Lets see how this pans out and if I create more confusion rather than offer a clear picture.
Ignore the chart time and what the commodity is, it makes no difference to this post and it is the principle behind this is what the lesson is about.
Yes I know, how odd looking. But I am showing price like this so that your eye is not distracted by price candles. This is a closed price line chart. It is as clean as charts get and show where turns are in crystal clear fashion. The lines on the chart are there to show only support/buying. But before I get to that, lets pretend that price has hit a high time frame demand area and this has just been tested on the lower left of the chart where the first line is.
You can see the retest of the line and the area has held, now lets say this is a place we want to enter long at some point in the future if we did not take it on this retest. The next line along is another long entry and price has come back into the break we previously missed. If you follow along all these entries are taken from recent historic demand and take note of the higher lows, which I consider to be a bullish trend. I am unconcerned about the higher highs, let that stay in text text books.
The main difference is all the visible wicks and tails. Does the effect of these hit home to you?
They dont stay long enough for pro money to follow through, so they must then be instruments of fear and greed for the herd to get their emotions in a knot. It is all designed to get you into a trade at the wrong time, either at the top or bottom of each swing.You know by now where to look for the best entries.
Back to a line chart again and this time with more detail on it. See those blue arrows, they show the long entries and after each arrow, follow price up and look for an X. That is the end of that move when price hits supply. It repeats over and over again, until the trend on THIS time frame is broken.
One small addition this chart, which is down one time frame from the previous chart. Note how dropping lower in time will give you additional trading opportunities if you keep an active mind always open for what is key. In this case it is the green up arrow, which is a retest of the major support and resistance line on THIS time frame and within the amount of time (space) I have on this blogs screen width. If I keep going down to lower time frames, there will be both long and short entries, even though we know the market is bullish on THIS time frame. Lets move on.
Now I am gone down another time frame from the above chart. The green up arrow is still there and now that new long entry is even more visible. Here is a place where many day traders get stung all the time. The market you know is going up, but thats new here?
Remember my definition of a bullish market is higher lows?.....see the small grey box, is that not a new lower low?....so to me this is a break of the bullish trend and I wont enter long. But I will wait for price to leave that box and what happens then?...price and the green down arrow hits recent supply and we know there is weakness in the backround, otherwise price would not have made a lower low. If market timing, as in the opening time of this market is still well before the close I would consider a short down to the support and resistance line, which price may use as a test to see will it hold and if fresh new longs come in.
Finally the same time with a candlestick chart and a lot more detail in price action for you to look at every day and on all time frames. It is easy to get lost in the noise unless you train your brain to filter out whats unimportant and see the real price action in areas where it matters.
As price rises and falls in either a bullish or bearish market there will be times when you can be both long and short at the same time, but of different time frames. You could be long on the 1hr and short on the 5min, each of course will have its own targets and each entry has to be taken with a very very clear picture in your mind and preferably with supply and demand marked on the charts so that you have good awareness of what is coming up to effect current price movement.
If you only use two time frames apart, then the opportunity of being long and short is far reduced and rather risky. Some traders will use a trend line on price to see when its time for a trade, or when to get out, or when the trend to their method is changing, this is in my opinion is ineffective and unless you know where price reacted in the past on all time frames, you are missing out on too much valuable information.
If you took any of the above charts and keep dropping down in price, you will find dozens of long and short entries, even though price is moving higher. Each high time frame price leg, will have a few lower time frame legs within it, and in turn, lower time frames, yet more legs within that. If you turn in the other way around, the bullish price on these charts may well be nothing but a bullish pull back on their bearish price movement. I havent checked for that, just trying to get this concept across to you and I hope it makes sense and I do understand that it is not an easy thing to grasp. Even if you cant understand this fully, take at least one thing from this, long entries are only ever taken off the end of pull backs into support. Bearish entries are the opposite, taken on bullish pull backs into resistance. If either of those pullbacks break their support and resistance, you simply do not take the entry. Let it go and wait for some new area to hold.
The pullbacks are places where pro money takes profits and places additional orders, if they do it, so should you. You cant go broke taking a profit and dont hold a winner for so long that when the market turn you are left sitting there waiting for the final pull back to end and the trend continue. Thats how you turn a winner into a loser. Take profits and be happy with little bites a few times a day, it all adds up and you will develop good habits.
