Now you have a trading plan, you are following it and you make good money every week.
What percentage of what is left of your account do you need to gain to be back at break even? That's right 100%. So you lost 50% and you need to double what's left of your money to have back your 100K.
Do you really want to keep losing your hard earned money while you learn?
If you're not making money consistently stop trading and paper trade until you can prove to yourself that you can earn at least 100$ a day consistently and then increase your risk/ reward.
On this lesson I'll review how to use the 60 minute chart to find entry when the pullback on the weekly chart has ended and signaling that is ready to begin the next leg higher.
Inside said pullback both the daily and 60 minute charts will be in a clear downtrend,
as soon as the 60 minute chart begins forming higher lows and higher highs the daily chart will begin forming narrow body days and as soon as the 60 minute chart establishes its uptrend and continues moving higher, both the daily and weekly chart will begin moving higher.
1. The 60 minute chart is in a clear downtrend, price is under its declining 20 MA.
2. The daily chart was in a very strong uptrend, notice the separation of price and the angle of its rising 20 MA. Had a controlled pullback, formed a higher low pivot (HLP) that Sent price higher but stopped under its rising 200 MA. It Formed a lower high pivot (LHP) Putting the uptrend in question, price moved lower.
3. Price closed under the first HLP. (purple arrow to the left) And rising 20 MA. Forming the first lower low (LL).
Next day price opened lower and buyers immediately stepped in, near its rising 40 MA. Sending price higher. Now it has 1 lower high (LH) and 1 lower low (LL). That tells you that the daily chart lost its uptrend, now price is in a trend less state but with bias to move lower or trend in transition from uptrend to sideways to downtrend?
The weekly chart had a multiple week bounce that retraced 100% the previous drop but had reached a previous pivot top resistance, that needed a pullback because it was in a downtrend judging by the declining 10 MA. If that pullback was violent price could make new lows but it said pullback was shallow it could eventually lead to another move higher. Of note: If you notice the LH Pivots on the daily chart were forming at the top of each descending candle on the weekly chart.
4. Now that it lost its uptrend on the daily chart, trend traders usually move on to other clearly trending stocks, the bounce looks noticeably weaker as price began forming another lower high pivot LHP Above its rising 20 MA. Sending price lower.
It's beginning to look like price action is forming a descending channel.
5. Price stops barely above the lower low pivot #3. I call this the critical area in the chart (The place to enter long if the weekly chart is signaling a move higher because the risk reward is very favorable for the speculator eerrr investor) Because a downtrend needs two lower highs and two lower lows to establish, count the lower highs and the lower lows and ask yourself why price did not closed below the lower lower pivot at #3? And why it formed quasi bottoming tail losing all selling momentum?
6. The weekly chart is in a downtrend BUT.
7. Again the technical bounce it had, retraced 100% the previous decline, that is very bullish or very positive for the longs if the pullback is shallow as this one was.
8. All that activity you see on the daily chart is only a controlled pullback on the weekly chart, now if you look carefully an inverted head and shoulders pattern is beginning to emerge.
Should you go long on the possibility that the big funds will defend that area on the daily chart, or based on the assumption that the big funds are seeing the inverted H&S forming with little resistance overhead?
There is no guarantee that they'll defend that area, but if you get the right signals and you take the trade, your risk reward is better down here than near the top or anywhere else.
Looking for the right signals...............
1. The 60 minute chart formed a double bottom.
First signal: Shorts and sellers were unable to continue the wave lower on this time frame.
2. Price entered an uptrend inside the square. 2 HLs And 2 HHs. Algos buy the controlled pullback in a confirmed uptrend.
Second signal: an up trending 60 minute chart moves the daily chart higher
3. On the daily chart the lower low pivot gets tested again and forms a double bottom higher low sending price higher.
Third signal: The shorts were unable to continue the wave lower on the daily chart as the result of the HL Mentioned on #2.
4. On the daily chart price closed above the first LHP. And broke through the top of the descending channel line. The odds are high that the double bottom is the low and the pullback will be controlled
5. On the weekly chart price formed a green bar above the now rising 10 MA. Confirming the anticipation of the inverted H&S. Projecting higher.
