Saturday, February 1, 2014

Finding trades at specific areas inside the trend.


Putting it all together:

I've been trading over 16 years and I still can't find the winning setup without some risk of losing the amount of money I'm willing to risk or being stopped out.
The only 100% certainty is that even the best looking setup could and will fail at times. Any price affecting event can happen at any time.
You need to always risk the same amount of money on every trade, combined with the need to find trades that will reward you three times to one the risk amount that you are willing to lose, because you can have two trades being stopped out and if the third one hits three times reward target, you end up making one risk amount of money, even with two losing trades.
Basically always try to find the higher odds trade 3 to 1 or greater R/R. And protect yourself with a solid stop underneath in case your trade/ investment moves in the opposite direction that was intended.

Lets go in more detail about how to take advantage of the ebb and flow of price interacting with everything basically, from different time frames, some self fulfilling indicators and even seasonality of the year.
Price is what most of us try to follow and future price is what most of us try to guess to capitalize on it, if we bet on such prediction and we're right we capitalize.
One of the best known soundbites in the trading and investing culture is: The trend is your friend, and it is. So lets get more familiar with this very important friend.
Another soundbite: Professionals buy low and sell high. 
This lesson will show you where to buy low because the higher price gets inside the wave higher and the longer it takes for you to enter, the lower your reward and the higher the risk of losing.

Look at a chart of any stock and for the most part you'll see price trending higher or lower, at times after an extended move on a given direction it will stop moving or pause, some folks will sell and others will buy, if the trend is up and if more buyers overwhelm sellers price will continue moving higher. After all the markets are giant auction houses.




There are some small nuances that you have be aware of that have to be combined at times to get the odds working on your favor every time you put your hard earned money in the markets.
You have to understand how the big funds manage their money and for that you have to find out what trend the stock (you want to tie your future with) is in the monthly and weekly charts.

This link gives you an overall idea of how price cycles from the monthly to the 15 minute chart:
http://chalannn.blogspot.com/2012/08/time-frame-cycles.html 





If you are advanced on charting analysis just skip all the links or comeback some other day and just read the lesson.


After that, if you remain interested in using technical analysis read the lessons on the monthly chart 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

Now that you understand the importance of a not too extended up trending chart on the monthly chart, if you are interested on entering long inside a pullback you are seeing on the weekly chart read here:  
http://chalannn.blogspot.com/2012/08/weekly-and-daily-charts-absorbing-supply.html 
http://chalannn.blogspot.com/2012/09/1.html 
http://chalannn.blogspot.com/2012/09/will-daily-chart-enter-downtrend.html 





                                     Lesson:

Think of it this way, if you wake up in a strange city, the first thing you have to do is find out where you are? To plan how to get back to your normal life. 
The volatile market is that strange and maybe dangerous city where you are going to wake up and if you don't understand how to get out of there, it can be very dangerous for you future if you don't find a map to avoid the hidden dangers and this lesson could be that map. Specifically in 2014 The year that dog eats dog.

I'll use three examples where price will signal a move higher using four time frames, from the monthly to the 60 minute chart. At different areas on the monthly chart to illustrate my point.
Using the daily chart as my go to chart for entry on the weekly chart and using the 60 minute chart for a more exact entry, that said some times the smaller time frame TF. Or 60 minute chart will not signal a clear entry, then I'll point to the weekly chart for clues.

The question remains when and where in the chart do you enter the stock your neighbor told you about being the next AAPL. 
Can you enter any time and any where on the chart and hope that you were born with the Midas touch?

For the rest of us not born with the Midas touch, if we want to place a trade trying to capitalize on a move higher or going long: 
Realizing that price moves in a wave like motion inside normal up trends, forming higher highs and higher lows, we just need to identify the most likely area where price will initiate the next surge higher and enter the long trade. 
After we check for some chart nuances that can really help increase our odds of successes if we understand and apply them, such as these:

1: Monthly chart keeps moving higher with small green candles. 
2: Weekly chart is preferably in an uptrend beginning another  
     move higher after a controlled pullback or had a long rest at    
     resistance and is ready to move higher.
3: The daily chart at a minimum needs to be transitioning with
    bias to move higher or in a confirmed up trend. Other 
    opportunities will present but only if other time frames confirm.
4: Needs to have a controlled pullback of 1/3 off that impulse.   
    Above and near its rising 20 MA. Forming a higher low
    pivot HLP. Or set up bar in the form of a narrow body or     
    a bottoming tail. Near support. Avoids set ups with big lower 
    opening gaps.     Trigger: Price trades over set up bar.
5: Is the market where the stock I want to trade/ invest    
     up trending and ready to move higher? Because most stocks 
     follow the markets they're in. This one is a must have 
     requirement to be on my list.

For a basic trend analysis, the anatomy of pivot formation click here: http://chalannn.blogspot.com/2012/08/pivot-formation.html
 

A trend is a very easy diagram to see, price can keep forming an uptrend on its weekly chart like this for years. 
Some times that trend changes due to buying exhaustion other times it changes to reflect a fundamental negative change on the business cycle of its company.
In a normal uptrend, ideally you'll like to see a powerful impulse higher, followed by a resting period such as a tight consolidation at the top of the range or a controlled pullback no more than 40% followed by a HLP. And the next impulse higher to make higher highs, followed by another controlled pullback and so on and so forth. 
A trend allow us to guess the trajectory of price, we follow that trend and react to it but can't ever predict the future with 100% accuracy, it can change suddenly and at any time.
What can interrupt or change that uptrend? A big violent drop, a 100% retracement of the last impulse followed by a tepid bounce to form a LHP.  Signaling weakness from buyers and the possibility of a downtrend will begin to form. # 1 on the chart below.
A big lower opening gap if not closed immediately can damaged the up trending cycles. 



