I didnt see the close on this bar that the pink arrow points too. I thought the close was closer to the top and so the previous High looked like a LH but on closer look if you ignore that spike then I guess its an OK entry.
Ok here are pictures to go with what I was trying to say: If only 3 points are needed: If 4 points are needed: And if 5 points are needed: What is the point at which PBP becomes valid regardless of the height of previous highs or lows? After 3, 4, or 5 points?
Hi Ironfist, I think the answer to your question is that it really depnds on the market momentum. For example if I see a very strong trend I might only search for 3 points or even take trades that are not 100% valid in PBP. But when the trend is not clear or is becoming exhusted I'd might wait for 4 points or maybe I'd step out completely. Maybe I'll post some charts later.
jjrvat might want to confirm this himself but I dont think the last example on your 3 point entry image is valid because there is a lower high just before your entry. In theory for the trend to be continuing you need a HIGHER HIGH. So I guess at least 4 points is probably your answer
Looking at all the squiqqly lines and having to interpret each one accurately would seem to me to greatly increase the odds of missing the call. Too busy for me. Just my 2 cents.
Hi jjrvat, Fantastic message thread. Best trading information I have seen anywhere, very practical guidance for developing a trading plan. Hi IronFist, Sorry about responding so long after you posted the attached chart but I just read this message thread and think this chart can be very instructive 4 u. BTW, if you use candlesticks, the price action is more visually obvious. You are asking the wrong questions on this chart. Everything counts! Here is a phrase I made up to remind me what is important: Price Actions Rule, Indicators Drool. Let me explain a little bit about what indicators are and how to "read" price action. Most standard indicators (MA's, oscillators, et al) are digital filters. What do these digital filters filter out? Answer - information (some people call it 'noise' because they don't know how to interpret it). Indicators also lag prices. By how much? Example, 240 MA tells you what average prices were doing 120 bars ago. They do not give current information, only prices can do that. In addition, when you use a fixed look back period for your indicators, you are in effect tuning a digital filter to a specific price wave period. When the dominant price cycle you are trying to trade is close to that period, you will do well, otherwise you will do poorly. Let me describe what I see on your chart. That 1st correction you point to gives very important information. Whenever you see a strong thrust up or down and a 1-3 bar shallow correction before the wave (trend) continues, you have a very good trading opportunity. How do you trade it? Answer - enter on a breakout of the extreme before the correction. In this case, you would have taken only a few ticks of heat before making a nice profit. It is the 1st correction of the price wave and as jjrvat said, the earlier in the wave you enter the trade, the greater the probability of success. If you trade that way, you are trading a breakout of previous support. An integral part of reading price action is support and resistance (S/R). Prices trade between S/R and being able to tell when S/R will hold or not with a high degree of accuracy is critical to trading success. You can trade breakouts of S/R and reversals at S/R. jjrvat has not discussed S/R yet but I am looking forward to his description. Now the rest of the chart, if you know Elliott Wave Theory (EWT) you expect each wave to be comprise of 3 impulses moves and 2 corrective moves (called 3 drives to a top/bottom by Larry Pesavento). When you see 3 drives, be cautious about trading in the direction of the prevailing trend until a sizable correction occurs, because usually a correction of the entire 3rd impulse move (to the last resistance level) occurs or there is a trend reversal. In this case, after 3 drives to a bottom occurred, a smaller than normal correction came before making a marginal new low. IME that is not uncommon when you don't get a full correction. On an appropriate oscillator, that marginal new low will show divergence. Next you see a double bottom and at the second bottom there is a nice stall which gives you an opportunity to get in long 1 or 2 ticks off the bottom. Lets try to interpret what is going on behind the scenes. The highest bar on the chart has a big portion above the open and close (on a candlestick it looks like a long wick). That indicates price rejection, i.e., a lot of selling is coming in and driving prices down from the high, usually means prices are going lower. On a little larger fractal it likely would show as a pin bar setup to go short. During the ensuing 3 drives to a bottom, big money (aka strong hands, SH) is driving the market down. You can confirm this by looking at T&S. Big lots will show up when SH are participating in the move. The final thrust down to the marginal new low is likely caused by small traders (aka weak hands, WH), confirmed by few or no big lots showing up on T&S. At the bottom, SH are getting ready to fade WH and squash them like a bug. Always try to trade with SH. It is very easy to do this kind of analysis after the fact, it is not as easy to see what is happing in real time as the ticks are flying in! I hope jjrvat corrects any errors I made in my analysis and adds anything I left out. Bill
I meant all the chart patterns posted above with "HH", "HL", etc. I'm not knocking what you are doing. If it is making you money that is all that matters. I started doing better when I switched to just working off the DOM. I seem to see things better their than I do on a chart. But that's just me. Keep after it. It's a marathon, not a sprint.