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-- response to: A simple price action approach, for beginers (http://www.elitetrader.com/vb/showthread.php?threadid=222162)
response to: A simple price action approach, for beginers
I have been reading A simple price action report started by metal.
It is a great thread and very informative, some of us may be a bit newer and starting at page 1.
Also there are some basic elements that may need to be explored a bit for a newbie.
In this thread we will try to explore the basics, we will also explain terms used to increase our vocabulary. hopefully we get some of the posters on metals thread here to help out.
I am not used to forums and feel if i post on that thread I may interrupt their progress with basic questions.
If this thread should actually be posted with the metals thread please let me know
Thank you.
Making channels
Expanding on what was said about making channels, I will ask a few questions about the basics of making a channel. Through out this thread we will gather up a set or rules and add to them.
RULE for channels
To create a down trend channel
1. 1st draw top line connecting highs
2. Then draw a bottom parallel line. For the bottom line use the *SWING LOW mid point of the top line.
3 In a down trend, we first make the bottom line and then copy (make a parallel line) to the top
4. a channel by definition is 2 parallel lines that income most of the trend.
5. Trends need to be adjusted from time to time under a set of rules
Correct me if I make a mistake.
____________________________________________________
Questions.
If we see that a the bottom of a downtrend is showing more lows that can be connected to form a strong trend line can we make the first line on the bottom and copy it upwards? likewise in an uptrend, can we use first make the top trend line if it is showing more consistency then the bottom?
It would seem in this case the swing low is a point that is between the top trend line. Some times, it may occur that we have a few low points in that area. In that case do we put the bottom f the channel to cover all the lows in that area?
What if there is a low that protrudes the bottom trend line but is not n the center?
Does the term swing low always apply specifically to a big low in the center of the top trend line or is it a term used for any big low?
Is it more important to be exactly in the center when identifying the swing low or is it more important to find the low around the area that makes the channel the biggest
Here is the chart he used. If any one can let me know the best way to past the chart in here that would be great.
Example of an entry
In the second post, we see that the chart has continued. Two new lows have been added. Both these lows cross the bottom of the channel.
The first new low does not open and close under under the channel.
The second new low does open and close under the channel.
Rule for entries to trades:
1. If there is a open and close that are under the bottom of an uptrend channel We can enter as soon as we see a close back in the channel.
2 If the open and close are not under the channel it is not a place to enter.
the attachment
Adjusting channels
In the third post we now see that the channel has been expanded.
Lets examine the basic rules for expanding channels and add them on to the list as point B
RULE for channels
To create a down trend channel
1. 1st draw top line connecting highs
2. Then draw a bottom parallel line. For the bottom line use the *SWING LOW mid point of the top line.
3 In a down trend, we first make the bottom line and then copy (make a parallel line) to the top
4. a channel by definition is 2 parallel lines that income most of the trend.
5. Trends need to be adjusted from time to time under a set of rules
B. Expanding channels
1. Channels can be changed and expanded.
2. A channel can be expanded if a higher high is made.
3. We will put our trend line now at the next highest swing low That is, the higher low above the previous one.
Questions
There is some confusion between next "highest swing low" and "higher low". Are these 2 concepts the same?
What if the next highest swing low is not as low as in the picture?
In this case, is it OK to cut off the bottoms of the other previous lows? Or should we try to include all lows in to the channel at this point ? Also, can we change the slope or steepness at this point?
Can the top of the channel also be adjusted if need be.
I will now go see if I can find the answers to these questions to clear things up. from there we will see if there is any interest by users in this thread. If so, we will continue. I know its very basic stuff. But we have to start some where. By looking at more advanced concepts and finding the basic reasoning behind them, we have a bit more interest in learning. Also we develop a sense for the more advanced ideas as explained in the other thread. Hopefully, as time goes on, we will have covered much of the basics.
Re: Making channels
Quote from traitor786:
Expanding on what was said about making channels, I will ask a few questions about the basics of making a channel. Through out this thread we will gather up a set or rules and add to them.
