Hi guys, this question is related to trading using charts only and small timeframes only (day trading). I am a firm believer that entries are very important in trading. I disagree that entries are unimportant and that most of the edge comes from trade management (or even money management such as scaling in and out, as some claim). I am referring to impulsive and corrective concepts here but not elliott waves with all its rules. Anyway, the pattern is: 1) good impulse with large candles 2) followed by a pullback in the opposite direction with much SMALLER candles (it has to be in opposite direction, not flat) 3)Another impulse with large candles in same direction as first impulse. Please stay on topic guys if you could, would be very appreciated. After having A LOT of chart time some part of my memory is telling me this may be a good entry and there is a smaller chance of pullback right after entry. Could someone confirm? Perhaps you have backtested it or are using this live already?
I also believe that entry is important even if it’s not what’s going to hit or miss a trade. If you bought me some shares of AAPL any day within the last 10 years. I would be happy whatever the price. Entry is important because it’s in direct relationship with the reward to risk ratio. The correct entry will increase the reward to risk (Making 3R vs 2R), as well as the bottom line (More shares for the same risk). From what I’ve seen, once there is a large candle (2x above average) that closes strong then it’s likely that the price will drift in line towards the outlier. By the way … The absolute ROC is more informative than the True Range. Because if a big candle closes weak … It’s more of a danger signal. You can enter at the top of the candle and put your stop below the lowest point, in between the candle and the breakout. Ideally below the big candle but it’s not interesting Reward to Risk wise. For example when a stock gap up on strong volume (Daily) I zoom in and watch for a pullback on the 65min. However I don’t really like to see 1 big single candle. I want to see some kind of linearity and a sustained move. At least 2 candles then a consolidation. That’s funny because some models don’t take into account outliers. But what’s stand out is likely signal vs noise. When I see something big. I pay attention to it. Above average ROC is signaling !!! More than anything else.
Impulse and corrective are terms in the EW lexicon. But the whole point of identifying them is to know if a 3 wave or a 5 wave move is coming. Big difference.
Note there are many observations and theories about such things but no one has hard data. Candles, indicators and the rest very rarely give you any long-term edge, no matter how you stack them together.
I get the point, but I changed the wording of the title and my post as soon as I created this thread, so as not to confuse anyone, as I am not trading elliott waves. So i changed "correction" to "pullback" for example.
I respect your opinion, but why is there no hard data? Because very few can be bothered to run a long manual backtest to get 400-500 samples? Or because they did so and there is no edge? What about the specific pattern I am talking about? Are you aware of someone backtesting it and seeing no edge after a good number of samples? I agree with you that standard indicators are useless, but pure PA is a different story in my opinion. So if PA doesn't work as you say, how do you trade? Just using fundamentals and/or news? Just trying to clarify what you mean
There is a reason why when we are looking for patterns that can be used to enter the market should consist of a large number of candles (such as 10), and we are not looking at individual candles (or 2 or even 3 candles). This is because candle opening/closing times is just broker convention, so a 5 min candle could open at 15:04 and it would be as valid as the one that opened an 15:05. However when a pattern consists of many candles no matter what the open/close time of each candle is, the pattern most likely will look more or less the same. Compare this with a 1 candle formation (if they existed which they don't) such as pin bar, one could create much more trading opportunities by considering a daily pin bar that opened at 0:00/0:56/22:14/what ever time.
Context and probabilities matter more than just a pattern by itself. If you always wait for that many bars to develop before placing trades you're going to be entering when others are taking profits/looking to fade.
You misunderstood my point, possibly i didn't explain it so well. There is no late entry here, we enter when the last high(for uptrend) is broken, we could even make it slightly riskier and open the position before it is broken, also if the entry candle is way too large and has broken the high by too much than we may want to skip the trade
For those who like things visualized (i know its easier) i found an example. I am in the airport now and dont have my laptop with me. Look to the right side just a bit away from the middle, we have a powerful sell-off consisting primarily of large bearish candles, then a pullback consisting of small bullish ones, then we get another "strong" red candle but it doesn't get anywhere close to the last low. If it did OR if we had another powerful red candle, provided the context is there (overall downtrend), this is where we would enter. I am willing to backtest this myself, but the whole point of this thread is to find someone who would tell me they have already tested exact same set up and there is no edge or that there is an edge and i am headed in the right direction. By the way, if my theory is correct that this is a good pattern for entry (i am not saying it necesserily is), you could also enter on the pullback without waiting for the second with-trend move, but i am not a fan of the idea of pullback trading, all kinds of problems with it, such as missed opportunities, not knowing where it could end, etc, I am not saying pullback trading is a myth, but I am not keen on it.