This lesson explains why most folks stay away from consolidations and chase momentum.
There are great rewards awaiting for those that understand the interaction between price and the trend on different time frames.
It looks hard but once you see how the next bigger
time frame affects the next lower TF. The technical picture becomes more
clear.
It could be the 15 minute chart affecting the 5 minute chart, it applies to all time frames.
The
resolution of triangles (symmetrical, ascending or descending) IMO Is
the best way to analyze price action inside congestion.
The monthly chart is just as important, I'll post an in depth analysis if I get some requests.
Grab a cup of coffee it will get????
If you are not familiar with trend pivot formation read this first:
http://chalannn.blogspot.com/2012/08/pivot-formation.html
1.The daily chart is in a downtrend judging by price being under its declining 20 MA.
2. A big bottoming tail forms on both the weekly and daily charts, after that, the bulls were unable to keep price moving higher, although the weekly chart overall is in an uptrend but in the middle of a very deep pullback (basically neutral) Thus needing more time to fix itself with a longer consolidation.
Back to the daily chart inside the now trend less state, sellers push price back down to.
3. Test the big Bottoming tail (#2) the selling stops again, price has a tepid bounce that forms a LHP And sends price lower again closing below the higher low, now has a lower low, this stock looks like it will continue going lower if it closes below #2
4. A higher opening gap closed above the first lower high pivot (LHP) And the next bar closed above the next pivot and big area of resistance, this stock is ready to re-establish it uptrend, it needs one more higher high low and one more higher high.
Back to the weekly chart: All the action described above forms a bullish engulfing bar on the weekly chart, that green bar completes the HLP. But price is near resistance, that resistance stops price, forms a lower high pivot LHP. Sending price lower, thus the hard pullback on the daily chart after a brief consolidation.
5. Remember that for the larger time frame to move higher the next lower time frame needs to move higher first, on this case the daily chart forms a higher low and begins to move higher thus forming a HL. On the weekly chart, this is your first signal that price is moving higher in both time frames.
Because the weekly chart has no clear trend after that hard pullback from its highs, once the tepid bounce forms a LHP. Gets established the odds are high of lower lows but if the buyers step in and form a double bottom or HL. Now the odds are high that price will move higher. (Each side is always testing each other, leaving footprints behind AKA Trend pivots)
6. On the daily chart price moves higher to that little area of resistance where price stops and goes lower in a controlled way and stops above its rising 20 and 40 MA. And on cluster support.
7. Forms a HLP (cup and handle pattern) Sending price higher to close above the double top.
After a long consolidation the bears try one more push lower but the HLP. Bounced price back, by the end of that day price closed above its rising 20 MA. With a bottoming tail, now the direction was clear for all to see.
8. On the weekly chart price closed above its lower high pivot but near resistance.
1. Once price tests weekly resistance, it gives the chance to longs trapped before the hard drop to get out at break even and they take it, sending price lower, the pullback on the daily chart gets deep because the weekly chart is controlling this pullback, meaning that price will stop on support on the weekly chart.
2. Price finds support #3.
4. Will price fall down to the next lower support area? Anything is possible.
Count how many higher lows and higher highs it has on the weekly chart? If you said it has two higher lows and one higher high, you are correct. It only needs another higher high to try to re establish its uptrend. The bulls are not going to give up that easily. The odds favor another leg higher because it's transitioning from sideways to uptrend.
1. Time for a test. On the first chart how was the double top (#6) on the daily chart resolved? How do you think the double top on the weekly chart (chart above) will be resolved if the pullback is controlled?
2. Same thing happens (cup and handle pattern) on the weekly chart, seen through the daily chart, price moves below the big bottoming tail thus taking all stops immediately finding buyers, next day crating a bullish engulfing bar and consolidates next 10 days.
Will that Bottoming tail create the set up bar on the weekly chart? Do you see where I'm going with this? On the daily chart for the next 10 days price just consolidates but the weekly chart is forming a?
3. On the weekly chart price keeps moving away from the set up bar after a small consolidation, seen through the daily chart forms a HL (blue circle) is the entry signal anticipating that the HLP. On the weekly chart will complete and price will begin its next leg higher? Because it has two higher lows and one higher high this next leg higher could be the next higher high. The risk reward scenario says it is a valid entry.