Above are the earlier signs of a trend that is about to change, it might change or it might not, depends on its next larger time frame as will be explained lower.
This point in the charts usually offer the trader with knowledge and a trading plan of attack great risk reward trades.


1: Monthly chart keeps moving higher with small green candles. 
2: Weekly chart is preferably in an uptrend beginning another  
     move higher after a controlled pullback or had a long rest at    
     resistance and is ready to move higher.
3: The daily chart at a minimum needs to be transitioning with
    bias to move higher or in a confirmed up trend. Other 
    opportunities will present but only if other time frames confirm.
4: Needs to have a controlled pullback of 1/3 off that impulse.   
    Above and near its rising 20 MA. Forming a higher low
    pivot HLP. Or set up bar in the form of a narrow body or     
    a bottoming tail. Near support. Avoids set ups with big lower 
    opening gaps.     Trigger: Price trades over set up bar.
5: Is the market where the stock I want to trade/ invest    
     up trending and ready to move higher? Because most stocks 
     follow the markets they're in. This one is a must have 
     requirement to be on my list.

On the charts below is the clearest example of the list of requirement:





This chart has both larger time frames on the side of a long trade. 
1: The daily chart was in an uptrend judging by the rising or R20 MA. Above its R50 MA. But had a pullback that was 60% deep, It did not meet the 1/3 pullback requirement on the list, it needed a different entry strategy. More on that later.
The bounce that followed was weak, formed a lower high pivot and moved lower again.
2: Only to form a HLP.  Double bottom to take on the LHP. Closing above it, after that price re established the uptrend again.
Seen on the weekly chart the candlesticks on this TF. Began to narrow, on the next candle, price never dropped anywhere near the low of the previous candle (Like forming steps higher) this is a huge signal as you'll see below.

Entry: The HLP Once formed (red circle) on the daily chart is the best entry, the weekly chart signaled support based on the higher step theory above its rising 10 MA. Exit: Under the two pivots.
On very deep pull backs most everybody will wait for price to bounce and if is weak, price will go lower and if the drop is weak wait for the HLP. To form a double bottom to move price higher.

3: This trade met the requirements on my list of a controlled pullback in an uptrend, above R20 MA. Forms a HLP.
The entry was on the 60 minute chart when it retraced 100% the last drop then consolidated near the top and broke out to establish a new uptrend.  
Entry: On the daily chart once you identify the set up bar trade over (red arrow).  Exit: Under the set up bar. Two trades long with two different set ups.



This chart EA Has one trade long on the re establishment of its uptrend on the daily chart with trapped shorts for rocket fuel.
Had both the monthly and weekly charts on the side of the longs.

1: The daily chart was in transition with lower bias only needing one more lower high and one more lower low to establish a new down trend, on a Friday it had a big higher opening gap igniting a massive short covering rally and closing above two pivots, turning the weekly chart into a big green double bottom candle.
2: It went from transitioning with bias lower to transitioning with bias higher to re establish its uptrend, on a single day.
Next few days it had a controlled pullback that met my list of requirements from the monthly chart to the daily chart.
3: On the 60 minute chart the only signal it gave to enter was a HLP. Typical of very strong stocks, after that the move higher was very controlled and kept forming HLs. and the uptrend in place.
 
Entry: Once the set up bar was traded over (red arrow) confirmed with the narrow body on the weekly chart and the fact that the daily chart has no resistance overhead seen on its weekly chart. 
Exit: Under the set up bar or HLP. Later.




NUGT Offered two or more of the best opportunities to make money on the long side during the month of December but catching falling knives requires knowledge of price behavior:

The monthly and weekly charts were on a sure downtrend, when you see the monthly chart like this the best thing to do is wait for a very narrow bar to signal that volatility has ended.
The volatility was huge as bottoming processes always are, price was bouncing in a 5$ range so the hourly chart did not help on this example, back to the weekly chart to look for signals.

The strongest signal for a reversal needed the monthly chart forming the smallest candle at the bottom. And when both the weekly and daily chart formed their first higher low together. 
Lets analyze it:

1: The daily chart remained in a downtrend indicated by the declining 20 MA. And the LHPs forming under it. The next bounce retraced nearly 80% the drop and pulled back as it should in a DT.
2: Formed a HL. On the weekly chart as price held above the previous low.
3: Following the potent bounce the pull back was controlled and did not break the previous
4: Next day it opened with a higher opening gap closing above two LHPs. Totally putting the shorts on notice that something big had happened, the pullback back to support met my list for entry long:
5: The set up bar was the red bar and the entry was immediately after the higher opening gap (red arrow) inside a transition with bias higher, two days later price closed above a previous high and established its uptrend UT. Usually the pullback is buy able in an UT.
Exit was the low of the set up bar.



There you have it. Strategically looking for high reward low risk entries inside the trend and it work for shorting as well.
I which I had read this lesson 15 years ago. 


******Print some charts, FIRST analyze them, then paper trade them and see how they work for you.*****


For the second part of this lesson with 5 more different long setups click here: http://chalannn.blogspot.com/2014/02/finding-trades-at-specific-areas-inside_3.html

If this lesson doesn't make any sense to you, read the first ten lessons on this blog, because they explain in detail most of the method of use to analyze any stock in the markets.


Feel free to leave a comment. 

I can teach you to master the markets, I'm for hire if you're tired of losing $$$. 75$ An hour will hire me to help you put all the pieces of the puzzle together, if you are not a beginner or 4000$ USD Gets you a committed mentor for a full year. 




All charts were created with FreeStockChats.com and Scottrade Elite.
 

2 comments:

  1. Really enjoy your blog and lessons. Thank you.

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    Replies
    1. YW. My pleasure. If you have any question I spend my trading days on Stocktwits. All the best.

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