RULE for channels
To create a down trend channel
1. 1st draw top line connecting highs
2. Then draw a bottom parallel line. For the bottom line use the *SWING LOW mid point of the top line.
3 In a down trend, we first make the bottom line and then copy (make a parallel line) to the top
4. a channel by definition is 2 parallel lines that income most of the trend.
5. Trends need to be adjusted from time to time under a set of rules
Correct me if I make a mistake.
____________________________________________________
Questions.
If we see that a the bottom of a downtrend is showing more lows that can be connected to form a strong trend line can we make the first line on the bottom and copy it upwards? likewise in an uptrend, can we use first make the top trend line if it is showing more consistency then the bottom?
It would seem in this case the swing low is a point that is between the top trend line. Some times, it may occur that we have a few low points in that area. In that case do we put the bottom f the channel to cover all the lows in that area?
What if there is a low that protrudes the bottom trend line but is not n the center?
Does the term swing low always apply specifically to a big low in the center of the top trend line or is it a term used for any big low?
Is it more important to be exactly in the center when identifying the swing low or is it more important to find the low around the area that makes the channel the biggest
That would make sense, the idea of the swing low being at midpoint would suggest that the channel could only be drawn after the trend was completed.
Also I have been looking for the answers to the questions I generated and am finding it very difficult to get the answers. I am surprised that it is so hard to get the basics down. I'm not sure how to proceed.
Should we just ignore the basics? hope some one fills in the blanks?
By no way am I an experienced trader. I would imagine 90% of the readers on this thread know more then me. Where did everyone earn the basics?.
I will try find answers. It's depressing having so much trouble just with a trend line!
Re: Re: Making channels
Quote from tomahawk:
You might want to take another look at #2 and #3.
For #2, I'm not sure "*SWING LOW mid point of the top line." is necessarily accurate. To me a better description of where the parallel line should be drawn (for a downtrend) would be "parallel to the trendline and touching the one pivot low whereby all the bars that follow are contained within the channel." Presumably you're trying to judge where the channel line (the one drawn parallel to the main trendline) will next be touched, so it would be drawn immediately after the trendline is determined, and therefore would only have one pivot low touching AT THAT TIME. Once the parallel is touched a 2nd time, price may or may not bounce back and forth between the lines, but once it goes outside the channel then it's usually time to reset the lines.
#3 - was that a typo? ... it's in an UPTREND that you first make the bottom line, etc. ...
maybe what he meant by in between was in between the 2 high points.
In this case would it be better to say that in order to make a channel for a down trend, we first connect the 2 highest points. and then copy it to the lowest point.
Or do we need to have 2 low points.
His trend line was done after the trend occurred, I think that is where the confusion lies.
So once the top trend line is done, do we always copy it it right away to the lowest part or the channel, or do we need 2 points to that ?
this would be the way I would do it
for adjusting the trend line, i think you implied that once A higher high or a lower low occurs we can readjust it right away.
His post seemed to imply that there as an event besides the penetration of the trend line that would need to occur in order to be able to change the trend line. but he was corrected so maybe there was confusion.
In this case I will go with your idea. Hopefully it can get cleared up later on
RULES FOR CHANNEL's
To create a down trend channel
1. 1st draw top line connecting highs
2. Then draw a bottom parallel line (copy). For the bottom line use the lowest part of the channel.
{we are assuming we only need 1 low point at the bottom}
To create a up trend channel
3 We first make the bottom line
4 Then copy it to the highest high in the channel
{Once again making the same assumption of one point}
his is a lot simpler and understandable and what I was doing, I hope I'm not cutting any corners here.
Correct me if I make a mistake.
In the next post by Nodoji, we see on the chart, some new concepts.
1. Support becomes resistance. This resistance/support line is identified by a horizontal line taken from the bottom of the previous apparent low.
