beside to monitor how differently the bars looks.

But here is my analysis. I am a terrible student because as ND points out there, I shouldn't be using the 1 minute to draw my trendlines. I figured that things look the same on the 1 minute as long as I used the correct swing points, but it seems like this isn't so. I have no idea why, but look at my attached chart. The trendline I draw across the top that says "find short in 1 minute" has price clearly penetrating it. This would correspond with N on my post today where I didn't take the short because price hadn't reached the trendline as I had it drawn. So i'm not sure now if the difference is because I'm drawing it on the 5 minute, or because of updated data, but alas... looking at this chart, everything lines up better.

So not only is it clear what DL I should have been using before the open, but I also have a more valid reason to short below 4030. I also see the DL I have across the bottom I shouldn't have been trying to fan up... its just not appropriate when I look at the 5 min since the swing points just aren't there.

There is also the classic "support then resistance" which jumps out me... so hard to miss that, but I had stopped trading by then.

Anyway, been thinking so much about what Db is saying today, and his perfect call about the SL at 4040 and missing the forest for the trees. Then of course the great post by Alpha Trader. It really turns me on because it brings me back to my roots of behavior and figuring out what traders are trying to do. And now with the platform mess.... my head is spinning!

So much opportunity here.

 

[BonScott]

Hi k p ,
Multicharts appears to be using my computer time, and IB is using its own clock.
I double clicked on the clock at the bottom of my screen to adjust the time.
It took a few goes to get it to match IB, but Multicharts seems to be closer to the IB chart now.

 

[k p]

Hi k p ,
Multicharts appears to be using my computer time, and IB is using its own clock.
I double clicked on the clock at the bottom of my screen to adjust the time.
It took a few goes to get it to match IB, but Multicharts seems to be closer to the IB chart now.

Thanks Bon. I looked into this as well. Set computer time via internet so its really accurate and right now. I don't even recall where things didn't match up at the time of the precise open, so I will watch closely again today and make sure to have both IB and Multicharts open and see if I can make any more sense of this.

 

[k p]

Quick update today as I spent too much time on my charting problem and hence didn't trade of analyze too much. Big thanks to BonScott as I think its workable now. Finally found a setting in QuoteManager to use the exchange time, and although I see a couple of bars that are off by a tick, there is a huge improvement.

It sucks to have been plagued by this problem for so long, but oh well. I see in the TWS version of Multicharts (the one I would have to pay to use for placing trades) that those charts are perfect, and this is more than likely because all the settings for working with IB data are already pre-set, so there is no way to mess it up.

A - The proper 5 min SL as drawn from 5 min chart, then chart switched to the 1 minute bar interval.

B - This DL is a bit tricky because price just kept coming down before the open. The original one I had broke about 15 min prior to the open with a fairly quick drop, so I'm not too sure about this line now since I'm sort of "chasing" the trend line, like chasing price.

O - Before the open, price does bounce up a bit from where the DL is, but breaks through strongly. No way to get in, there is no RET. In the past 15 mins, price has already dropped a good amount considering its the overnight action, and so even though this drop was good, chasing is probably never profitable in the long run. (unless... one caveat, you see a firm level of resistance where price bounced off, and you see where your support level is, so you get in mid move because you missed the best entry but understand what you're after and can hold through the frenzy of the one minute chart)

C - I mark this long based on the 123 setup. I see these not work sometimes (trying to resist calling a bottom which is what taking a long essentially would be doing), but I have to remember, its a series of trades that matter. This one works!

Stop would be a good 5 points though, so a little wide, but you know, given all the great discussions lately both in my journal and other member's' journals, along with the thread that Db is running, taking this longer time frame view, using a wider stop, not getting stopped out just because of algos, it all makes sense. I used to think a 3 point stop was too much, but that never did work for me. There should be nothing wrong with taking a 5 point stop as long as I'm also making to sure take 5+ points profit on a trade that works more than 50% of the time.

D - Coming up to here, very juicy. Its not so much the trend line that is providing resistance I would say (correct???), its the breakout level. Its a break of the 5 min DL. Its a shame that this happened so close to the open as for me the DL seems to be less established, but hey, when I saw price turning back down, I marked in the short to see where it would take me. The stop would once again be 5 points, but you know, I feel as if this trade could be entered based on a 15 sec chart. The reason for the trade is so clear given the firm resistance level I'm expecting we won't cross, so why not try shorting after only a 2 point drop, within this bar, and have a tighter stop??? (Gotta of course either make this a firm rule that I test or not)

E - Seeing this very firm level of support forming.

F - Once again we find resistance, but eventually break through.

On a 5 min chart, all of this looks like we are moving through well defined trading ranges. There are 3. 74-80....82-90... 92-00.... It really stands out.

G - Here we almost make it to the 5 min SL, but not quite. I suppose I could short below there bars since we are close enough, and also because the rise up is so steep that we can expect to fill in the air space (which we do).

H - Wow.. a lower high... short is looking good.

I - We find a bit of support here, but ultimately break through.

J - Once again, support from the lows at E. A long above this bar is possible, but it only goes up for a few points before coming down again. Will we test the lows at J again or form a higher low or perhaps break through?