4. Price completes the second higher high. Now the uptrend gets established.
5. The weekly chart is getting extended and needs to rest if the bulls want to keep it moving higher.
1. After the extended move higher price consolidates for two weeks, the odds are high that it needs a pullback on its weekly chart. On the daily chart a violent drop gets bought by folks buying the dip, turns into a bottoming tail and HLP. That HLP Above its rising 20 MA. Signal higher prices if not violated..
2. On the test of the HLP. And R20 MA. Price forms a double bottom that ignites a powerful breakout but its weekly chart remains even more extended.
3. Next day a monster bearish engulfing bar traps many longs, forcing massive selling, inflicting a big technical damage to the uptrend.
4. Bearish consolidation at the bottom of the monster red bar forms a LHP. And the shorts take over.
How often does the weekly chart trades under obvious support takes stops only to form a higher low pivot and keep moving higher? Very often,
Take a look at the weekly charts of the SPY, QQQ And IWM On the third week in January 2014 and ask yourself what is set up that is forming?
Or just look at the same time frame all 2013 and look for the HLP and the upward continuations that followed.
Large moves ignite and keep going this way as long as the weekly chart is in an uptrend and rested.
The main points to take IMO.
1: In an uptrend or anticipating an uptrend once resistance gets tested it sends price lower but if the pullback is controlled the next surge will overcome that resistance thus the popularity of the cup and handle pattern.
2: in an uptrend or anticipating an uptrend, when you see that the formation of a HLP. Only needs one more bar to be completed, if price is near the set up bar and you enter long, place your stop under the set up bar because the risk reward is enormously on your favor.
3 Use both time frames to identify the hidden money making clues.
It looks hard but once you see how the next bigger time frame affects the next lower TF. The technical picture becomes more clear.
It could be the 15 minute chart affecting the 5 minute chart. It applies to all time frames.
Lesson #7: http://chalannn.blogspot.com/2014/01/the-monthly-chart.html
There are in more depth lesson on the first posts.
Feel free to leave a comment.
All charts are source: www.eSignal.com
Think about this: You started your trading carrier with 100K, without the proper education, experience, trading plan and mind set. After all you heard that the markets exist to make everyone rich, by the time you learned the opposite is true and how to be consistently profitable you lost 50K.
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.
A
ll charts are source: www.eSignal.com
Over the years I've saved and studied 1000s
of charts and this is the gist of it.
Will reading these lessons help your
trading? I think so.
Will these lessons help you
master the
markets? Yes, if you have the time it requires to implement every step,
in a few short years you'll uncover some key nuances that were omitted
or not emphasized on the lessons.
If you are not familiar with basic trend formation analysis this lesson will not make sense: Please read this lesson to get more familiar with most things trend related:
http://chalannn.blogspot.com/2012/08/trend-analysis-using-pivots.html
Edit Sep. 15 2014: This lesson applies to normal cycle's behavior inside the auction. Climactic cycles behave very differently as has been explained here:
http://chalannn.blogspot.com/2014/01/finding-trades-before-new-trend-gets.html
One of the reasons some folks get in trouble shorting the markets when the markets are extended is because they ignore the market cycles, I mentioned on a previous lesson that as long as the 15 minute chart remains in an uptrend the 60 minute and the daily charts will continue moving higher, fair enough.
On example A: Price on the 15 minute entered a downtrend (Now has two lower highs and two lower lows) but on the 60 minute chart it's only a controlled
pullback to support in a clear uptrend, judging by the rising 20 MA. (red line)
On
example B: The pull back ends on the 60 minute chart, it takes control of price, begins another uptrend
cycle higher to close above the previous high, the uptrend continues on
the 60 minute chart, by now the uptrend on the 15 minute chart gets
re-established again and why not? The daily and weekly charts are both in an uptrend.
I just mentioned 5 reasons the odds are very high for price to continue moving higher so if you shorted without a clear technical reason you are trapped!
Example A: The 60 minute chart failed to keep its
uptrend going, the first clue was that buyers were overwhelmed by sellers
forming the first lower high (LH), that is the first technical low risk
high reward aggressive short entry with the protective stop above the
double top.
Sellers kept overwhelming
buyers forming a clear cycle/ waving lower, price finally entered a
downtrend (DT). Price got under its declining 20 MA (Red line). Forming a
red bar on the daily chart, the odds were high price would have a
deeper pull back to support or straight red line, the weekly chart is still
green.
