This is part II of the lesson I begun last week about using different
techniques and tools to identify low risk/ high reward areas of entry
way outside of an established trend.
Click here for the part I: http://chalannn.blogspot.com/2014/02/finding-entries-outside-established.html
To be clear most of these examples had some help from
their weekly charts being in an uptrend or had violent drops exhausting all selling.
Some examples
will be more art than science, the idea is to identify long trades when
the markets seem to be offering zero long trades inside panic or the
patterns on the monthly and weekly charts don't support your bullish
bias yet stocks bounce and even retrace back 100% Their big drops as was
the case during the first half of February 2014, This lesson was
inspired after analyzing how the SPY Was able to bounce inside an area
of no clear support, retracing nearly 6% and what clues did it offer to
identify future opportunities.
One very critical concept one (you, me) must understand and believe is that as an strictly technical analyst, fundamental analysis means little until it does, in 2012 AAPL Had a power up move that has being analyzed on the lesson: the monthly chart part II.
During the length of said up move, some times it had controlled and some times it had violent pullbacks and every time AAPL Kept pivoting higher as it was making new all time highs during all that time so it needed to form its own support in areas where was none, either in the form of 2X bottoms, higher low pivots, etc. And kept moving higher until it reached 700$.
Because AAPL Had a solid fundamental reason to move higher as it was introducing great products and such, I guess.
In 2013 Stocks like VJET, DDD, ONVO To name a few had parabolic moves on pure speculation and dropped,
In the year if our Lord 2014 They haven't being able to go back to their highs seen in 2013 so I gather all three had no fundamental reason for their parabolic move.
Basically strong stocks and ETFs create their own support where there is visible none in the charts so pay attention to 2X bottoms, W bottoms, 3X bottoms, higher lows, higher opening gaps, breakdown failures that trap the shorts, long bearish consolidations that fail to breakdown, or any other signal that obviously interrupts the down trending cycle on the time frame your looking at, in this case the daily chart.
I
separated and highlighted the Fibonacci grid into three zones, be VERY
AWARE that the deeper price falls inside these grids, the more price will need
to form longer bases to bounce back to the highs. The
upper 37% I call it the green zone to look for entries, the smaller the
drop the better to continue moving higher as it shows no sellers.
The next lower level 26% or from 63% to 37% I
call it the yellow zone, where one can find entries but some hard
evidence of price reversing is necessary such as multiple narrow
bodies following a big drop or a clear double bottom signaling the possibility of price moving back to the top.
The last level under
37% to 0. I Call it the red zone and chances are low of finding long trade entries
unless supported by big support on the bigger time frames TFs, multiple
narrow bodies following a big bar or a clear double bottom.
The chart above displays three different time frames of the SPY.
I separated the time progression of price on a blue box of a whole week of action from the weekly, daily and 60 minute charts during a 15 day period.
On the top half of the chart, the weekly chart had a violent drop but was still far from support on the higher low pivot HLP. Or any other type of support to bounce from.
On the following week's action as seen outside the blue box it tested the HLP. Support.
It was one big drop as seen on the 60 minute chart where I laid a Fib. Grid the size of that drop, price begun to form a base on the red zone but wasn't enough to send price higher because first the bounce was weak, second it was only the third day of the new week and the weekly candle was forming a red narrow candle following a big red one, it was signaling that volatility was ending but not ready to bounce back to the top.
Remember that the bigger the drop the longer the base needs to be from where to bounce, most of the times.
On 60B It shows the whole five days through the 60 minute chart where price consolidated but couldn't trigger a bounce higher, the weekly chart kept weighing heavily following the resting period because the HLP. Support wasn't enough to bounce price higher causing another drop to find bigger support.
On the 60 minute chart I laid a Fib. Grid the size of the first drop once price rolled lower again to get some clues on the strength of the selling, price stopped going lower right at the 100% mark of the size of the first drop.
On 60C Price stabilized again, it had a weak bounce, formed a lower high only to form a LHP. To move lower again where I laid yet another Fib. Grid the size of the first drop starting at the lower high, but this time price on the green zone formed a double bottom.
Ask yourself why did price stopped going lower at such a shallow level in the fib. Grid compared to the other two big drops and what is that stoppage of the waving lower signaling and should you be getting in?
Price begun to move higher with more conviction, once price cleared the LHP. Area it had no resistance above, it bounced all the way to the top, retracing 100% The big drop turning the candle on the weekly chart into a big bottoming reversing tail.
