Hi Anek Thanks for the failed head and shoulders chart pattern today. When do you enter when you see the a successful Head and Shoulders pattern in general, is it when you see the a weak bar close below the neckline (horizontal neckline or a neckline at an angle) ? And place stops above the neckline? And when the head and shoulder pattern fails in general( not today in particular), don't you wait till the high of the right shoulder is broken with a new high bar closing above the right shoulder high? In today's failed pattern which failed near the LOD, I see in the chart you entered when the downtrend line is broken, but you waited for a few strong green up bars to get in. So, when a "failed and shoulder pattern" happens near LOD you just wait for the downtrend line to be broken and get in early, without waiting for a confirmation of the right shoulder high being taken off? Thanks DisciplineTrader
D, I very rarely take a head and shoulder neckline break unless it forms at the very top of the chart as they are only reliable in uptrends. Those that do form at the bottom tend to fail and I enter in a more aggressive matter in comparison to a failure at the top. The same is true for Inverse Head and Shoulders in downtrends. However, I'm much more enthusiastic about the failures than the pattern themselves, especially if they form at the "wrong" places. Sorry guys if I'm leaving questions unanswered currently in a big project. Anek
Well, the failure did produce a furious uptrend. About 6 waves in the NQ, which is a bit more than the common 3-4. Also we can't assume all the shorts covered. In fact, the AH took the NQ to new multi year highs, broke 2200.00 Glad you find the journal interesting. Assuming you are an experienced trader feel free to chip in with ideas if you like. Anek
Thanks Anek for the quick reply. Goodluck with your project ! How is your AHG automation project coming up? Thanks DisciplineTrader
You are welcome. It's kicking butt on the ER2 but I'm having trouble with the synchronization with Tradestation, definitely needs baby sitting. Tons of work left still, months probably. Anek
Congestion at Extreme Areas vs Reversals Make an effort to notice the difference between one and the other. Usually when price develops a very strong move once it becomes exhausted, it must rest and consolidates. Mostly because traders are hesistant to jump in at such levels, they are potentially painful levels and no one wants to get burned. This is precisely when amateurs start calling reversals or opening positions after the fact, turning trading into hopes and fears. Please avoid this. This is when patience will serve you well. Eventhough reversals are very much possible and offer great risk vs reward this is exactly why we use and require confirmations. Without the confirmation it is simply, a gamble and good traders are not gamblers but predators. Don't fall prey to congestion, congestion offers no hint except the fact that the previous trend is the strongest but it is also very much tired, at least for now. From a psychological perspective since you probably missed the whole initial move you feel frustrated and probably want to ride it all back down (or up) because the market moves in waves right ? plus you probably feel frustrated that all this happened right in your face. Well, that's understandable but make sure an actual good potential setup is developed before stepping into a train. This is the time when we examine the surrounding support and resistant areas to see where price might be heading next after we get confirmation(s) so we can determine our logical targets and see if the risk involved in the trade merits opening a position when and if the time comes. Price turns for different reasons and not every reason is significant. Please remember that. Hope it helps. Anek
Good thread Anek ... fulfilling the promise of that first post. This last point is a great one. One of the worst things that can happen early in your trading career is to succeed with some spectacular reversal trades. Even worse if you advertise them to your buddies. Because you've created an internal monster that can kill you over time. My personal rule is never to trade against my moving averages and that's gradually reduced my urge to call tops and bottoms. Internally though, you have to really, deeply, accept that you are going for the middle bit of the move.