Tuesday, December 4, 2012

Home - Introduction, Repeating Signals and Patterns, Trend Lines and Divergence


Introduction
 
Throughout the pages on this blog, I'm trying to present ideas, definitions and explanations of the Price/Action events I have successfully 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.

The methodologies presented on this blog are applicable for trading Long.

Trying to apply the methods described on this blog (or an inverse of them) for trading  Short 

does not seem to work as consistently as they do for Longs.


The next two charts present an overview of these recurring patterns. The pages on this blog explain how to take advantage of them via trading, day in day out...

Example 1
Example 2

 The two examples above are my basic bread-and-butter trade patterns. If you are excited about the possibilities they may present for you, that's good. BUT don't let your excitement go too far - what I do is simple and repetitive. 

It gets very boring watching squiggly lines on a chart all day...

I suggest you find a way to temper your initial excitement and direct your trading with that in mind.

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Sharpshorts is primarily a day-trader, taking multiple trades every day. Each trade is of very short duration, usually less than 10 minutes of market exposure per trade.  But the information on this blog can be applied by longer term traders, swing-traders and investors as well. 

Although I am aware of market news and fundamentals, I endeavor to keep from being overly influenced by the constant barrage of rationalizations presented by market news organizations. I especially avoid listening to market pundits who present their 'expert' opinion about what will happen in the markets...IMO, it is the experts who got us into any mess we may currently be experiencing in the first place...

 I trade primarily using the relatively simple technical methods that are described on this Home page and on the other pages listed to the right. These methods are combined  with my "feel" for market actions...Feel is the more difficult of the two to quantify.


For further explanations of the methodologies that follow, look through the other pages listed on the right - especially: 
PRICE ACTION & DEFINITIONS 
and  
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---

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Recurring Price Action, Patterns and Signals

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.

Recurring Price action, Patterns an Signals happen all the time - I include the status bar with the date and time on most of the more recent charts I post, lest you are thinking that they all look the same so must be the same chart, over and over...

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.


Blog navigation notes: I will usually change the date on the page list as I add content - most of the 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. If a chart is still too small to see the details, right click on it and select "Open in a new window" [or a new tab].

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4/01/2014  "Perfect" Signals for entering long positions
Don't be put off by the 'busy-ness' of the charts that I have included on this blog.
Most of the annotations were added after capturing the images.
Although I do draw a lot of trend lines throughout the day, I do not add the notations shown here when I'm trading...


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.
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3/08/2012
 3xD Buy STOP+TTO at the Trend Line trade

Below is an example where I spotted the three indicator divergence (3xD) just a little too late to place a Market+TTO order under the trend line (the dotted vertical line points out when the divergences in the study pane can first be spotted). But I was able to place an anticipatory Buy-Stop+TTO order at the trend line before price broke out, which got a fill....Here my TTO offset order preferences were set for a 6 tick protective sell stop (1.50 points, or $30) and a 12 tick target stop (3 points or $60)...

Note that after getting my fill, there was plenty of time to change the order type to a Limit+TTO if I had wanted to try to add additional contracts using a TLB-RT (Trend Line Break Re-Test) order below my current basis...I will sometime do this IF I first get in early with a very good fill -- like immediately after the divergence is spotted, well under the trend line.
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  

The Lower Highs and Lower Lows price/action of the previous down trend on the lower left hand side of the price pane (yellow diagonal line) is reversed after the divergences developed. A new up trend is then  defined by the series of Higher Highs and Higher Lows that printed after price broke above the down trend line.
Regular divergences (2xD) suggested an imminent trend change.
           (LL on price while the MACDh and STO made HL's).
Reverse divergences (2xRD) suggests continuation of the 'new' trend .
           (HL on price while the MACDh and STO made LL's)
Also on the chart above -  Price printed a HH after making the Trend Line Break (TLB)...it then retraced back to test the level where it broke out (TLB-Retest) and printed a HL. This particular HL is also known as a Money-on-the-Floor pattern - note that a Slingshot pattern is developing on the stochastic indicator at the same time.
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
2xD indicates the start of a new bullish trend... 
2xRD then indicates an 'overdone' short term pull back has occurred...
 I use this signal as confirmation that the new bullish trend should continue.


3/13/2012
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. 


12/11/2012
This set up gave three ways to make an entry...
1)  Market+TTO entry below the trend line
(for immediate entry)
2)  Stop+TTO at the trend line, directly above the developing bar
(entry order would be activated if or when price broke-out)
3)  Limit+TTO  at the trend line after the break-out
 (requiring a re-test of the break-out level for entry)

(The links above take you to MBT's NavPro documentation - See chapter 13 - Order Type)

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...

12/10/2012
Three Indicator Divergence does not happen all the time but it usually allows for a very good scalp trade when it does. Note on the chart below that it occurred once at 11:30 but it was a bit more difficult to rationalize an entry being that it was harder to see where the trend line of the recent price action was...

12/06/2012
Another example of a three indicator divergence scalp trade allowing an entry before price action makes the breakout of the trend line.

12/07/2012
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.
What happened later, you might be asking?
Talk about what second guessing and coulda-woulda-shouldas can do to you...
'I coulda used a 7 tick stop instead of 6,  woulda won this trade...wonder if I shoulda increase it...'
Don't sweat the coulda-woulda-shouldas...
There is always another trade
Little can be gained by focusing on bad trades...unless you recognize them when they happen...
AND

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Tuesday, April 17, 2012

Trend Line Break method

Lately I have set my platform's  TTO preferences to use a +.26 target with a -.10 stop loss.