On the top half of the next chart it shows the continuation of the potent bounce, I moved the Fib. Grid that I had just recently lowered to measured the strength of the bounce and price kept moving higher.
Why three green zones on that Fib. Grid? Because it was an oversold bounce into an area of zero resistance.
On the lower half of the chart I moved higher the same size Fib. Grid, once the second drop was retraced 100% Because on the first day of the new candle on the weekly chart there was no pullback just a very tight consolation (red asterisk seen on the 60 and daily charts) as price was about to enter another area of zero resistance above.
Four days later it retraced nearly 100% the first big drop, The lower gap opening that was immediately bought forced a shakeout of weak hands and released some overbought pressure IMO.
I told you, a very strange way of using Fib. Grids where some times the red zones turns into green zones if price begins to behave out of the normal wave forming behavior.
Should one always buy double bottoms? It depends on your trading plan, they don't work most of the time in a price vacuum, if price is near support on the larger TF. They have much better odds of working as explained in detail on previous lessons.
If you want to speculate on a high risk/ reward trade and you must enter a high risk double bottom, look for entries near the prior lows as much as possible if declining momentum has clearly slowed, with a tight stop to get out in case the big bounce doesn't materialize or worse price forms a LHP. To continue moving lower because the larger TF. It's not ready to move higher.
The chart above shows three time frames for FB. Its weekly chart was in a very strong uptrend but began a pullback to release some overbought pressure, shake some weak hands and to form a HLP. To move higher after a good shake down..
On the daily chart at #1 It shows one last higher opening gap to close the weekly chart with a big green candle, then it begun a ten day big pullback that retraced 100% the up move changing the uptrend to sideways on that TF.
#2 The bounce that followed was 50% the size of the big drop, formed a lower high pivot LHP. And continued moving lower where it closed under the last lower low pivot putting price in transition with bias lower.
Notice that the second drop indicated by the purple lines was smaller that the first drop.
#3 & 4 Shows the 60 minute chart in a downtrend. I laid a Fib. Grid the size of the last drop.
Once price formed a lower low on the daily chart it bounced 50% the size of the last drop to its declining 20 MA. Only to form a second lower high pivot LHP. Sending price lower to test the lows from six days before, where price found some support, consolidated four more days, finally collapsing and closing below the first lower low, thus establishing a new downtrend on that TF.
The purple line #1 Is bigger than #2. Purple line #2 And #3 Are the same size, if price drops to the bottom of the third purple line it will show the same amount of selling than the previous drop.
On the 60 minute chart it showed the same thing, the first drop was from 49.50 to 46$ Then I laid a Fib. Grid the same size of the first drop, from 47 to 43.50$ #4 and #5. Once price reached 100% the size of the first drop price stopped going lower, then had a potent reversal candle as seen above # 5. Right on the spot the third drop on the daily chart had reached 95% the size of the second drop and signaling a decreased on selling pressure.
That potent bounce on the 60 minute chart carried price all the way to the top retracing 100% of the drop, moving price on both the daily and weekly charts higher.
That bounce on the daily chart looked like it was going to stop again at 50% the distance of the last drop near its declining 20 MA. On resistance to form another LHP. And keep waving lower on and on, except that the weekly chart was in an uptrend but having a controlled pullback to pivot higher, it had formed a bottoming tail and possible setup bar on the last bounce on the 60 and daily charts.
#6 Price looked like it was going to begin waving lower again but it broke out higher with a big green bar, moving price further away from the low of the bottoming tail on the weekly chart and confirming the formation of the HLP. On that TF.
Once the HLP. Formed on the weekly chart a new up cycle began sending FB. To new all time highs soon after.
To understand time frame cycles read here:
http://chalannn.blogspot.com/2012/08/time-frame-cycles-from-monthly-to-15.html
I'm not going to bore you more with technicalities but to get an idea of how important it is to guess and anticipate where the next setup bar will form on the daily chart to continue the move higher on the weekly chart I present to you without comment: NUGT
Other than to recommend you to read the lesson on how and why the setup bar and the ensuing trend pivot forms, click the link:
http://chalannn.blogspot.com/2012/08/anatomy-of-trend-pivot-disclaimer.html
If this lesson doesn't make any sense to you, read the first ten lessons on this blog, because they explain in detail the method I use to analyze any stock in any market.
Feel free to leave a comment.
All charts are source www.FreeStockCharts.com
Ideally we have a trading plan that says find stocks trending higher then find entry inside that trend, the lesson finding trades inside an uptrend part I and II below already has that covered.