2. Trend lines are then drawn to connect highs and lows during a horizontal consolidation. These lines are not parallel. This seems to be more accurate. In this case we have a "wide symmetrical triangle formation"
So Until otherwise corrected, I will say that:
{Whenever possible, we use non-parallel lines to make a triangle instead of a channel?}
3. In this triangle formation we are to assume that that there will be a significant break out. NoDoji waits to see which way it will break out. Once it is seen that that there is a failure to touch the the higher trend line trend line (TL). She then switches to a 1 min time frame and notices that it crosses the moving average and finds resistance there. As soon as she sees resistance with the 20 EMA she assumes that it will not pop back up. Therefore, it will have no choice but to cross the lower part of the TL which will cause a large drop of X magnitude
From this we conclude that
1. Support form a low can become resistance later on.
2 Triangle formations give us an idea of when there will be a break out as the TL's have an intersecting point. So, we know that a break out must occur before this point.
2 By viewing what is going on inside atriangle we can make an assumption about where the break out will occur.
3 If it price fails to hit a trend line that means that there is pressure for the stock to fall in the direction opposite of the untouched TL. It is unclear how important of an indicator this is. it may just be giving us a vague idea
4. since this triangle occurred in a down trend, it is most likely to fall down. watch movement in a 1 min chart to confirm (not hiting a TL, not hitting a 20-EMA,)
4 We can use a 20-ema as an indicator when we see price is finding support or resistance to it. It is unclear how important of an indicator this is. it may just be giving us a vague idea
5. When we have an indication of price movement that may not be a strong indicator we can look for another weak indicator to confirm our move
{Maybe they are both strong indicators and the EMA indication was used more for timing }
adjusting channels/shorting in down trends
Now we move on to the next post by metal. From time to time I will reorganize the rules.
Metal shows a chart and suggests that trend lines are more of an art and to find an area that works best.
His first channel indicates that he does not adjust his trend line. This can be seen by the fact that his shorts are all in areas where the trend line was penetrated and re entered only. If the trend line was indeed adjusted, these areas of shorting would be inside the trend line and would not indicate a short opportunity.
It is possible that everyone has there own way. Maybe he who adjusts trend lines would short when there is a touch to the trend line. In this case both methods would show the same areas to short.
Rules
(will edit in a bit)
1. If you don't adjust your trend line short in a downtrend when price just cross's TL and comes back in. there is no need to wait for another bar, as soon as it crosses you can short.
2. if you do adjust your trend line, then short when ever rice touches the top TL in a down trend and price is seen going back down.
3. keep shorting every time this happens untill we hit the lower trend line
In the pink channel we see that by not adjusting the trend line Metals non adjusting method seems to give more opportunity to short however it is possible that these shorts, though more plentiful may be a bit riskier?
we also see.
4 Once a trend line is broken, we can make a new trend line. We can go deep into the old trend line to find points that support our new TL
{if the points in the old Channel don't connect with point in the new channel can we simply igonor points within the old channel
5 We short when a bar re-enters a channel (non adjusted Channel) and we sell when it hits the bottom of the channel
6 we only short in downtrends and only go long in uptrends
{is this corrcet}
7. It sounds like not everyone sees the same trend lines.
8." Trends do reverse. Think of resistance or support as a sand wall, as it keeps getting hit, the wall starts to crack and eventually will break." as stated by oraclewizard77
CL -is crude oil
the idea behind a pivot point has not yet been explained.
I assume it is either the TL or a moving average or an average of all the lows highs open and closes. In the later, since it is an average it would be changing all the time (like a moving average) which would mean that it would be some thing more software related.
RULES VER 1.0 (Was Tierd)
1. Making Channels
A) In a downtrend, first draw a top line connecting the highs (TL,
or trend
line). Then draw a bottom line that is parallel to the top line
(this is called copying). This line encompasses all the lows. ***
B) In a uptrend, we first make the bottom line and then copy
(make a parallel line) to the top.
*** {We are assuming we only need 1 low point
at the bottom}
C) A channel by definition is 2 parallel lines that encompass most
or all of a trend. ****
D) Channels need to be adjusted from time to time. ****
E) Channels can be changed and expanded.
F) A channel can be expanded if TL’s are penetrated
****It should be noted that others use a more complex way
to do this involving finding a swing low in the center of a trend
line to identify where the bottom TL lies. Also, this system
seems to have certain rules as to when a TL can be adjusted.
