Throughout the pages on this blog, I'm trying to present ideas, definitions and explanations of the Price/Action events I have used over the years. These events continually repeat and can be seen on any time frame or market.
I'm presenting very simple techniques to take advantage of these recurring patterns.
Sharpshorts is primarily a day-trader, but the information here can be applied by swing-traders and investors as well. Although I am aware of market news and fundamentals, I trade primarily using the relatively simple technical methods that are described on this blog - but they are combined with my "feel" for market actions...Feel is the more difficult of the two to quantify.
Most of the earlier charts on this blog are one minute interval charts showing stocks and ETFs. As I migrate toward concentrating on the e-mini futures I find TICK charts more useful. Tick charts often present patterns that may not be quite as apparent on time based charts (click here for an example). Tick charts are also particularly good for studying the over-night price action in the e-minis.
For further explanations of the methodologies that follow, look through the other pages listed on the right - especially:
PRICE ACTION & DEFINITIONS
RECORD KEEPING & STATISTICS *
* I want to stress the absolute importance of keeping accurate trading records and statistics.
I realize that this part of "Trading for a Living" may seem to be the most boring part of the entire business.
But neglecting this aspect will prevent you from excelling at this vocation....Ignoring your statistics will lead you to ruin.
It should be obvious that most of the charts on this blog were hand picked by me for illustration purposes. Of course they were. They usually show a plethora of patterns and trade signals on each example. Although multiple, confirming signals do occur quite often everyday, you must understand that these things don't always occur simultaneously.
Good trade opportunities do not require waiting for 'perfect' sets of signals to happen...I suggest you acquire the knowledge and own the tools I present on this blog; when combined with chart-time experience, they will produce a reliable "feel" for the trade that will serve you well.
Blog navigation notes: I will usually update the date on the page lists as I add content - comments, charts and topics on each page are also dated. Most of the time I try to put the newer content nearer the top of each page...Hopefully this makes it easier to find the more recent stuff for those of you who are return visitors. Clicking on any chart will open a larger view in slideshow mode.
8/9/2013 Signals and Patterns that continually repeat
The following is my description of what the chart below is telling me...it is how I read charts :
P/A (price action) was in a down trend with LL's & LH's (lower lows and lower highs) ... 2xD (two indicator divergence) then developed, alerting me of the potential for an imminent change in direction*... price then broke the TL (Trend Line)** and made a new HH before retracing back toward the level where it broke out***... P/A then printed a HL MOF (money on the floor) with the MACD EMAs trending up at this point...P/A began to print HH's & HL's, describing a new up trend...
How I take positions based on the Signals and Patterns that are described above :
*1st long entry order signal - Market order - try to enter just below the TL level
**2nd long entry - Buy Stop - placed just above where price would break the TL
***3rd long entry - Limit @ the TL break level, for a TL break re-test entry.
3xD Buy STOP+TTO at the Trend Line trade
This is a 60 tick chart
3/14/2012 2xD Divergence can be powerful too...
A Limit+TTO order relies on a retest of a break-out point and is sort of a "late to the party" trade relative to using a Market+TTO order immediately after divergences-below-trend-line are identified.
But on most days they will still provide good fills with reasonable stops...It's not always easy to place the 'perfect'
under-the-trend-line-divergence-early-entry order especially on very active days.
Below is a 180 tick chart which draws price bars much slower than the 120T, 90T and 60T charts I usually use when trading the YM...but so far on this day, trade activity had been at a far greater pace than on average...
This chart shows where to place "late" limit orders...The solid lime line crossing the teal down trend line (circled area) is the trend-line-break level. In this example, both 2xD plays would have been filled on retests, without price coming near a tight 6 tick stop...you might even have gotten a better fill by a tick or two, if the order was entered while price was dipping...
5/3/2013 2xD followed by 2xRD
These two patterns help to identify and confirm the new trend...they are described in detail on my Money-on-the-Floor page.
4/25/2013 2xD followed by 2xRD
Viewing multiple 'time frames' can be helpful in confirming 3xD trade signals and more. Here I'm using both 90 & 120 tick charts for the NQ e-mini futures. Divergence is apparent on both charts, suggesting an imminent trend reversal. The yellow, gray and red diagonal lines in both studies clearly show the divergences on each indicator. The aqua vertical line marks the point where the divergences can first be identified - that's when to place your orders.
The 90T allows you to optimize your entry and suggests where a reasonably tight stop-loss order can be placed...The 120T chart gives a better perspective for determining how much of a reversal you might expect from the divergence in order to set a reasonable target...
Histogram Divergence on the YM e-mini - 180, 120 and 90 Tick charts.
Notice that the 90T on the right has a MACD histo and a TRIX histo in the study panes...Both are trend indicators and work very similarly - its just a matter of preference as to which to use...The 180T chart also shows Stochastic divergence. Its not unusual to have divergence on one time frame but not on the others.
This set up gave three ways to make an entry...
(for immediate entry)
(entry order would be activated if or when price broke-out)
(requiring a re-test of the break-out level for entry)
All three types of orders could have been deployed. After the 3 indicator divergence set up was spotted there was at least a minute to place the orders.
I didn't see it until after the trend line was penetrated but was able to participate on the move because shares happened to retrace to .01 below my limit @111.97 as price re-tested the breakout point.
The indicators in the study panes on these charts use a Stochastic ( 9,2,3 yellow line), a standard MACD without a histogram (aqua and red lines) and a TRIX histogram (light blue bars). The other Stochastic (12,3,3) listed in the pane is used to create the black background for the study. It covers some background lines but is otherwise hidden. The last number (1) listed within the parenthesis next to some of the legends for the indicators is the chart interval...
Another example of a three indicator divergence scalp trade allowing an entry before price action makes the breakout of the trend line.
Entry signals - Divergence vs. Trend Line break retest
The chart below illustrates the power of 3 indicator divergence and the relative safety of this trade entry vs. playing a trend line break and waiting for a re-test of that point for entry.
Normally I would have cancelled order # 2 after three to five minutes since there was no immediate retest after the TL break, rather than leaving it live for the 15+ minutes as shown on the chart.
There is always another trade
Avoid second guessing your trade decisions - Learn from losing trades and yes, analyze stop-outs to determine if your entry reasons were valid...
But DO NOT second guess yourself or engage in coulda-woulda-shoulda thinking. These things will cloud your abilities and interfere with successful trading.
Talk about what second guessing and coulda-woulda-shouldas can do to you...