This lesson will be more about using different techniques and tools to identify low risk and high reward areas of entry way outside of an established trend.
To be clear most of these examples had some help from
their weekly charts being in an uptrend or had violent drops exhausting all selling.
Some examples will be more art than science, the idea is to identify long trades when the markets seem to be offering zero long trades inside panic or the patterns on the monthly and weekly charts don't support your bullish bias yet stocks bounce and even retrace back 100% Their big drops as was the case during the first half of February 2014, This lesson was inspired after analyzing how the SPY Was able to bounce inside an area of no clear support, retracing nearly 6% and what clues did it offer to identify future opportunities.
One very critical concept one (you, me) must understand and believe is that as a pure
technical analyst, fundamental analysis helps little in analyzing price behavior until that overwhelmingly changes, in
2012 AAPL Had a power up move that has being analyzed on the lesson: The monthly chart part II.
During
the length of said up move, some times it had controlled pullbacks and some other times
it had very violent ones and every time AAPL Kept pivoting higher as it
was making new all time highs, during all that time; so it needed to form its own support in areas where there was none, either in the form of 2X bottoms, higher low pivots. ETC. And kept moving higher until it reached 700$.
Because AAPL Had a solid fundamental reason to move higher as was introducing great products and such, I guess.
In 2013 Stocks like VJET, DDD, ONVO To name a few had parabolic moves on pure speculation and eventually dropped,
In the year if our Lord 2014 They haven't being able to go back to their highs seen in 2013 so I gather all three had no fundamental reason for their parabolic moves.
Basically strong stocks and ETFs create their own support
where there is visible none in the charts so pay attention to 2X
bottoms, W bottoms, 3X bottoms, higher lows, higher opening gaps,
breakdown failures that trap the shorts, long bearish consolidations that fail to breakdown, or any other signal that obviously interrupts the down trending cycle on the time frame your looking at, in this case the daily chart.
The chart above displays a measured move by TWTR. A measured move has a big impulse higher followed by a small pull back and a second impulse higher usually of the same length.
Following such a giant move, gravity and lack of buyers take over, sellers overwhelm the little buying and price collapses back to find support, this is where I find the low risk, high reward area I was referring to earlier.
A little warning, try printing some charts and see what you can discover.
I'll be analyzing opportunities that are easy to identify with normal tools like Fibonacci retracements, eye balling deceleration of momentum, trend analysis, pivot analysis, candle and pattern analysis on multiple time frames.
I don't believe Fib. Retracement grids hold any
magical power to predict price, I use them at times to measure price
behavior inside the psychology of the masses, combined with other
patterns to help me find the ideal R/R Entry, it works great.
I
separated and highlighted the Fibonacci grid into three zones, be VERY
AWARE that the deeper price falls inside these grids, the more price will need
to form longer bases to bounce back to the highs. The
upper 37% I call it the green zone to look for entries, the smaller the
drop the better to continue moving higher as it shows no sellers.
The next lower level 26% or from 63% to 37% I
call it the yellow zone, where one can find entries but some hard
evidence of price reversing is necessary such as multiple narrow
bodies following a big drop or a clear double bottom signaling the possibility of price moving back to the top.
The last level under
37% to 0. I Call it the red zone and chances are low of finding long trade entries
unless supported by big support on the bigger time frames TFs, multiple
narrow bodies following a big bar or a clear double bottom.
This is the weekly chart of the VXX. The very first bar is very red and big, it signaled that sellers were in control, the best chance of making money for the most part was shorting the weak bounces, the reason I posted this chart is to show you how difficult it is to make money catching a falling knife inside a collapsing stock for some hopeful that thinks that just because the stock it's worth half what was worth a week before it must be cheap and must bounce back to its highs, it'll sure be an easy money making trade, but the reality in this business is that if it looks too easy it's usually a trap.
On the top half I laid a Fibonacci Fib. Retracement grid to the big drop, once it had a bounce and formed a lower high pivot LHP. I lowered the same size Fib. Grid to try to find entries inside the new grid.
On the lower half of the chart #1 Price forms LHP. And keeps moving lower under its declining D10 MA. Thus abandoning the green zone GZ. #2 Makes lower lows LL. #3 Only to bounce to form another LHP. #4 Price returns to the yellow zone YZ. And forms multiple narrow bodies barely holding above the previous low. Forms a double bottom inside the YZ. Sending price higher to test the LHP. At #3.
#5 Price was not able to close above the LHP. With conviction forming a possible double top.