This system needs to be clarified****
G) Once a channel is broken, we can make a new channel. We
can go deep into the old channel to find points that support
our new channel***
***if the points in the old Channel don't connect with point in
the new channel can we simply ignor points within the old
channel***
H) It seems like not everyone sees the same trend lines.
I) Trends do reverse. Think of resistance or support as a sand
wall, as it keeps getting hit, the wall starts to crack and
eventually will break." as stated by oraclewizard77
2 RESISTANCE AND SUPPORT.
A. Support can become resistance. This resistance/support line is
identified by a horizontal line taken from the bottom of the
previous apparent low or top of the apparent high
3 TRIANGLES
A) Trend lines are drawn to connect highs and lows during a
horizontal consolidation. These lines are not parallel. In this
case we have a triangular formation.
B) Examples of a triangle are:
"wide symmetrical triangle formation" a wide triangle the
has its center line horizontal.
More to come as we come across them.
C) Whenever possible, we use non-parallel lines to make a
triangle instead of a channel
***Is this correct and Does this apply only for horizontal
trends?***
D) Triangle formation mean that a break out will occur. Unlike
channels, we have an idea as to were it will break. (Before the
lines converge)
E) Break outs coming out from a triangle are more strong then
ones that come out of a channel***
*** Is this true and is there a way to know how big the break
out will be
F) If we see that there is a fail to hit a TL of a triangle. It shows
a weakness in price to move in that direction. ***
*** Is this weekness on its own enough to short in a down
trend?
G) If a Wide Symmetric Triangle occurs during a downtrend
chances are it will break resistance and fall
H) To better time and judge a entry point, we can look at a 1 min
chart. In the one minute chart we can see if price was not able
to cross a 20 day moving average (20 EMA) The 20 EMA acts as
resistance and support, We should wait to see it retested. ***
**** Is this a rule only for triangles? Or is it a general rule
that can used for any trend? If so this should be in a
different category.
I) By viewing what is going on inside a triangle we can make an
assumption about where the break out will occur.
3. GENERAL
A) When we have an indication of price movement that may not
be a strong indicator we can look for another weak indicator
to confirm our move by looking at a 1 minute chart.
POINTS OF ENTRY
A) If you don't adjust your Channel, short in a downtrend. When
price just cross's the channel and comes back in. There is no
need to wait for another bar, as soon as it crosses in you can
short.
B) If you do adjust your trend line, then short whenever price
touches the top of a channel in a down trend and price is seen
going back down.
C) Keep shorting every time this happens until we hit the lower
part of the trend line.
D) We only short in downtrends and only go long in uptrends
{is this corrcet}
E) 2 If the open and close are not outside the channel it is not a
place to enter***
** This may only apply for people that don’t adjust there
channels right away.
*** If there is a close out side the channel but the open is in
the channel would this be a good place to short?
Helpers needed to continue
OK. The first set of rules has come out, by adding to it we can slowly paint a picture that takes in to account basic, medium and advanced concepts.
I understand I'm not the worlds best writer. And I know at times my posts are incoherent and long. The goal here is build a knowledge base that has reference to other threads and has explanations on this thread if you dare try to scroll though it.
Unfortunately, when I am lost things on the thread will get a bit messy.
As we go on we will explore more and more concepts and challenge others at times. Also, we will see the differences in the way different people trade.
We will slowly develop a bible for trading that will be in point form and more details will be available here.
As it has proven to more time consuming then I had thought I will wait to see how many people are following this thread. If there is interest, and people are willing to help find answers to questions
I will continue.
You can always add rules to the thread as long as they are explained
If you don't mind, I would like to share a pattern that I have been coming across over and over and over again while I have been backtesting. My backtest consists of entering with the trend on minor retracements. Preferably a pullback to the 20EMA. I believe Al Brooks describes this in his book, but I did not understand it until I saw a post with a chart by NoDoji in Metals thread. At some point hopefully soon, I will have completed a thorough backtest for this pattern and will be able to give specifics as to what the expected outcome for this trade is. For now, it works more times than it doesn't.