The daily chart had the controlled pullback enough to form a set up bar to pivot higher, then price proceeded to move higher closing above the first higher high pivot and it is now in an uptrend as it has 2 higher lows and 2 higher highs.
However price is fast approaching a double top on its weekly chart.
A week later price went lower because of that double top on its weekly chart had too much resistance that had to be absorbed for a few weeks.
The first sign of trouble for the longs or price reversing was when the 60 minute chart formed a 2X Top with the biggest red bar putting the uptrend in question, then formed the 1st LH Pivot with price still above its rising 20 MA. Price kept pivoting lower, then fell under its declining 20 MA. And the new downtrend began, that action kept moving the daily chart lower.
That is why swing trading longs work better on weekly charts inside an uptrend with zero resistance, reads new highs every time.
Some swing longs can last for weeks and some only few days.
As long as you understand where resistance is on the weekly chart, because the odds are very high that price will stop to rest, form a pivot higher or reverse in a controlled way to form a higher low pivot from an slightly lower area (Sort of a cup and handle pattern), we never know the severity of the pullback only that the smaller time frame will always signal when the larger TF Will begin moving.
Ideally for this strategy to work the weekly chart has to be ready to bounce higher and have no clear resistance like a rounding top or other obvious signs of trapped longs overhead as shown on the chart below #3, the weekly chart is in an uptrend taking a breather, having a controlled pullback, whenever is ready to cycle higher or form a HL Pivot, both the daily and 60 minute charts can very easily be in a confirmed downtrend (DT) # 2 ( Price on the daily chart was inside a descending channel) And both need at least a double bottom or a HL First to signal to future buyers that the time for reversal is fast approaching, even better if the trend violently changes as was the case on the 60 minute chart of FB (on red and blue) #1 to signal to future buyers waiting on the sidelines that the sellers are exhausting and buyers are getting control of price, this is where the 60 minute chart and faster TF. Mind you, sends the most important signal by being in a DT. Once the HL Forms puts the DT In question and the whole cycle higher begins to form because the weekly chart has pulled back enough and needs to begin its next cycle higher.
For that the 60 minute chart needs to establish an uptrend or form 2 HHs And 2 HHs
#1 Entering into an uptrend first was necessity to get the daily chart moving higher, as the uptrend continued on the 60 minute chart the daily chart retraced 100% the last drop and consolidated for three days giving time to the weekly chart to close with a bottoming tail set up bar to form the HLP And continue moving much higher as the next up cycle on the weekly chart took control of price as seen in the chart below.
As long as the 60 minute chart remains in an uptrend (UT) The daily and weekly charts will keep moving higher, if the weekly is in an UT With zero resistance, even better.
Think of it as the starter of a car gets turned on to start you car's engine. that is the 60 minute chart to daily and the weekly charts.
As long as the 60 minute chart remains in an uptrend (UT) The daily and weekly charts will keep moving higher, if the weekly is in an UT With zero resistance, even better.
This technique is excellent to ID Tops on the weekly chart and find low risk short entry on the 60 minute chart, go to my time frame cycle lesson below for more.
Lesson 7 Much, much more on the influence the weekly chart has over the smaller time frames: http://chalannn.blogspot.com/2012/09/using-weekly-chart-to-make-sense-of.html
Sounds complicated but is not. this lesson goes in more detail: http://chalannn.blogspot.com/2012/08/time-frame-cycles-from-monthly-to-15.html
Read this four links to understand the influence the monthly chart has over the rest of smaller time frames:
http://chalannn.blogspot.com/2014/01/the-monthly-chart.html
http://chalannn.blogspot.com/2014/01/the-monthly-chart-ii.html
http://chalannn.blogspot.com/2014/01/the-monthly-chart-iii.html
http://chalannn.blogspot.com/2014/02/revisiting-some-monthly-charts.html
See how easy it is?
If you need to read the anatomy of a trend click here: http://chalannn.blogspot.com/2012/08/trend-analysis-using-pivots.html
Feel free to leave a comment.
All charts are source: www.eSignal.com
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