#6 After forming the double top price collapsed to the red zone RZ. Odds are high of a measured move. #7 after seven red weeks price bounced to form a LHP. Under its declining D10 MA. #8 Makes new lows. #9 Price bounced again to form another LHP.
#10 After falling more it did retraced another 100% the size of the first drop. Thanks to reading simple patterns like double tops under the D10 MA. The smart speculator was able top avoid getting trapped.
This chart of DGAZ, Offered a 30 cent bounce (might not be much but on 1000 shares it makes you 300$) on the Friday of 2/14/14. Just by simply laying a second same size Fib. Grid on the 60 minute chart once the first drop and bounce had occurred at 60 A. As seen on 60 B.
I was expecting a bounce because the weekly chart had three red bars and the one before the last one being a bottoming tail, the candle for the last week showing was very small. Its daily chart retraced 100% the last drop putting the down trend DT.
In question, and was having a controlled 60% pullback as seen on the top half of the chart.
I anticipated that the 60% pullback was going to hold and bounce. Back to 60 B The momentum to the downside was slowing on the smaller time frame or 60 minute chart also only dropping 60% compared to the first drop and bouncing higher signaling no measured move lower, because the daily and weekly chart were confirming my bias.
Had price dropped into the red zone on the 60 B chart that would had changed my bias as the odds would had increased of a measured move lower, ruining the controlled pullback and making it a possible 100 pullback on the whole bounce on the daily chart.
On the last chart I relied on the 60 % controlled pullback following a 100% retracement of the last drop, and for entry the same controlled 60% Pullback on the second Fib. Grid. On the 60 minute chart.
FSLR Had a very deep pullback on its weekly chart, once in an uptrend now just neutral, but at the 60% retracement zone it signaled a possible reversal.
The daily chart showed a clear downtrend during the drop on the weekly chart, the purple lines from 1 to 3 are the same size, sort of measured moves, clearly waving lower but the purple lines 4 and 5 are smaller signaling the selling was ending, especially the last price drop compared to the fifth line is even smaller forming a double bottom at 61% drop or yellow zone on its weekly chart, that sent price higher closing above the previous LHP. Cancelling the DT. On the daily chart.
Seen on the 60 minute chart, price formed a higher low HL And an inverted head and shoulders pattern, stopping the DT. The next bounce formed a higher low pivot HLP. Once price moved above the rising 20 MA. It kept forming HLPs and moving higher.
On the last chart I relied on the deep pullback on the weekly chart at 60% retracement, combined with the daily chart's decreasing selling pressure to stop the waving lower and finally finding a long entry on the 60 minute chart.
It gets crazier:
The weekly chart of FAS Is in an uptrend but having a violent drop, Momentum to the downside is slowing judging by the narrow red body on support following the big red candle.
The daily chart shows the bulls defending that area during the last five bars or days on support, price had no resistance overhead and no support underneath the lows, thus a dangerous area for both longs and shorts.
On the 60 minute chart I laid a Fib. Grid from top to bottom of the big drop, it clearly indicates that the bottom is the red zone or no buying zone but only on the first bounce, if price forms a double or a triple bottom you have to ask your self why price stopped falling down and is it now forming a base to move higher just like FSLR's daily chart above?
Basically the pattern that forms inside the Fib. Zone can turn the zone from red to green if price has support on the larger TFs.
After that clear signal one can consider a very aggressive long trade on the blue asterisk area with a solid stop under that base.
Price kept basing for a couple more days because the day of the blue asterisk double bottom formed was on a Wednesday and the red narrow bar on the weekly chart was still forming and could still expand lower again so the smart money needed to see that weekly narrow body traded over to consider taking long trades, or on the breakout to the upside from the hourly base into an area of no resistance over head next Monday once that narrow red body was completed.
Next Monday price kept going lower on the 60 minute chart braking the base it formed on both the 60 and daily charts, price never traded over the red narrow body on the weekly chart and continue to expand lower.
Following the breakdown I laid a second Fib. Grid of the same size of the first drop to measure selling momentum, also for clues of a measured move to the downside, seen on the hourly chart once price reached the yellow zone it had a weak bounced but the continuation lower was even weaker, forming a higher low double bottom.
Ask your self again, why was price forming a double bottom inside the yellow zone? Well, the daily chart formed two narrow bodies following the big breakdown candle.
Price on the weekly chart was on another area of support. Maybe a technical bounce was coming?