Wednesday June 19, 2013    And when is enough enough?
YMU3 mini futures 45 tick chart early into the new session...This is a simple HLC bar chart.
30 WMA and TRIX histogram in with price...Session volume to the right and MACD with histogram 
combined with Stochastic in the study pane.
Understanding Support/Resistance and "Free air" can be helpful for deciding
when enough IS enough 

Sunday, January 15, 2012

Trend line break scalp

 Basically its buying a breakout of a down trend line

Enter a limit order plus TTO at the trend line break, looking for that level to be retested. Some orders get filled, some are not filled.
 Closing TTO orders are placed automaticly by my broker's system once the limit portion is executed...
Today I've stipulated a TTO stop of .11 under my limit and TTO target .20 over.

With TZA, the liquidity is there for 1000+ share trades without a lot of slippage when either the stop or target order is filled; the auto closing of your position will be executed as market orders.

The first order entry at 24.42 was not filled as price did not retrace back to that level. The 2nd order was filled at 24.50, 2 minutes after order placement and was automatically closed @24.69 once the last price traded at the upper TTO trigger at 24.70...total market exposure lasted about 6 minutes with .01 slippage, netting +.19 on the scalp.

 

Sunday, January 8, 2012

Comparative Trade Scalping


The chart examples shown are 2X AND 3X ETFs but I have also used this method
with individual stocks that I followed closely.
But I found I missed many opportunities because:

1) Too hard to find the stocks that behaved closely with the major indices
2) Often my broker would not have shares available for selling short individual issues
3) I have never liked selling short

3/16/2013  DIRXEION is reverse splitting their 3X Funds.
 Most of the Dirxeion 3X ETFs listed below have dropped to such low levels that they have become almost useless for Comparative Trading with their respective counterparts...Reverse splitting may reinvigorate these markets. Perhaps the methods described below will again become viable for these pairs, post split...

Effective date April 1.  2013
FAZ Financial Bear 3X Shares...1 for 4..................Bull counterpart FAS
TZA Small Cap Bear 3X Shares...1 for 4................Bull counterpart TNA
ERY Energy  Bear 3X Shares 1 for 6.....................Bull counterpart ERX
YANG China Bear 3X Shares 1 for 5.....................Bull counterpart YINN
NUGT Gold Miners Bull 3X Shares 1 for 5...........Bear counterpart DUST

I don't follow these but it might prove worthwhile to start :
Mid Cap Bear 3X Shares (MIDZ) 1 for 3
 Emerging Market Bear 3X Shares (EDZ) 1 for 5
Technology Bear 3X Shares (TECS) 1 for 5

Comparative Method and Chart set-up
 (click on pictures below to enlarge)

I find that down trends are easier to spot potential reversal areas than
reversals of up trends - thus the two charts, one Bear one Bull.
 IF you are completely "In The Zone" you can effectively use a Sell and Reverse method (SAR) with ETF pairs, i.e. sell the Long ETF to close and buy it's Bear counterpart to open.
There are no worries about whether there are shares available  for shorting and no extra fees (on top of margin interest) that are often  associated with shorting.


Another way to compare price action between Bull and Bear pairs
Overlay one symbol on the other. Note the left scale is for TZA and TNA is on the right.
The WMA line and the indicator pane is for TNA



SOME FURTHER NOTES:

I've found that trend days are harder to make entries as there are fewer intra-day reversals.
 This is when "feel" will help out - if your trading "feel" has been good
recently, cancelling or raising the TTO-Stop target-side of the order after
the Limit-fill side is completed in order to try for increased gains can be rewarding.
 But if you just "feel" lucky and cancel the automatic TTO-Stop target-side order (or the lower TTO Stop-loss),  you may see  this action take a bite out of your scalp.

I like using the ETF's with this method, especially the 2X and 3X. The liquidity is
always there, although you need not trade large size to get a good daily return.
And slippage is limited on the TTO STOP-LOSS and TTO SELL orders, which are executed as market orders.

I NEVER hold ETF trade scalp positions overnight and rarely trade pre-market or after hours.
I usually wait for the 10:00 reversal area for my first trade. 30 minutes is usually enough time for trend lines to develop...Although I do scan multi-day price action, the day to day "gap-ing" of stocks and especially ETFs, makes the drawing of trend lines that start on previous days less than useful in most cases.




TL break+volume+divergence

A scalper's dream set up...multiple rational for entry. 
The stock chosen must have the liquidity to handle market entry and exit of a few thousand shares so that you avoid getting scalped...
I'll take even .15 or .18 for exposure of 15 to 25 minutes.



 Once you see the divergence setting up, there is time enough to enter an 'anticipatory'  Limit+TTO or a Market+TTO below the trend line in an attempt to get a better fill... i.e. getting an early fill in anticipation of a divergent bounce through the trend line.

But very often, its better to enter a buy Stop+TTO order at the point where price would break the trend line, above the current bar, to be sure of getting a fill  IF price does indeed make the expected divergent bounce up.  If the stop order is not filled by the completion of that bar, you can move the stop price down along the trend line while the next bar is developing.

This entry method avoids the potential problem of getting your 'anticipatory'  Limit+TTO or Market+TTO order filled, only to watch as price first spikes down to your automatic TTO sell-stop, which could take  you out  just before the move goes in the anticipated direction... 

3/19/2014  Good signals don't always guarantee a gain...
Using a Buy-Stop above price can keep you out of a trade that goes no-where...here's an example when signals fail to reverse P/A...

The green Buy-Stop order line and white auto offsets are shown on the charts.
Drag & drop the order line to trail a buy-stop down - this will also move the offsets correspondingly.