Break-outs and pullbacks

Discussion in 'Technical Analysis' started by fatrat, Jan 18, 2007.

  1. billp



    With regards to your comments :

    "..The second highlighted green line on your chart is not a expansion line nor is it a volatility spike because the real expansion interval as a volatility spiked occurred four intervals.."

    Are you saying that the volatility spike occured on the wide ranging bullish green bar? The 2 previous candles before it (Don't know their terms so will try describing it) ie the red and green spinning top/dojis seems to me to have a large high-close difference too. Aren't they too volatility spikes?


    #51     Jan 25, 2007
  2. Some thoughts on a "Break Out"

    I trade YM from a 15m / 60m chart and hold for a day to a few days.

    Once I have identified what to me (from years of observation) looks like a very good support or resistance area via recent price action showing me this, I take a trade when the price area is penetrated by about 4 -5 points.

    If I was trading from a 1m chart I might take the trade with 1 point penetration or from a daily chart I might want about 10+ points of penetration.

    I do not wait for a pullback because some of the best breakouts do not pullback (to where?)

    Also, most "successful" breakouts, should they pullback, don't go back through this prior support/resistance by much - by much is defined again by the timeframe and price characteristics of the instrument you're trading. On YM from the 15m/60m chart I use 20 points.

    Of course there are many cases where price will not shoot to the stars instantly. A pause just above/below the S/R, or break then pullback to the S/R, or break and then pullback a little past the S/R - all of these are OK. But a break and then falling "too" much past the S/R and I want to be out, which goes with the theory of small losses and large gains, cuz those breaks that "behave" well have potential for large moves.
    #52     Jan 25, 2007
  3. Here is an example of a break that actually moved pretty good initially (this happens to be an intraday trade from a 5m chart for YM) BUT it then pulled back pretty good BUT didn't go below the resistance which is now support and then really took off.
    #53     Jan 25, 2007
  4. Hi billp,

    First, there's a huge difference between Japanese Candlestick analysis and Volatility analysis.

    I use candlestick analysis as a confirmation tool only and I don't recommend it to be used as a stand alone strategy all by itself (nothing else)...

    Regardless if the discussion is about lines or patterns.

    To answer your first question, on CM69's chart his intervals are color coded with green or red.

    Red Line = Dark Line in my terminology.

    Green Line = White Line in my terminology

    You can use any colors you want as long as they are not the same.

    Therefore, yes to your first question assuming we are talking about the same chart. reference involves the price action between the Open and Close and not the price action between the High and Low.

    WRB = Wide Range Body (not bar) and its the price action between the Open and Close.

    Expansion Interval = WRB in my terminology.

    To qualify as a WRB as explained in the Trading Hammers (revisited) thread simply means that the Body > each of the prior three bodies (see reference thread for more info).

    Now, just because we have a WRB doesn't imply its a volatility spike.

    The volatility spike qualification is determine by the range (bodies) of the prior intervals and those prior bodies must be small bodies in comparison to the most recent WRB before them.

    I do different types of volatility analysis and this is just one particular type.

    In addition, if your into Times & Sales, you should also be seeing small size trades in those small bodies in comparison to more large size trades (we are not talking about Ask and Bid) in the WRB.

    Further, the speed of the trades printing in your Times & Sales window should be increasing in the WRB in comparison to what you had saw in the prior small bodies.

    If you see the above...that's a WRB with Volatility Spike.

    Like I said, Times & Sales is not needed if your experienced enough with volatility analysis but can be very helpful for those just learning volatility analysis.

    No...I'm not saying that.

    I'm saying it gives you a clue that a pattern signal will soon appear.

    It can be trend continuation signal or trend reversal signal.

    Once again, a WRB (expansion interval) is in reference to the body of the interval which is the price action between Open and Close being mearsured against the price action between the Open and Close or the prior three most recent intervals.

    You should have notice when I'm talking about price contraction...

    I'm using words like bodies and/or intervals.

    It's plural.

    Thus, one interval of price contraction after a WRB does not qualify as declining volatility for trade decision purposes.

    It should only be telling you to continue monitoring the price action for the next several intervals to see if price continues or remains contracted.