Next day the double bottom on the 60 chart triggered a bounce into the no resistance zone seen on the daily chart and keep moving higher thus turning the then big red bar on the weekly chart into a green bottoming tail by the close on Friday.
That formation of the double bottom on the 60 minute chart was another low risk entry high reward with a solid stop under said double bottom or red zone, because the daily and weekly chart were giving some clues of a technical bounce, how hard the bounce you never know before hand but as long as price keeps forming HLPs on the 60 minute chart you keep riding it higher.
Click here to read part II:
http://chalannn.blogspot.com/2014/02/finding-long-entries-outside.html
Back to basics, this is how trend pivots form:
http://chalannn.blogspot.com/2012/08/anatomy-of-trend-pivot-disclaimer.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
http://chalannn.blogspot.com/2014/01/the-monthly-chart-iii.html
http://chalannn.blogspot.com/2014/02/revisiting-some-monthly-charts.html
If this lesson doesn't make any sense to you, read the first ten lessons on this blog, because they explain in detail the method I use to analyze any stock in any markets.
Feel free to leave a comment.
All charts are source www.FreeStockCharts.com
Two weeks ago I wrote three long, in depth lessons dedicated to a rare subject for the most part, the effect the monthly chart has on price on the rest of its lower time frames.
To my surprise I received good feed back, I learned a lot myself while doing the research and the writing of them lessons.
This is not an I told you so lesson because what you trade/ invest and for how long you hold your stocks it's your business.
Two of the lessons highlighted the stocks below,
I choose at that time stocks that IMO. Were very extended on their monthly chart and were flashing what I indicated at that time were some warning signs of price falling back.
Here are the links to the lessons:
http://chalannn.blogspot.com/2014/01/the-monthly-chart-iii.html
http://chalannn.blogspot.com/2014/01/the-monthly-chart-ii.html
http://chalannn.blogspot.com/2014/01/the-monthly-chart.html
The first charts were featured on the lessons two weeks ago:
The monthly chart of DDD Was showing it tripling in price in nine short months, there was no clear top on this stock, it required us to find the top inside monster relative bullish strength, it wasn't easy but doable for the very seasoned.
I mentioned on the analysis of the monthly chart part III that the second impulse on the weekly chart looked weak compared with the first one, then the daily chart formed a double top putting the uptrend in question followed by a lower high and then a lower low and that was the signal the shorts were looking for if the monthly candle was going to reverse.
After that the monthly chart turned red and very heavy because of how extended it was. Today it closed at 64$ following a big lower opening gap.
AMZN Is the next chart. Its monthly chart shows that it gained 150$ or nealy a 1/3 Its value in eight short months, this one was easier to find because on the second impulse higher it had three giant green bars and a hanging man candle signaling exhaustion, the weekly chart shows before the drop that it formed an eight week base but wasn't enough to ignite the next leg higher because the monthly chart was parabolic-ly extended
It reported its quarterly report that disappointed the longs and price fell hard because perfection was priced in the stock, judging by the action during the last eight months.
It looks like it will keep falling until it reaches good support on its weekly chart.
A higher low, higher high on its daily chart will signal when is ready to move higher again.
WLT: Its monthly chart keeps pushing price lower, that said at 10$ it has what looks like good support, that first bottom happened on massive volume highlighted on blue, seen through its weekly chart price is fast approaching a W Bottom formed eight months ago.
I would like to see a double bottom on its daily chart to signal the intentions of the weekly and monthly charts to turn higher, if it happens it will be the reverse of the top on DDD. Very slowly at first then stronger as it gathers momentum.
WLT Needs to establish its uptrend on the daily chart and fast for the other two TFs to turn higher.
I broke down the anatomy of the whole cycle reversal using AAPL On analysis of the monthly chart lesson II, check it out.
Keep an eye on what the monthly chart is signaling the next time you're planning your next investment, it could save you more than money if it's extended.
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.
All charts were created with Scosttrade's Elite.
On part 1. I explained how to identify and find entry on five high reward, low risk long setups betting on a move higher: Two were in a clear uptrend with some variations you'll find in a real trading environment, two were in transition with bias higher and a bottom fishing one that looked very risky but wasn't because the larger time frames TFs confirmed that reversal.
Click here for that lesson:
http://chalannn.blogspot.com/2014/02/finding-trades-at-specific-areas-inside.html
******Print some charts, FIRST analyze them, then paper trade them and see how they work for you.*****
In depth trend and pivot analysis click here:
http://chalannn.blogspot.com/2012/08/pivot-formation.html
Lets find five more trade setups inside the uptrend:
Warning: This lesson requires more advance trend behavior knowledge.