When will the 60 minute chart stop
its DT? And what is going to take for the uptrend (UT) To be
re-established if at all? First it needs to form a higher low signaling buyers
taking control, very likely at support on the next larger time frame or
daily chart.
Example B: Above shows the 60 minute remains in a DT. The daily chart continues its controlled pullback to support and the weekly chart is forming a topping tail after three green bars.
Once price reaches that support on the daily chart, combined with the fact that it remains in a clear UT Increases the odds for a reversal and the beginning of the uptrend cycle bounce. As long as the 60 minute chart remains in a DT The daily chart continues moving lower.
On the chart below: Example A: The 60 minute chart just formed a higher low,
the daily chart now on support, the odds are high that the next cycle higher
begins on the daily chart to either make new highs and continue its
uptrend or form a lower high double top and either begin consolidating
for another break out or begin the cycle lower like the 60 minute chart
did two charts above, the weekly chart is extended to the upside so the
odds are high of no new highs on the daily chart.
Example B: The 60 minute chart re-establishes its uptrend, the daily chart begins to cycle higher, as long as the 60 minute chart remains in an uptrend the daily chart will keep moving higher.
The weekly chart is extended and if it is near resistance on this time frame it will pause and either form a base to absorb all the selling from those trapped longs that had to wait for price to return for them to get out, or a have a controlled pullback to its R10 MA. We just don't know, the clues will be given on the potency of the pullback, if it is shallow or deeper will send different signals; more in depth analysts of this below.
As long as the daily chart keeps up trending the weekly chart keeps moving higher, maybe this is AAPL Stock from 400-700$. That is why we analyze the market cycles from the monthly to the 15 minute chart.
The weekly chart is now extended after four green bars to resistance, the daily chart had a pullback to support, the odds are high that no new highs on the daily chart will be made because the weekly chart is not only extended but at resistance, right?
The daily chart is in an uptrend, for the weekly chart to stop going higher, the daily chart has to stop its uptrend by forming a double top or a lower high that could send price below the last higher low for the uptrend to enter into a trend less state, and eventually maybe a downtrend.
But what happens when once the lower high forms putting the UT in question, sends price lower but price stops above the HLP? Forms a double bottom, signaling what direction?
That means that the weekly chart remains in control, if sellers are unable to push price lower, then the longs will try to push price higher simply because the daily chart is not ready to go lower, then the previous top is the target.
Forward price two weeks later, the double bottom signaled to the bulls that there were no sellers and the previous high was the target, price traded and closed above that high thus re-establishing the uptrend on the daily chart and price kept moving higher on the weekly chart.
On the next chart price is in an UT. Has a semi deep pullback on its weekly chart that stopped on cluster support and rising 10 MA. This time it took much longer on the daily chart to fix because of the deepness of the pullback, it needed to form a W Bottom first to signal that the weekly chart was ready to turn higher.
Then the UT Cycle on the weekly chart took control of price sending it to the top and closing price above the previous high, that confirmed the uptrend continued on this TF. And any controlled pullbacks on the smaller time frame or daily chart was buy able as was the case on the first chart.
On the next chart:
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.
What if instead of new highs the bulls are too weak to
close price above the previous high just forming a double top on the
weekly chart?
This is one scenario you don't want to see if you are long this stock or ETF. Because a double top on this time frame has to be resolved in the same time frame, taking many weeks for a pullback to shake some weak hands, gather all the bulls at support if any, or build support by forming a higher low pivot HLP. To try to ignite the next cycle higher and another try at the highs, but as the days progress the risk increases of bad news and lower prices, specially if this stock or ETF. Has been moving higher for many months, the pullback won't be buy able unless it's controlled, forms a HL Pivot as was the case two charts above and the daily chart has formed a higher low or W bottom, signaling the next larger time frame is ready to move higher.
Notice that the daily chart continues in a wild DT And as such the weekly chart continues moving lower.
Not all stocks drop 30% after forming a double top on their weekly chart as shown on the chart of TLT Above but this lecture was written to open your eyes to the possibility of trouble if the longs are unable to keep the uptrend on the weekly chart of the stock or ETF. You are holding.
And that is how all the time frames cycle all the way from the weekly to the 15 chart, opening gaps have the power to interrupt and at times drastically change said cycles.
Lesson 5 More on using the weekly chart as your guide for longer trade cycles: http://chalannn.blogspot.com/2012/08/the-weekly-chart-confirms-you-trading.html
Back to basics, this is how trend pivots form:
http://chalannn.blogspot.com/2012/08/pivot-formation.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
Feel free to leave a comment.