Day traders wont see 60+ point wins every day per trade, the time frames you are trading off will just not give up that much of a move. Look at the average points movement of the time frame you prefer and see what you could make, and be happy with taking those. Also set your stops and dont be afraid to take small losses. These allow you come back tomorrow and trade again, whereas waiting and hoping for the market to stop and come back in your favor will soon get your account blown out.
Dont be worried about missing a move, there will be another one and rest assured nobody has ever been able to call the market, and neither will you. It better to wait for the turn, then get in...yes you guessed it, on the next pullback where price proves to you that the old trend is dead and gone.
Hi Doc. Great post as always. I wanted to ask you a question about this statement:
ReplyDelete"Even if you cant understand this fully, take at least one thing from this, long entries are only ever taken off the end of pull backs into support. Bearish entries are the opposite, taken on bullish pull backs into resistance. If either of those pullbacks break their support and resistance, you simply do not take the entry. Let it go and wait for some new area to hold."
In your chart some entries are taken at the origin of the moves at support and swing low and some at support/resistance break&ritest.
Many times in your posts you say that you want to see if the zone is holding or not, what should we pay attention to be aware if the area is holding or not before pulling the trigger? I find this quite difficuilt and many times what seems to hold soon or after reverse and break the area taking out stops, eventually reacting at the next zone and continue the original move.
Somewhere you said that you look for some kind of candle close (even on M1-M5 for a HTF break&ritest trade) but how to choose the TF where we want to see this close? I can't find a viable logic.
Doctor,
ReplyDeleteLike always, great post. It take time to train the eye to catch all these in the charts. Thank again for all the wonderful posts.
Cosmos,
ReplyDeleteIf you look again at the horizontal lines, these are the most likely places you will find pro money getting back in. If price drops below those areas it will cost more for pro money to get in, and cost more again with preventing new bearish entries coming into the market. The concept is to allow price come back close to where it originally broke from, then test for any additional shorts and how many of them there could be, the tails show this in graphic. If there are too many short orders waiting when price comes back, the bulls may be uninterested in a battle for continuation and just let the market fall off and the bears runs with it, down to the next area of historic support.
As price goes through this cycle between the time frames, you will at some point see it slow down in the candle stick formations. It will rarely look the same twice, that would be too easy. These cycles tend to finish with the herd furiously buying or selling into it, because price has taken off like a scaled cat. Sorry cat lovers!
It is good if you can get into the head of pro money and maybe this picture will stick in your mind.
If price is rocketing up and you the pro trader know the herd are now hooked and delighted with their winning trade, this is the perfect time to reverse the market because you know higher time frame supply i.e sell orders will be over head pretty soon.
Rather than let price stop and reverse like it hit a brick wall, you want to continue the illusion of higher prices so that you have willing buyers to take your close out positions. But if you let it go for too long and price starts coming down, the chances of you getting your orders into the market short will now be more difficult due to rapidly falling prices and slippage etc.
Think of price making an arc as it reaches this over head supply, the duration of the arc and how deep it goes none of us knows, other than its great cover for pro money to end and start new positions in the opposite direction to the herd. And now knowing that to be true, is it not an easier task to sell when there are more buyers than sellers and you will close out at the best price you can get and it will be snapped up. And is it also logical that taking a counter trade is also to get a fill at a price where slippage is unlikely and you get filled quickly.
I understand it very hard to rewire your brain from what you are used to hearing and also when you eyes tell you price is moving up. Think ahead of the herd and look for where the signs of weakness to the current move are ideally going to become reality, then either scale in as price slows down, or wait for confirmation and jump in later. Generally there is always a second shot at getting in on a low time frame, 1 and 5 min chart.
Personally I look for 4hr and higher time frames fur supply and demand for large lot size trades and left in place if there is plenty room for an obvious longer time targets, but of late there are not many. Any lower time frame trades I take with smaller sizes, but more frequently during the day, which has been the norm for a while now. The really long term trades are nice when they just keep going. Those days are behind us until we see a new normal and not a band aid financial market propped up with funny money and protected bond holders. Madness.
William H,
You hit it on the head, give it all the time it takes to sink in. It will happen one day for most folk who stick with it.