NoDoji pointed this out on page 69 of "A simple price action approach" and describes it pretty well. It involves a failure of a test of s/r and a breakout of a triangle drawn by trendlines.
Here is an attachment for a trade I took using this method today.
With any luck, we can get Nodoji to comment.
ok well what i see is a buy in an uptrend after price hits support of a channel.. is there any other indication to buy besides the a bounce off support ?
traitor, are you using a 5 min chart for all of this?
__________________
too soon old, too late smart
Quote from killingtheta:
If you don't mind, I would like to share a pattern that I have been coming across over and over and over again while I have been backtesting. My backtest consists of entering with the trend on minor retracements. Preferably a pullback to the 20EMA. I believe Al Brooks describes this in his book, but I did not understand it until I saw a post with a chart by NoDoji in Metals thread. At some point hopefully soon, I will have completed a thorough backtest for this pattern and will be able to give specifics as to what the expected outcome for this trade is. For now, it works more times than it doesn't.
NoDoji pointed this out on page 69 of "A simple price action approach" and describes it pretty well. It involves a failure of a test of s/r and a breakout of a triangle drawn by trendlines.
Here is an attachment for a trade I took using this method today.
With any luck, we can get Nodoji to comment.
Quote from IanMacQuaide:
traitor, are you using a 5 min chart for all of this?
Quote from traitor786:
Yes I really like this chart. what are your thoughts on it ?
I'll be bauk
I have not been very active recently. However, I have been busy. My issue is that not only have my simple basic questions been answered, I have also realized that there is no information around about many of this stuff. If there is, it is often contradictory. So there is no exact science to this. Yet, they are used in a very precise way.
How can one point be chosen over another when both points are so similar. And when a lot of our art has a vagueness to it.
This brings in question this hole system. I remember some one posted on my journal. he wrote something like, if you have the capability to analyse on your own, then to stick to that.
I thought, well there so much info here why reinvent the wheel ?
maybe i can learn some things quickly here and then add new ideas i develop on my own.
Any ways all this aside, I am taking a new route. If any one wants to take over this thread they may. I can't be bothered to try to find answers to questions that don't exist.
I may still post here, but not in the same way. But, once i post picks with high confidence, you can be assured that I will be one of the top traders on this site. That is a personal guarantee.
Quote from killingtheta:
Okay so there is the setup. Confirmation lies in price breaking through the minor trendline and exceeding the signal bar by one tick. That's where we put in our stop order to buy. When our order gets filled, so does the stops from the bears and the momentum quickly sweeps us up to the next level of resistance.
I've read that some traders would prefer to just enter as price hits s/r and all that confirmation is a waste of time, but so far, during backtesting, using confirmation has added 12% to the win/loss ratio. Seeing it in realtime drives the point home. You can see price stall around support, slowly approaching the confirmation then pulling away, back to the confirmation and trigger. Price gets shot out of a slingshot right to the next level where the bears are waiting to defend that area.
ok
here is my first pick . not expecting much this on took me all day to do. Unfortunately it may be a bit more long term
I know it looks like its easy. but as you all know trading is never easy or luck. this was based on 12 hours of research ( and strategy development
hope it come out a winner
go long, go short and take profits triggers are on the chart
if it crosses the green and back it to the red it is considered a loss. this one is supposed to just go one way , up or down.
sorry i forgot i put this prediction here, i followed it a bit but will have to look in to it i did however save it at some point and though im not sure how it played out it is amazing to see how price behaved !!!
i oculnt believe my eyes when i saw this, and i did something like this on anoter chart and i put spot that i thought the chart would hit as dots and they were all hit, some points were out of the range of the previous day low and high,, but i dont think i postd that one .. any ways here is this one for you guys to see, sorry for the delay
nt
trend line challange
does this work, it is what i used to use and found that after 2-3 touches there is an anomaly. since it takes 2 points to make the trend line your 3rd is ony touching say 50% of the time you have not really increased your odds,
that is at least what i have found , but if you like you can pick a stock and we can both plot our trend lines and see how things unfold
Quote from xiaodre:
nt
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