All charts are source www.eSignal.com
Read this lesson to
understand how price cycles through all time frames:
http://chalannn.blogspot.com/2012/08/time-frame-cycles.html
A small candlestick formation lesson:
The previous two lessons examined how trend pivots form
and how to analyze the trend to capitalize on it. This short lesson will analyze the
interaction of the crowds seen through price, space and time, all that
information combined will form a candlestick, at the desired time frame
you want to analyze the action.
This a very critical part of the foundation for a simple yet effective plan.
Four days later:
Four days later, after the market closed on Friday. Now the weekly candle has
completed, lets recap: Monday's higher opening gap immediately sold off, seen through the
daily chart it turned into a big red bar, the next four days buyers stepped in pushing price back to the top
and cancelled that big red bar thus forming a green hammer on the weekly
chart.
Here is your first test to see how much attention you were
paying on the trend pivot formation lesson:
On the daily chart a higher low pivot HLP. Just formed, can
you find it and what is that HLP. Signaling?
When does the weekly chart confirms your bias?The
fist thing you have to look on the next larger time frame if the daily chart is ready to break out after some consolidation, like in the chart above is what some people call blue sky or an area without resistance or supply that will stop the B/O On its tracks and send price right back to the base. Some folks only trade new all time highs because they have no resistance above.
You glance at the larger TF. Or weekly chart and if it has a no resistance zone overhead for price to continue
moving higher it is confirming your bias that price will continue moving higher now that the resistance on the daily chart was cleared.
Ideally all long trades should be this easy and they could, if you only look out for the patterns on the two charts below.
The chart above has two different stocks, their weekly charts had very bullish patterns, both were in uptrend and were moving higher.
The
top half its a great pattern to swing trade long because the weak hands were shaken out on the controlled pullback to its R10 MA. The daily chart did not give a clear entry signal, when the weekly chart was ready to move higher.
When the daily chart doesn't give you a clear entry pattern you must zoom down to the 60 minute chart to look for the early signs of trend changing like a higher low pivot HLP. Beginning to form on that time frame or higher lows and higher highs and another HLP. Beginning to form entry, I'll post some charts on that subject eventually.
The bottom half chart it's a beauty
because the daily chart was showing you three full weeks of bullish
consolidation, two HLPs formed while waiting for the 20 MA. To touch price and once the
weekly chart absorbed all the supply, that ignited the move higher.
Will
both stocks continue higher? I have no idea but higher highs and higher
lows begets more higher highs and higher lows thus the uptrend, that and they
don't look very extended.
Two different stocks, both had very
bullish weekly charts, both of them show you how the daily chart can
give a signal for an early entry confirmed by the larger time frame.
The daily
chart, How? Both weekly charts were up trending, near the rising 10 MA.
Following a controlled pullback, the odds were high of a bounce, zoom
down to the daily chart, the top half was up trending, the higher
low set up bar (possible new HLP. Forming at that time) was a good
entry, placing your stop below that new HLP.
The bottom
stock had a bullish weekly chart, its daily chart was in a downtrend but the
higher low (possible new HLP. Forming setup bar at that time) stopped the
downtrend, pushed price higher and closed above the LHP. Thus signaling
higher prices.
That is why some folks only trade breakouts, fair enough now lets look at the soundbite that says professionals buy low and sell high to non professionals.
The chart above shows you why I told you at the beginning of this lesson to read about the influence that the monthly chart has on the smaller time frames.
On the chart of FAS There are three time frames, the mains ones, The eight months displayed on the chart seen through the daily chart shows so much volatility, I counted at least two downtrends and three up trends, it's a mess.
On the weekly chart I see a volatile uptrend once put in question and then resolved judging by the rising 10 MA.
The monthly chart only shows consolidation that lasted nearly four month beginning seven months ago.
Marked with the red lines near the bottom of the candles on the monthly chart, it gave three big signals of where the big funds defended the up trend on the weekly charts, also seen thru the daily chart, this is a very powerful strategy if applied correctly.
On the chart above the daily chart entered a downtrend (inside the red circle) before the last drop it formed a higher low bouncing near the lower high pivot putting the downtrend in question marked with a red asterisk on all three TFs.
The weekly chart after closing above its previous high had a pullback that looked controlled, it even formed a bottoming tail setup bar to form a HLP. To move higher? (signaled by the same red asterisk).
