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 trading patterns continually repeat themselves and can be seen on any time frame or market.
Sharpshorts is primarily a day-trader, but the information here can be applied by swing-traders and investors as well.
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 are also particularly good for studying the over-night price action in the e-minis.
Sometimes the more 'normal' scalp of 15 to 20 YM points can be well exceeded. Market feel may help you determine when to give a winning trade some extra room to move. Although I didn't trade it, the chart below illustrates a runner pattern...trades like this certainly come your way a few times each week.
You've got to be aware how these runners can skew your trading statistics, especially your average $Win/$loss ratio but they sure are great for the bottom line...
The 30 WMA above can work nicely for trailing your stops up - keep the stops under the current bar and under the WMA..if entered early, under the trend line when the divergences were spotted, the trade above might have yielded a sweet 40-50 point gain with an exposure time of only 30 minutes.
Another runner 5/9/13
Discretionary Runner Stops
You can also decide to use 'runner' stops that give a little more room for price to wiggle around...especially if you have noticed that this would fit the day's Price/Action pattern so far...once B/E is achieved (include commission costs), slow down on the rate that you would normally trail stops up. Below is an example of runner stops (with entry and exit using divergence)...
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 and the aqua vertical lines show approximately when to place your order(s).
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 has a MACD histo and a TRIX histo...both trend indicators 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.
The 10 AM 'Reversal Zone'
Reversals Often 'happen' around 10:00 AM, after the major market's opening activity has run its course...Just another recurring pattern to keep in the back of your mind
Here was a mini 2B Dragon with 3xD divergence followed by a break of the trend line.
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...
3xD Buy STOP+TTO at the Trend Line trade
This is a 60 tick chart with the June contract (the March contract is still trading as well).
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.
3/14/2012 2xD can be powerful too...
A Limit+TTO that relies on a retest of a break-out point is sort of a "late to the party" trade, relative to using divergences as the trade rational goes. But on most days they will still provide good fills with reasonable stops...It's not always easy to place the 'perfect' divergence early entry order (i.e. one below a trend line) especially on very active days.
Here is a 180 tick chart which draws price bars much slower than the 120T, 90T and 60T charts I usually use...but so far today, trade activity has been at a far greater pace than on average...
This chart shows where to place them - the solid lime line crossing the teal down trend line (circled area) is the trend line break level to place your "late" Limit order. In this example, both 2xD plays would have been filled on the 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...
2xD and 2xRD - - bullish reversal indicators 4/25/2013
Another 2xD and 2xRD - - bullish reversal indicators 5/03/2013
Just before the major markets opened and after positive unemployment numbers were released...
(90 tick chart...+17 in 15 minutes)
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...