Hello Doctor, thanks for this magnificent article. I sometimes struggle to understand other concepts, but this one makes perfect sense from A to Z.
ReplyDeleteWhat is your opinion on so called false breakouts? Often it looks that price breaks the swing/pullback low (in an uptrend) by several points but closes back in the range of the previous PA, leaving a lower wick behind. This is often the beginning of a very strong move up.
Of course, you cannot see this on the line chart. There, it looks like price only made a higher low (= uptrend remains intact). On a bar chart, the wick may break the previous low by 20 points.
Do you consider situations like this good for a long entry (provided there is no resistance/supply or other obstacles nearby)?
The false break is common and gets break out traders in early in hopes of a run. When price breaks I wont get in unless I have been in at a better price prior to the break, or I wait for the first pull back and see will it hold, will more orders come in to support the initial move away. If not, its a false move and there is no trade.
ReplyDeleteI dont look for a specific number of points on wicks and tails, I wait for the close and wait for new orders which will prove or disprove interest by pro money.
Great, my favourite topic:)
ReplyDeleteCan I ask what you mean excactly with this sentece? If you turn in the other way around?
"If you turn in the other way around, the bullish price on these charts may well be nothing but a bullish pull back on their bearish price movement"
Also, what´s a "bullish pullback into resistance? Aren´t we looking for lower highs then?
I hope you can have a quick look at Gold as an example? The bullish moves on Gold from December 2013 onwards are some of those daily moves bullish pullbacks within their bullish price movement as seen on the weekly? Is that what you mean?
And the bearish daily moves on September 2012 would be bullish pullbacks into resistance within their bullish price movement on the as seen on the weekly? Am I getting it?
Cheer Christian
Thank you for your time and patience Doc. Sometimes it isn't easy to grasp what you want to tell us, I've read your post again several times today and I think I got the point now. I've seen those things many times on charts, the challenge is to identify them in real time and find the right timing and safest place to enter. Support/resistance supply/demand are everywhere but some are broken intentionally to find orders to trade against and it takes a very sharp mind to be aware of what is happening.
ReplyDeleteA bullish pullback into resistance is an expectation of price to revert to the main bearish trend after the pullback has completed and more bearish orders come flowing in.
ReplyDeleteGold has been bearish for a long time now and take note of where it last ended the bullish correction...right into near term supply. Also note the time is has taken to get there, clearly there was little interest in taking it higher.
Look at gold on the weekly, it has set up a trading range and now we are selling off from the most recent high. A closer view on the 4hr shows a bounce off an S/R area and where the last of the bullish orders from 11th February came in, these may or not not have much effect on the price, we just wait and see.
Gold in Sept 2012 had hit supply from February of 2012, the move was genuine bearish and not a pull back in a bullish market. The first pull back in that down move started in November and ended in later that month. I am splitting hairs there and not measuring it precisely. On a lower time frame that pull back would have been seen as a bullish market..until it hit the origin of the move where pro money hit it hard again.
Employing a little logic tells us that a market moving its in desired direction will move faster than a pull back, and with that in mind when the pull back ends we would expect to see price move away to the original direction faster than the slow moving pull back.
Another place to watch are the price areas that fail to be retained as support or resistance, depending on which way the market is going. These have to hold if the pull back is completed, if they are broken there could be a period of deep retracement. It wont always be perfect and for unknown reasons price can drift off and make fun of our analysis.
But thats ok, we can take small losses once we keep them small and not try to win back more profit the next time with larger lot sizes as a revenge attack on the market and get even with it.
Cosmos,
ReplyDeleteYou got it.
Thanks I got the pullback question.
ReplyDeleteDamn, sorry. I meant Sept. 2013.
But let me put it this way. Everything you explained in this article with higher lows and price movement, etc. should ideally be in sync (looking for the same things) with the time frames I am using for marking important areas I.e. the higher ones (starting from the monthly). Then the cycles align?
Many thanks, Christian
As the sync as you mentioned starts to show promise of a turn, then we watch closely to see if orders in our expected direction come. Then once you have the direction you can either jump on or wait for a pullback and retest. It is no harm to miss even a few days because the longer time frames give you plenty time to get in later on.
ReplyDeleteFor day trading you can pick other times to enter, while keeping in mind that taking any counter moves can end suddenly and without much warning.
