Unholy Grail to Success
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TRAP: Topping from Below
As I wrote above, the top-down and the bottom-up appoaches need not be mutually exclusive.
The top-down approach allows us to look back in time and determine where the points of inflection will most likely be. Even though there's no bullet-proof way to know in advance where the given trend will ultimately begin and end, we can use previous support and resistance to forecast with reasonable accuracy. Like street signs, these areas serve as sign posts to help us maneuver throughout the day. Just as it's a good idea to know precisely where your destination is before embarking on a trip, it's always ideal to mark the areas of reversal well in advance.
However, there's no absolute guarantee that prices can or will reach these areas, otherwise we would all be filthy rich by now. There's no 100% certainty in this game. On the other hand, trading is centered around the theme of expectation or probability. We take trades with highest probability of success and we dump trades with the highest probability of failure. This is where the bottom-up approach comes into play.
The bottom-up appoach allows us to confirm whether those inflection points will in fact stand up to our expectations. Going back to our trip analogy, it's important to note that locating our destination on the map is one thing; actually getting there is another. For example, I know that Mount Everest is located in the Himalaya. But that doesn't mean I know how to climb to the peak of the mountain. In order to climb to the top, I would need to obtain a good understanding of various mountaineering techniques, such as terrain and weather. Likewise, with the bottom-up approach, our aim is to monitor various price behaviors through the lens of momentum and time, which are encapsulated in price swings, in order to see whether they confirm to our forecasts.
As I wrote above, the top-down and the bottom-up appoaches need not be mutually exclusive.
The top-down approach allows us to look back in time and determine where the points of inflection will most likely be. Even though there's no bullet-proof way to know in advance where the given trend will ultimately begin and end, we can use previous support and resistance to forecast with reasonable accuracy. Like street signs, these areas serve as sign posts to help us maneuver throughout the day. Just as it's a good idea to know precisely where your destination is before embarking on a trip, it's always ideal to mark the areas of reversal well in advance.
However, there's no absolute guarantee that prices can or will reach these areas, otherwise we would all be filthy rich by now. There's no 100% certainty in this game. On the other hand, trading is centered around the theme of expectation or probability. We take trades with highest probability of success and we dump trades with the highest probability of failure. This is where the bottom-up approach comes into play.
The bottom-up appoach allows us to confirm whether those inflection points will in fact stand up to our expectations. Going back to our trip analogy, it's important to note that locating our destination on the map is one thing; actually getting there is another. For example, I know that Mount Everest is located in the Himalaya. But that doesn't mean I know how to climb to the peak of the mountain. In order to climb to the top, I would need to obtain a good understanding of various mountaineering techniques, such as terrain and weather. Likewise, with the bottom-up approach, our aim is to monitor various price behaviors through the lens of momentum and time, which are encapsulated in price swings, in order to see whether they confirm to our forecasts.
TRAP: Perspectives in Price Action
Without resorting to any needless frills, allow me to get right to the point. First, TRAP comes in three flavors: retro, macro and micro. All three has its own unique particularities and yet they're intricately linked to one another. Today, we will concern ourselves with the "retro" portion of TRAP. This is a method that I use to find where the likely reversals will occur on the next day. That is, I'm looking for the daily range that will be used as a point of reference for tomorrow's trading.
To find the high or the low of the day, I use the daily and 120-minute charts. What I specifically look for are the congestion areas with confluence points. This may be in the form of support & resistance or trendlines. I may also take cursory notice of the most popular technical patterns like double-bottom, head-and-shoulders, or triangles. The key is they must all "line up".
However, there are a couple factors one must always be mindful of: the prevailing trend and the current momentum. When combined, these two will give us an inkling into how the market should fare in the coming days and will help us to forecast the following day's range accordingly. For example, when the market is in a downward trend and the momentum is slowing down after bumping into a trendline, I would most likely make a lower price projection to reflect a possible down day.
Without resorting to any needless frills, allow me to get right to the point. First, TRAP comes in three flavors: retro, macro and micro. All three has its own unique particularities and yet they're intricately linked to one another. Today, we will concern ourselves with the "retro" portion of TRAP. This is a method that I use to find where the likely reversals will occur on the next day. That is, I'm looking for the daily range that will be used as a point of reference for tomorrow's trading.
To find the high or the low of the day, I use the daily and 120-minute charts. What I specifically look for are the congestion areas with confluence points. This may be in the form of support & resistance or trendlines. I may also take cursory notice of the most popular technical patterns like double-bottom, head-and-shoulders, or triangles. The key is they must all "line up".
However, there are a couple factors one must always be mindful of: the prevailing trend and the current momentum. When combined, these two will give us an inkling into how the market should fare in the coming days and will help us to forecast the following day's range accordingly. For example, when the market is in a downward trend and the momentum is slowing down after bumping into a trendline, I would most likely make a lower price projection to reflect a possible down day.