I posted so many times that when the weekly chart is ready to turn higher the daily chart signals those intention first by forming a HL. First and then closing above the last LH Pivot (Pivots are my fascination because they have that ability to stop price at the right time) putting the trend in transition with bias higher.
What happened? Why price wasn't able to close above the lower high pivot?
The monthly chart happened, it had moved up for five straight months and was in the middle of consolidating that big move (Same red circle) and that takes a long time.
Back to the daily chart, by not being able to close above its LHP. Thus sending price above the bottoming tail on its weekly chart, the next day it gaped lower and price collapsed because the weekly chart began forming another red candle (signaling no HLP) Sending price all the way down to test the previous lows where it found support, that action took three months, as seen on the monthly chart.
Once it tested the lows it formed a double bottom on the weekly chart, it then triggered a bounce higher seen through the daily chart, it had a large move out of nowhere to close above the previous high because both the monthly and weekly charts were cycling higher.
After that volatility contracted and the weekly chart gave better entries on the formation of HLPs near the bottom of the monthly candles as indicated by the red lines.
And that is the reason why you have to understand where in the monthly cycle price is and if the weekly chart is confirming your investing bias and entry?
Lesson 6 Much more on using the weekly chart to confirm your trading bias: http://chalannn.blogspot.com/2012/09/in-depth-trend-analysis-using-three.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
There are more in depth lesson above.
Feel free to leave a comment.
All charts are source www.eSignal.com
I've been trading for so many 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. Don't believe it?
http://www.zerohedge.com/news/2015-01-17/everest-macro-hedge-fund-blows-after-nearly-1-billion-swiss-franc-losses
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.
Disclaimer: if you like to use these strategies, paper trade them first until you feel extremely comfortable risking your hard earned money. Specially when shorting stocks as they have inherently higher risk.
First, understanding that the monthly and weekly charts have total control of the daily chart is a must.
Or just skip all them lessons, read the time frame cycles lesson to get the general idea of how the larger time frames control price.
Read this four links about the monthly chart:
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
After that read how all time frames interact with and influence each other: http://chalannn.blogspot.com/2012/08/time-frame-cycles-from-monthly-to-15.html
After reading the lessons above you are ready to put your hard earned money on the markets right? You checked the monthly chart and looks green and not too extended, even better if it has been resting for a couple of months. Now lets check the weekly chart to look for clues about direction for the next four weeks.
Read how the weekly chart controls the daily and 60 minute chart and vice versa:
http://chalannn.blogspot.com/2012/08/weekly-and-daily-charts-absorbing-supply.html
http://chalannn.blogspot.com/2012/09/will-daily-chart-enter-downtrend.html
http://chalannn.blogspot.com/2012/09/1.html
Crazy!! I know, you thought taking money from the sharpest minds on Wall street could be easier.
Now that the monthly and weekly chart line up with your direction bias, it's time to find the early signs that the daily chart will begin forming an uptrend
The very first lesson on the blog showed us how trend pivots form.
Now after multiple pivots have formed, if the buyers have control over the sellers a new trend will emerge, this trend will dictate my trading bias.
I
have a trading plan that helps me narrow my trading choices, simply
because inside the markets (auctions) there are no rules by design, to protect us from everybody else that is trying to take our money away from us. (this isn't even a zero sum game, when you enter the trade you are negative considering the trade's commission) Said plan also protects me from my own mistakes, so I had to create a plan to protect me from myself first. One of the rules on said trading plan dictates that I only trade on the long side
or that I only buy up trending stocks on their daily charts provided
their weekly charts are in an uptrend and have room to move higher after a controlled pullback.
Some times the weekly chart is in an uptrend but having a needed pullback as explained on time frame cycles lesson or reviewed in detail throughout this blog.
The pullback on the weekly chart will put the daily chart in a downtrend for the duration of said pullback, this is the only time one can look for signs that the downtrend is about to end to anticipate the bounce with good R/R Odds aggressive entry, that signal for entry will be as soon as the first HL Forms stopping the DT As showed on the chart above, because for the pullback to end and to bounce on the weekly chart, the daily chart will re-establish its uptrend first, thus reversing direction on the weekly chart.