Sounds to me you are getting this.
Great, I´ll stick with it, thanks
ReplyDelete# I wait for the close and wait for new orders which will prove or disprove interest by pro money. #
ReplyDeleteHi Doc, really oustanding posts.
Can i ask you the meaning of the sentence above ?
Thus it means when you put some expectation into a level holding, you wait for a closed candle and let´s say we have a bullish engulfing(supposing trend is up, and market is reacting at supp),
you then wait few more seconds to see if the next candle opens brings bullish orders
wich means that we should see no hesitation on bulls to appear .
If a level will hold and you are looking at a bullish direction, I want to see the low of the area being defended and bought into and out of. The odd spike lower is not of major significance but the close is. The time price spends in the area is important to day traders because a longer period of time waiting means less time available in the session to hit their desired targets.
ReplyDeleteThere is no single candle stick or candle stick formation to show you when the move out is coming, you just have to watch carefully and look at all those candles in context and what they are saying in the low time frames.
Be sure to draw the range of the price where the break could come from, then price action takes over with the candle sticks. Watch them over a period of time on lower time frames for a few months and you will get a feel for it. It is in no way scientific.
The concept pro money use it to check if counter orders are in a place where they want to take the opposite tact, and if there are orders, can them absorb them, or is it too much heat to take and they let the market taper off to the next area where they test again. Eventually one will hold and then its a change in sentiment.
Doc, only you show us the truth about markets.
ReplyDeleteI am your follower Sir.
Thank you :)
Hi Doctor,
ReplyDeleteGreat post as usual. I used to take counter moves. But as u said it ended up suddenly without any warning. May i also ask what is your view on USDCAD . We broke the trading range in 4HRs but to the demand in the swing low.Now shorting this in a retest is really counter to the overall weekly trend which is heading to the weekly supply. Will you short this even in the retest of trading range. Because for me it looks like counter trend to weekly . But 4 Hr TF im not sure.
Hi Doctor,
ReplyDeleteAs always, excellent post. I could not quite grasp the importance of lows in the context of defining uptrend. You mentioned that ".. I am unconcerned about the higher highs, let that stay in text text books" Am sure there must be a logic behind this statement but am unable to fathom.
As a corollary, I presume, you would focus on the highs while in a downtrend. We have all along been told to look for higher highs and lows and vice versa.
Looking forward to the rationale Doc in order to understand the concept better.
Thanks and excellent work.
Best.
Krishna
Rishi, USD/CAD pushing down into S/R and the coming daily close will be of interest. There looks like selling pressure coming into the market and a restest of the S/R break would be nice to see and check for lagging buyers. Price is being held at present within a narrow range.
ReplyDeleteThe profit appears to be more in favor or the bears.
Krishna, in an up trend all we want is higher prices and not lower prices, the logic is, no lower lows. If that is broken and we get a lower low, it is by definition a break of the up trend. As you correctly pointed out, a bearish trend is the opposite.
Keep it in mind that if a trend will continue, it will happen with the pullbacks. Or in this example, within the higher lows because all of them are retests and opportunities for pro money to load up again.
Have I cleared it up for you, or will I try some other means of showing it?
I´ve been looking at the cycles for some time now since you´ve posted this. As we know the best setups are probably those who appear at monthly or weekly points of interest. But then of course we have to wait a long time in between trades.
ReplyDeleteSo, you said many times you´d like to at least look for 4h points of interest. So is there a general rule as to how many cycles you want to see align? Because if there is a 4h point you want to trade, do you want a higher time frame to be aligned?
Many times you wrote the smaller time frames have to go through their cycles. Does that mean the 4h+ cycles are already completed and you only trade then? Or do you get in hen you see the earliest signs of completed cycles on the 1min and 5min, which then is very aggresive?
Many thans for you´re help
Lower time frames will show up as pull backs within a higher time frame and you want to see the completion of those, and the higher time frame reach its most recent cycle peak or trough, depending on the direction. It is all as shown in the post above.
ReplyDelete4hr and higher tends to catch many daily cycles and its one of the more useful and safer signals I use. Mark off a 4hr chart and compare it to a daily chart and then look for the lower time frames cycling between the higher time frame move.