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It will eventually become more clear with time, but my short answer is this: Back to the future, baby. If you know the past, you should also know where the future lies. Look through the chart and ask yourself why the HOD and the LOD were formed at those exact places.
What's up, bro! I'm also glad to see ya.Quote from saxon22:
One thing I can say is that ... I am learning. Good stuff and well delivered.
keep it up mate!
saliva,
Thanks for the amazingly clear presentation of your system.
For those who do not think it is a system, it is. A systematic and comprehensive approach of examining price action on different price and time scales with simple and available tools.
If anyone doubted the validity of rhythm in trading and price action they should have visited the floors at times of intense activity. I have seen guys around me making millions (in the late seventies early eighties when I was a floortrader)who had no knowledge of fundamentals or technicals but had a sense of the ebb and flow of the market.
Rhythm manifests itself clearest when there is intensity, an other aspect of price action that is difficult to turn into an indicator
.
Your use of visualizations to illustrate how the law of physics apply to trading is priceless.
Looking forward to the rest of your thread.
Best,
GC
Thanks for the amazingly clear presentation of your system.
For those who do not think it is a system, it is. A systematic and comprehensive approach of examining price action on different price and time scales with simple and available tools.
If anyone doubted the validity of rhythm in trading and price action they should have visited the floors at times of intense activity. I have seen guys around me making millions (in the late seventies early eighties when I was a floortrader)who had no knowledge of fundamentals or technicals but had a sense of the ebb and flow of the market.
Rhythm manifests itself clearest when there is intensity, an other aspect of price action that is difficult to turn into an indicator
.Your use of visualizations to illustrate how the law of physics apply to trading is priceless.
Looking forward to the rest of your thread.
Best,
GC
Fact or fiction?
Demand and supply, or buying and selling respectively, occur at very specific places. These are place markers that uniquely coincide with either S/R or trendlines. Day after day, time after time, just about every reversal takes place at or near these place markers. These are where the trends begin and where the trends end.
TRAP: Perspectives in Intraday Trends
Jumping on the "macro" bandwagon, we're on a quest for that elusive intraday trend. If you will remember, the "retro" approach to TRAP was used as a top-down method in finding the next day's trading range. Unlike the retro, the "macro" is a bottom-up method that I utilize throughout the day to find the potential trend reversals. We initially determine the reversal areas using the retro and follow up with the bottom-up approach using the macro.
With the exception of range-bound days, there is usually at least one prominent trend in any given trading day. Some days you will encounter more than one trend. Whenever there are two or more trends, there will also be a counter-trend. When the counter-trend gains momentum of its own, it effectively offsets the previous trend and marks a fresh reversal.
- [*] Price rarely ever remains stationary.[*] Price fluctuates randomly based on the time of the day.[*] Reversals occur due to a lack of demand.
Demand and supply, or buying and selling respectively, occur at very specific places. These are place markers that uniquely coincide with either S/R or trendlines. Day after day, time after time, just about every reversal takes place at or near these place markers. These are where the trends begin and where the trends end.
TRAP: Perspectives in Intraday Trends
Jumping on the "macro" bandwagon, we're on a quest for that elusive intraday trend. If you will remember, the "retro" approach to TRAP was used as a top-down method in finding the next day's trading range. Unlike the retro, the "macro" is a bottom-up method that I utilize throughout the day to find the potential trend reversals. We initially determine the reversal areas using the retro and follow up with the bottom-up approach using the macro.
With the exception of range-bound days, there is usually at least one prominent trend in any given trading day. Some days you will encounter more than one trend. Whenever there are two or more trends, there will also be a counter-trend. When the counter-trend gains momentum of its own, it effectively offsets the previous trend and marks a fresh reversal.
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I have been trading since last may and managed to keep my account above water for the first few months, but got slapped pretty bad this november.
I am now officially underwater, nothing dramatic, but enough to kill my very young confidence. Your thread gave me a little interest boost tonight... Im printing the hole thing ...
However since there is nothing precise about getting IN and OUT of trades inside these PMT and TRAP concepts, I would not call it a strategy (yet).
That being said , this thread is the most useful ( and rather honest) stuff I have read on ET for a while....
Keep it up please - It might just help me
I am now officially underwater, nothing dramatic, but enough to kill my very young confidence. Your thread gave me a little interest boost tonight... Im printing the hole thing ...
However since there is nothing precise about getting IN and OUT of trades inside these PMT and TRAP concepts, I would not call it a strategy (yet).
That being said , this thread is the most useful ( and rather honest) stuff I have read on ET for a while....
Keep it up please - It might just help me
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