I absolutely avoid buying down trending stocks on their daily charts when their weekly charts are in a downtrend or their monthly candle is forming a giant red bar on the monthly chart, unless
they become climactic or in capitulation stage but that will be another lesson you'll find here:
http://chalannn.blogspot.com/2014/01/finding-trades-before-new-trend-gets.html
On the chart below we can tell that the daily chart is in an uptrend just by looking at price above its 20 Moving average (MA) which is above the 40 MA. Also above the 200MA.
One of the simplest money making strategies in a trending market is to buy near the rising R20 MA. As it acts as support (Is not solid support but some buy side computer programs buy as soon as price touches this MA.) As long as price is clearly up trending as shown on the chart below. This strategy does not work on flat markets.
What defines a trend? Better yet how can one easily identify a trend? I will not bore you with technicalities, An uptrend is described as two higher lows HLs and two higher highs HHs, at some point trends do come to an end and the easiest way to visually see them ending is through a blow off top or climax top process, for the most part they end when sellers overwhelm buyers forming a noticeable lower high (LH) if in an uptrend, and even then the LH only puts the uptrend in question as shown on the first chart below, it formed a LH, price even closed below the last higher low (HL) formed another LH, and now having two LHs and one LL this area I call the critical point in the trend that usually
gets buyers motivated to salvage the trend and creates a very profitable trade with good
risk reward when I can find them, because price needs to close and complete the second lower low (LL) Remember two lower highs and two lower lows establish a downtrend, but some times buyers are not ready let the stock begin the D/T and will push price back to the top or even new highs before the downtrend gets established as was the case.
This battles for the trend happen every day in all time frames in some stocks and ETFs.
The second chart shows you how an old trend changes and a new one emerges, price was clearly in a D/T forming LHs and LLs, all of the sudden it forms a higher low signaling sellers exhausted and putting the D/T in question, after that buyers showed up pushing price above a LH Pivot putting the trend less stock in a transition stage from downtrend to sideways to uptrend? Well, to turn it into an uptrend the next pullback needed to be controlled and form a higher low and it did, after that buyers pushed price higher enough to close above the previous higher high forming the now second higher high thus establishing the new uptrend.
The red arrows show the best entry points for the high probability beginning of the new trend
On the third chart the buyers were overwhelmed by the sellers at the critical area judging by the biggest red bar closing below the first LL, after that price was under its decline 20 MA. With the D/T established.
On this new chart below we can see the LH Pivots forming when price bounced and touched its declining 20 MA. Another good way to visually measure the selling intensity is to measured the drop from top to bottom versus the technical bounce (dead cat bounce) higher to be no more than 50% of the previous drop only to begin the next wave lower to match the last drop, sort of in a measured move, an 80- 100% retracement of the last drop signals a possible surge in buying to stop the D/T.
Remember a downtrend has two lower highs and two lower lows.
Lesson #3 Anatomy of the setup bar: http://chalannn.blogspot.com/2014/03/anatomy-of-setup-bar-then-possible-hlp.html
Don't take my word for it, print some charts from the monthly to the 5 minute time frame of trending stocks on both directions and analyze the pivot formation around the 20 MA. And the way price behaves when the trend becomes questionable?
I hope you learned something valuable.
Feel free to leave a comment.
All charts are source www.eSignal.com
Welcome.
If you are looking for certainty inside the stock market, find another hobby or carrier, markets are very uncertain.
Over the years I've saved and studied thousands
of charts and this is the gist of it.
Will reading these lessons help your
investing/ trading? I think so, they help me every single day.
Will these lessons help you
master the
markets? Yes, if you have the time it requires to implement every step,
in a few short years you'll uncover some key nuances that were omitted
or not emphasized on the lessons.
Trading consistency can be acquired once you removed all the things that are confusing you. Price is king.
All things being equal technical analysis helps you
analyze who is in control of price at a given moment by simply observing
a chart that meets certain parameters that you have trained your brain to
recognize in practice or theory.
like
trying to catch a fly ball should be easy once your brain subconsciously
measured the ball's direction, elevation, velocity and distance from you. The wind's velocity, the weather on the field and everything else that applies at that moment the
ball is fast approaching your glove.
Said mental analysis gets acquired after a good amount of game theory and practice, with that experience you end up catching the ball with ease most times. Isn't your trained brain awesome?
That
is why technical analysis TA. Exists, to help people make an educated guess by weighing the odds to help them anticipate future
direction of price with a good degree of accuracy, in time you'll develop that ability if you invest time to study it.