    Simply, you seem to be concerned with looking for reversal signals while I'm concerned with understanding the prior price action because it could setup a trade signal that's around the corner...

    Trend Continuation or Trend Reversal.

    Lets put it this way.

    If your profitable, keep doing whatever you are doing.

    With that said, if your using Japanese Candlestick patterns as part of your trade methodology...

    You should be concern with volatility analysis.

    Thus, the only thing I know about your trade methodology is that you said you tend to focus on s/r levels.

    There are hundres of ways to determine s/r levels involving math, trendlines, volatility, key market events, WRB's, candlestick patterns or shadows et cetera.

    Whatever your using as s/r levels...if its working (as in being profitable) keep using it.

    However, if it is not working and you want to keep s/r levels as a key part of your trade methodology...

    You obviously should explore using a different type of s/r analysis in comparison to what your currently using.

    By the way, my s/r analysis is a key part of my exit strategy and not a key part of my entry strategy.

    Also, I don't trade stocks nor do I monitor them...

    I'm a futures trader.

    Last of all, everything we are talking about can be performed (the same type of analysis) with Bar Charts and is not exclusive to Candlestick Charts.

    (.a.k.a. NihabaAshi) Japanese Candlestick term
    #54     Jan 25, 2007
  5. Mark

    In that case, I guess volatility analysis it's not something Nison's book would have talked about (at least I dont remember any such thing), where can I learn more about this? I did an amazon search and found this .. do you have any of these books yourself that you can recommend?

    Also does Nison talk about WRB's in his book? (I'm in school right now, I'll check later).. or is this a term that you made up (no pun intended)

    When it comes to volatility, I use the ROC indicator, but sometimes it just doesn't make any sense to me.
    #55     Jan 25, 2007
  6. 4re


    I totally agree. Every trend begins with a breakout of some sort.
    #56     Jan 25, 2007
  7. That's why I keep making reference to the Trading Hammers (revisited).

    It's a thread here at ET that talks about things you aren't going to find in any Japanese Candlestick book.

    The thread is also designed to discuss the truths and false information about Japanese Candlestick Analysis.

    It's an advance discussion about Hammer patterns.

    Look at it this way...use Nison stuff as definition purposes only and if you want to understand the price action involving Hammer patterns (stuff not mention in candlestick books)...

    Read the Trading Hammers (revisited) thread.

    I've never approach volatility analysis via an indicator mainly because I'm a price action only trader (no indicators).

    However, I do have volume on my charts for conversation purposes because most of the price action only traders I know are using volume analysis.

    When they talk about it I need to see what they are talking about.

    Also, I don't know of any sources outside of me that talks about the type of volatility analysis I use.

    It's nothing new.

    I just think we at ET and elsewhere are talking about a lot of little things that if someone sits down and puts the puzzle together (I did)...

    They'll get volatility analysis or something that helps them become a better trader concerning knowlege and profits.

    For example, I've seen the following discussion here at ET:

    * Speed of prints in Times & Sales window

    * Price Reaction to Key Economic Reports, Market Events, Political Events et cetera

    * Market Seasonal Tendencies (Cycles)

    * Narrow Range Price Action

    * Price Volume Analysis

    * Volume Spread Analysis

    * Intermarket Analysis

    * Chart Patterns (triangles, wedges et cetera)

    * Japanese Candlestick Analysis

    I can go on and on.

    There's so many things here at ET, other forums, books, websites that've I found of value resulting in me putting together the puzzle to form my version of Volatility Analysis.

    I think this is the route any price action only trader (no indicators) eventually travels and it involves years of traveling down that road.

    (a.k.a. NihabaAshi) Japanese Candlestick term
    #57     Jan 25, 2007
  8. You should write a book. I'd buy it :)

    #58     Jan 25, 2007
  9. porge


    and it can become a few words to succeed...........price going up buy price going down sell trend is friend...........
    #59     Jan 25, 2007
  10. billp


    Thanks Nihabaashi. I will say that the most critical part that I need to improve is holding on to winners. Going to try a new strategy for this part. Hopefully it will work.
    #60     Jan 26, 2007