Where is price going to is not a traders question! Let's see if I can help you figure this out. It's really better to ask, where is the place to enter and how does a trader manage risk? That's all trading is about, quantifying risk reward issues. Your chart didn't copy but you can go back to it. You have trend lines all over the place and sorry, but some are daft, some are weak and some are stronger so the end result is a masterpiece of confusion. What Metal and others are trying to do is bring a sense of order and structure to the confused mind of a novice TA and if I was training someone and they presented that chart and asked me that question, I'd ask them why are they asking? It shows a number of problems exist. The things you should be asking are where are the major swings, are they related to each other, how strong is that relationship, is there a trade opportunity and what's the RR? Those big swings are where the money was made and tells you where the money will be made again. Rather than present a completed chart here's a simple exercise to see if you can see the structure better. Connect the last 2 major highs and take a parallel to the last two lows. Can you see there is a clear structure there? We have the benefit of 20/20 hindsight now but at that point I'd be looking to see if there was a buy signal. (There are ways to grade the quality of this channel but that's leaping ahead too fast. Enough to say that buying a falling channel needs strong evidence of a reversal or nimble trading.) Now draw a horizontal from the prior low and see how price bounced off it. Again I'd have been looking for a reaction there as there was no attempt to buy when PA fell through that level. Finally take a line from the prior low to the last high and project a parallel from the last low up to meet the channel top. this gives a time and price projection. Will PA break up from such a move? I have no idea, because all the important information is missing. Information like prior volume participation, PA signal construction and especially higher time frame analysis. There were definite scalp opportunities at least on the low and at the prior support level, but here's the crux of the matter: asking where is price going to go is the same as asking do I buy or sell now? Based on the lines you had drawn and the lack of vital decision making information, I'd say toss a coin. Finally, the last drop was steep. Can you see where there was a prior steep move that is almost parallel and close to the same length? Now look at the last two decent up swings that form an ABC pattern. Can you see how they match in angle and length? Markets have timing and personalities, structures and fakes: get to know them and follow the money. You need to learn how to draw trend lines, structures, measured moves, understand multiple time frame analysis and great PA signals. Then you won't ask where PA is going when some traders at that point will be long and showing a profit, some will be short and showing a profit, and the silly ones will be asking silly questions.
Very nice thread Metal. Do you believe that breaks of the initial trendline (not the parallel channel) are more significant and predictive in nature? Thank you.
Futures trade pretty much 24/7 so I use a 24-hour chart. I use moving averages in the time frame of each chart. In other words on my 1-min chart I have a 20 EMA for the 1-min bars, not the 5-min bars. I already know the price at which the 5-min 20-EMA currently rests so I don't need it in two places. Using the 1-min 20-EMA on the 1-min chart can be useful for timing early with-trend and counter-trend entries. As Al Brooks mentions, using the 1-min chart is a useful way of entering a strong trend, trading a range during consolidation, and positioning yourself for consolidation breakouts. The smaller time frame lets you see inside the price bars of your main trading time frame and can offer valuable clues. A single doji or similar inside bar in one time frame can appear as a consolidation setup in a smaller time frame. In a strong trend when a bar closes as a doji or similar inside bar, it's often the closest thing you'll get to a with-trend pullback entry signal and you can get an early entry before price takes off for the next push and leaves you in the dust. Friday's CL action leading into the pit close set up a good example of this: After a strong three-legged downtrend that ran price nearly 1.00 lower than the measured move target of the early morning downtrend, price staged a failed final flag reversal signal off the LOD and bounced straight up to the 5-min 20 EMA in the very next price bar, an 80-tick bar (an $800 per contract move in a single price bar). Price continued to channel up in a sloppy fashion, formed an ugly symmetrical triangle, broke out again, stalled below the next R level to be tested, and pulled back sharply in what appeared to be a reversal back into a downtrend. Price broke a couple support levels of the previous sloppy channel, but buyers stepped in with conviction nearly to the tick of the initial support level in that channel. I waited for price to break back up through the 5-min 20-EMA, went long off the little pullback through that breakout level, and took off the trade when price broke previous resistance very weakly and closed a tick below that breakout level. I perceived it as a failed b/o of previous R and figured price would take a breather before either continuing upward or reversing. What's more likely to happen next?
So I took a short break expecting to have a little pullback action before continuation up. This snapshot is of the zone where I exited my long (just as the 11:10 bar was closing): Why didn't I immediately reverse to a short instead of taking a break? What are the clues that price will continue upward rather than reverse lower off this failed b/o of previous resistance? The first clue is that price tried to reverse back into a down trend earlier and found strong buying pressure off a significantly higher low. The second clue is that a trend line drawn from the LOD to the significantly higher low with a parallel channel line added at the swing high of the previous resistance level in play, shows that price moved more than 65% of the way to that upper channel line. That line will now act as a price magnet and price is far more likely to test it than to sell off strongly. In an environment like this wait for confirmation before considering a short; consider a long entry if the 5-min 20 EMA holds as support or if price breaks the level of the fbo of previous R. The 1-min chart gives a unique view of the price action. Price pulled back strongly to the 1-min 20-EMA and immediately found buyers. Anyone who shorted previous resistance as an anticipatory gamble that it would hold again as resistance is doing fine during this 1-min inset action. They're short between 98.85-98.90 and if they didn't lighten up during the .30 move in their favor, hopefully they have their stop at break even and are prepared to reverse long on a breakout. Anyone who shorted in a reactionary fashion using the 1-min chart as price broke the previous 1-min pivot low is trapped and slightly underwater during that mini bull flag. Both the anticipatory shorts and the trapped shorts will fuel a breakout if it occurs. The professionals know this and are likely to push price to at least trigger their stops, if nothing else. So it's low-risk high-reward to get positioned before price actually breaks resistance. Worst case you take a very small loss and maybe even a scalped profit; average case you get a ride to the upper channel line; best case you get a channel breakout and 1.00 move to the next resistance zone.
And we end up with the best-case scenario and, as usual, the easy money is made in the direction of the trend Sadly, my brief departure was not very timely and I returned to find price way up there without me. I apologize to the CL crew for not announcing that I was leaving my desk :eek:
You draw the trendlines or reverse trendlines or channel trendlines or whatever you want to call them to find confluence by looking for convergence. This gives you a "potential" key area, I say potential because nothing in trading is a certainty. Once you have determined key areas: You may either anticipate reaction with a trade (smaller stop lesser accuracy) Or Wait for extra PA confirmation to take the trade (bigger stop better accuracy) Apply logical risk reward ratio and off you go. Crazy A
in term of prediction, non-linear regression (which is used by institutional players) is much superior than this simple linear channel (which is used by vast small players).