That said TA. Can't
always help you guess future price with good accuracy, back to the fly ball analogy,
when you are trying to catch the same ball under the same conditions but a tornado gets in your way totally changing the direction of the ball,
what should you do? (you should always have a plan for that, too), you have to get out of the way to avoid getting hit in the head with the ball.
That
is where TA. Finds its limitations. When big news affect your stock, it
breaks the perceived equilibrium between buyers and sellers in the form
of big opening gaps or big violent bars that totally traps one side and
creates a massive share imbalance (and throws the chart into chaos). If you are trained to recognize how the masses get trapped, taking the opposite side of their trade will make you lots of money.
Stable
trends in a moving along economy for the most part don't change that
easy on the weekly and monthly charts of most stocks because the big
funds can not accumulate or sell millions of shares of any company in a
single day with out altering the price too much thus the ebb and flow to
accumulate on the pullbacks and or to sell on big up moves, if the
larger time frames agree.
First: The most important piece of the
technical analysis puzzle: Trend analysis and the inflection points of
new trend formations.
The second: Trend pivot formation, interaction inside the trend and the signals it sends.
The third: The influence the larger time frame has (the daily chart in this case) on the direction of the smaller time frames (15 minute chart in this case).
The fourth: Momentum helps you visually analyze the involvement or lack thereof from the masses inside the auction, powerful up moves that form shallow pullbacks near an area of support or resistance? or nothing in the case of a new all time high. And what action most likely will follow? It depends on the answer of the first question.
The fifth: A bullish consolidation near the top of a range, ready to break out in an area of zero or no resistance above it signals the intentions of the masses to push price to a higher level with ease, because inside an area of no resistance most sellers were absorbed before entering it, there are not many sellers left to stop the next leg higher as seen on the QQQ chart (lower right). Price like water follows the path of least resistance.
The sixth: Look for a noticeable increase in volume to confirm the ongoing breakout, without it odds are high is a trap.
The chart of AAPL. On this day, after the HL Pivot Had completed on the 15 minute chart it gave a 7$ reward to all longs that were holding for next cycle higher. This pattern (followed by algos or computer programs inside the auction) repeats itself in all time frames, it's very rewarding specially on the larger time frames.
This HL Pivot formation on the upper part of the big move is followed and capitalized by many professionals, this area is where Fibonacci retracement are widely used to gauge the signals the crowds are sending about the coming move.
That is why the set up bar is so important in trend analysis, combined with other factors reviewed on this blog, it alerts traders and algos that the odds are high a new HL Pivot will complete and the next move will be in the direction of the prevailing trend if is not too extended.
Don't worry if the explanations above don't make much sense, after you read 20 lessons on this blog, it will make much more sense.
Next chart displays the interaction of trend pivots, moving averages and the void or lack of resistance overhead or support underneath, on a bounce that ended up changing the trend.
When a possible change in the trend is occurring, most market participants won't know it's taking place unless they recognize the anatomy of it. But you'll recognize what is happening once you understand this lesson.
Seen on two different time frames the daily and weekly charts. For more in depth analysis of the trend read the next lesson.
Lesson #2 Trend analysis using pivots: http://chalannn.blogspot.com/2012/08/trend-analysis-using-pivots.html
Putting it all together: http://chalannn.blogspot.com/2014/02/finding-trades-at-specific-areas-inside.html
Lesson's exercise: Have a daily chart with only candlesticks and moving averages (no indicators of any kind), look for the obvious trend, where is this seven candle formation called pivot forming and what happens after it forms?
Hopefully you can begin deciphering a new simpler message the markets are sending.
If you are a
beginner or seasoned in the markets but not making money consistently
I'm for hire for a few hours, days, weeks or months, if you need a
mentor I'm for hire. Send me an e-mail at digitalair@hotmail.com
This page describes the method that I use to analyze any stock, ETF, FX Currency markets, etc. Because price is determined inside an auction, everything supply and demand related can be put on charts to be thoroughly analyzed.
Patterns
are the visual representation of the expectations of market
participants,
their behavior can be analyzed in depth to gauge how they are feeling
about certain market conditions and to identify where they are trapped
or about to be to trapped, to take the other side of their trade, thus
becoming a cotrarian trader when the charts are giving you the right
signals.
Over the years I've saved and studied 1000s
of charts and this is the gist of it.
Card counting at the Black Jack table is "discouraged" in states where gambling is legal, but why? When the
dealer is using two decks of cards and most of the single digit cards
already came out, a sharp card counter knowing the odds are in his/ her favor can make higher bets and beat the establishment.