As price moves away from the higher time move, it will by definition move to the other side of the cycle and lower time frame counter moves should show up with a lesser interest from pro money (pull backs)...who took the entry on a higher time frame. What will cause some confusion among most day traders is the fact that pro money day trading firms will take counter trend trades if there is enough room for profit and they know any relative counter move to the main trend wont be too much heat for the bigger fish they are trading against, and that the closing trades the day traders take will be done so into the main trends continuation area i.e its pull back. This will in turn show as a strong move away from the daily trend in the eyes of a day trader, and is nothing more than continuation to the bigger fish and those who will jump in and load the boat following the overall larger trend.
Cycles within cycles, and tests/retests. All are fractals of each other.
This comment has been removed by the author.
ReplyDeleteAha, yeah I see it. No way. Looked at it from a slightly wrong angle I guess, thanks
ReplyDeleteDoctor,
ReplyDeleteYour posts are slowly opening my logical side of my mind. I am starting to understand a lot of what you have been discussing. A lot of screen time, engaging in the logical side of your mind, one can filter out low risk trade. I been applying the same idea to trade US indices, patience is very important. It take a lot of pro money to move from one point to another.
Doc, once again, thank you so much. You posts are guiding me into right direction I have been looking for years. I still have a lot to learn, but at least I am seeing how pro money or Wall Street are playing their games.
Hi Doc, Thank You for keep sharing with all of us until now
ReplyDeleteNot like a Guy name "IF" from RTM forum
He is now selling a bullcrap course for 10,000 euro
http://www.rtmacademy.com/index.php/2014-02-11-21-38-30
and he even make some stupid review for his own course like all the stupid guy marketing guy that sell forex system
http://www.rtmacademy.com/index.php/feedback-from-students
Totally this guy name "If" don't know how to trade, and now want to fool people to buy his overprice course
I know u, once a member of RTM forum, but I am glad u 're already out of that place
If the course of offer is not to your liking, my blog is hardly the place to vent.
ReplyDeleteI have no involvement with any forums or the people who run them. I am independent and will remain so.
Nothing for sale here, should I change that?
;)
Doc, i think you could release a course for 1mln. eur, for occasional lunch money. Of course with some funky indicator inside, so they won't be suspicious.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteDoc, we will always be grateful for your time and the knowledge you gave to us for free, without boast about it, pumping your ego, or trying to sell expensive stuff. You are a great person.
ReplyDeleteMy best regards
One 77, a 1 min trading course?....maybe better rename it as the idiots guide you going broke fast. You may be onto something about the indicator though, maybe call it the Vegas indicator which flips a virtual coin. Heads you go long and tails you go short.
ReplyDeleteCosmos, thanks for the kind words, much appreciated.
Hi Doc,
ReplyDeletehave been going through your posts and the time spent on it is the best time I have ever spent on reading about forex. I have already applied your teachings with astonishing results - on micro account for now :)
There is one thing I have to confes : I can't really grasp the phases - cycles within different time frames part. I am aware of the fact that I am not a very smart bloke :)
so I thought maybe there is a chance you showed us ( I guess I am not the only one:) this concept on some charts - like you wrote the " time frame within timeframe " great article.
Thank you Doc
Good for you on taking the plunge, may your losses be little and your wins great.
ReplyDeleteI dont think you are not very smart, just in need of some logical brain awakening.
What may help you to see the markets wind and unwind, is to mark all the major turning points on all time frames. Then check where many of them line up. What you will discover is the 4hr and higher time frames are often where the sentiment changes and the market alters course. As you move out in time, it is akin to zooming out on a map where you see less and less detail, but you now see the bigger picture.
This will all become clear to you one day, and it will be a day you will never forget and the feeling it brings is like being able to see for the first time.
Hi Doc,
Deleteyou mean on weekly down trend for instance, to mark the last pull back and then within that weekly to mark the last pull back on daily and the same on H4 ?
Thank you Doc for the guidelines. I will do as you say :) and let you know as soon as I see it.
ReplyDeletetake care
What ever the trend is on a high time frame, mark its levels and watch price as it reaches those areas once again and you can play it if you wish on the 4hr and lower. Most day traders will be much lower than that again and look for the levels that can take place with a sessions trading time.
ReplyDeleteMost of my entries are taken with daily and 4hr levels. I find they dont take too much of my time waiting around for price to react.