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. The same checklist:
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 chart above the daily chart was very extended but the pullback was controlled and small enough to form a higher low HLP. The monthly and weekly charts favored long trades.
I see this setup all the time, the entry does not meet some of the requirements on my list but with a small stop one can ride another move higher, don't ever argue with the action as long as the uptrend remains clean. A lower high same TF. Will signal the big exit because it might be the last surge higher.
The transition with bias higher on the 60 minute chart was the signal to enter.
For exit a 2X top or one last massive green candle and massive volume on the 60 minute chart exhausts the longs.
On this set up the pullback was deep, looks like 50% of the big impulse, If the pullback is greater the 40% one has to do a better price analysis: Price was in a clean uptrend from a base breakout, on support, at rising 20 MA. Had a bottoming tail possible setup bar? The weekly chart just broke out to new highs and closed strong.
The tie breaker was the 60 minute chart, if price moved lower out of the base it was forming then the daily would keep moving lower.
The 60 minute chart did move lower finding buyers immediately, triggering a violent move in the other direction turning the larger time frames higher.
Entry: Was the breakout of the 60 minute base. Stop exit: Low of bottoming tail on same time frame.
The next setup was sort of a cup and handle on the daily chart, the monthly and weekly charts were on the side of longs, the daily chart had a controlled pullback above R20 MA. Formed a set up bar and exploded higher, the only entry signal was on the 60 minute chart, it had four higher lows.
Entry was the break out on that TF. Exit: Below the setup bar on daily chart.
On the chart above, price had no visible trend judging by the flat 20 MA. Slightly above the 50 MA. It did not meet 1/2 the requirements I needed on the list to take a long trade, move on right? Well, no.
Most of the time I'll move to other setups but not this time.
What I liked about this set up on # 1 Is that it retraced 100% the drop and stayed there having a four day bullish consolidation above the 20 MA. After that it drop 1/3 To form a bottoming tail set up bar.
Three days later the pullback on the 60 minute chart had a similar looking pattern as the daily chart, the entry was on the break out of that base. Exit: Bottom of that HLP.
The daily chart was signaling this trade, the weekly chart was neutral.
The following examples will test your knowledge of trend behavior.
The weekly chart was forming a double top. The daily chart was in an uptrend but had a hard pullback above its R20 MA. Followed by a 50% bounce to the top that established a HLP. Then ran out of buyers pushing price lower forming what looked like a LH. Setup bar and putting the uptrend in question. No more uptrend.
I wrote before that on deep pullbacks it's better to wait for the reaction to the first bounce, if the move lower is weak and if it forms a HLP. After that, to look for entry then.
Having a trend in question doesn't mean that price will collapse, it can be a pause because price got way ahead of the 20 MA. As long as the HLP. Doesn't get nullified with a close below it, basically expect the defenders of the trend to defend it with passion for the uptrend to be re established eventually, and they did on the test of that HLP. Price bounced back.
Next day another test found buyers, price bounced back again seen through the hourly chart.
Triggering a big green bar and HL Double bottom that nullified the LH Setup bar and the down trending line on blue on the daily chart. The weekly chart was forming steps higher on the last two wicks.
Remember that if the 60 minute chart can't establish a downtrend the daily and weekly charts will not go lower.
Entry: Very aggressive on the matching 60 and daily chart TFs both forming double bottoms (red arrow) Exit stop: Under HLP. Because the last HLP. Gets defended inside a normal uptrend.
Two days later the uptrend re established. Remember that a LH. Inside an uptrend only puts the uptrend in question, but if the selling is weak the odds are high that it's only a rest and price will resume with the uptrend once sellers are out.
One of the points mentioned on the first lesson was how to recognize when an uptrend is in danger of suddenly changing:
1: A big lower gap openings if not closed the same day.
2: A violent drops as was the case on the last four charts where the big drop signaled that big money got out and now professional shorts will wait for the bounce and if less that 70% they will let it form a setup bar to pivot lower and short for the beginning of the down trend cycle.
Under this condition if you want to go long the test of the HLP. The odds are high of a 50% technical bounce only to pivot lower.
Because the stock for some reason lost its big money support. Don't get too greedy.
There you have it, five more great long setups, 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.*****
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.
All charts were created with Esignal.com
Putting it all together:
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.
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 below 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 the method I use to analyze any stock in any market.
Feel free to leave a comment.
All charts were created with FreeStockChats.com and Scottrade Elite.