There is a way to do the same, legally on the stock market. Successful trading/ investing is about executing the trade once the odds align in you favor, the higher the odds the better the results. MOST OF THE TIME.
To beat the markets we need to find the area in the chart where the best odds are on every trade we take, because there is no 100% certainty on anything market related.
The
easy money has already been made by all participants in the markets, It
is clear now that the markets turned predatory six months ago when QE
ended, popular patterns that worked during last
six years won't work consistently anymore and will trap the masses
because professionals know that newbies and retail money are the last
remains of the low hanging fruit.
Sharpen
your analysis skills of king price as explained in depth on this blog, stay out of
the markets if the violent moves don't make sense to you.
I've been trading 20 years, the first years were hit and miss, long and frustrating because in my opinion this industry thrives on deception and confusion.
After reading many books on technical analysis and trying all the indicators they recommended I wasn't able to improve my trading results.
Eventually
I found a method (explained on this lesson) that was simple enough for
me to use and get consistency in all markets on any direction, it
analyses price action mostly.
Again. I use dozens of strategies but they all derived from this method.
Here is a list of issues
that took some years of learning the hard way to make the method more
solid. I'll try to explain them throughout the lessons, if you
understand them and implement them, they will help you become a better
trader or investor.
1- If you are not making money consistently or making it but losing it back, stop trading until you can correct what's causing the loses. Capital preservation is your number one priority during this process. If you are new to trading, find a coach, there is no need to create psychological scars by taking on a long and costly learning curve.
2- Find a method that best fits your personality and improve on it, the simpler it is the better.
3- Always trade with the trend on your side, learn trend analysis.
4- Don't trade against the prevailing trend unless it got very extended or has climax volume.
5- Don't buy after an extended move (missed money is better that lost money) wait for the auction to shake down late buyers and weak hands to enter once the pullback PB. Losses downside momentum, said PB Needs to be shallow. Or let price form a base first.
6- Learn to identify when the masses are trapped to bet on the opposite direction, Gaps, engulfing bars, long bases that breakout/ down immediately reversing violently trapping the unsuspecting thus creating a massive price imbalance, among other advance techniques.
7-
Break outs/downs from long bases that have follow through in the
direction of the prevailing trend offer the best risk/ reward trades.
8- Learn how the monthly and weekly charts influence the oscillation or wavelike behavior of price on the daily chart, even intra-day time frames.
9- Study price behavior on areas of support and resistance.
10- Learn to read price action: Price momentum, expansion or contraction and the message these signals send.
11- Learn how and when trend pivots form to identify places in the chart to put your stops to protect you in case your trade doesn't work thus avoiding massive losses.
12- Write a trading plan and follow it.
13- Use appropriate share size to always risk losing the same amount of money on each trade.
14-
Do not trade with SCARED MONEY. Give your trade room and time to work
once the right area in the chart has been identified, let the trade hit
your target or your stop.
15- Avoid
emotional trading: Use a technical map or charts to enter and exit your
trades, print charts of said trades to analyze your entry and exit
points, if you made an obvious mistake write it down on the chart,
analyze it over and over again so you don't commit that mistake again.
16- At first get very familiar with no more than three price patterns to trade, once you master those then begin leaning more.
17-
Never average down on a losing position. Unless your proven trading
/investing plan allows it. Some stocks turn into money pits: WLT. VJET.
NUGT. DDD To name a few.
18-
Trade what you see in the charts even if it contradicts what you
believe will be the outcome. I mean if the headline on XYZ Is extremely
bearish but you see it has a cup and handle pattern on the daily chart
ready to explode higher, and it does on heavy buying volume, do you long
the stock or stay out because of the headline or your bias? Use stops
in case computer programs (algos) agree with your suspicion.
19- Paper trade until you can prove yourself that you can make $$ consistently.
20- Stay away from using margins unless you truly understand it's risk. Swiss Franc FX Markets anyone?
It looks like a big list. I know, so many issues to help you take money consistently from the smartest minds on Wall street.
Actually is more like a puzzle that I'll try to put together throughout the lessons on this blog.
I think
that if you study these lessons with an open mind, print some charts
after that to test what you learned, you'll become a much better trader/
investor.
There are more in depth lesson above.
Feel free to leave a comment.
All charts are source www.eSignal.com
