I'll be damned; it worked this time . . . Here you can see the higher swing low at the 0748 bar (0948 EST) enabling you to draw the first TL (1). This, by the way, is called a Stage 1 TL, usually the most gentle slope. As the trend accelerates, a Stage 2 TL can be drawn (2). The slope is, of course, more dramatic. Finally, as the trend accelerates even further, a Stage 3 TL can be drawn (3). Trends generally begin to break down here as Stage 3 trends can't be sustained; the angle of appreciation is too severe. Therefore, you should not be surprised by a break of the TL. Rather you should expect it. Expecting it will enable you to maintain control of yourself and move your stop rationally instead of in panic to cut your profits short. If you didn't enter until (c), you'd be only just above breakeven when the TL is broken, so there would be no need to move the stop at all. However, if you entered at (a), you might feel compelled to move your stop up, even though there's no reaction point or swing point to move it to. The best choice, then, is to do nothing but wait, and since you haven't reached target yet, this is the most logical choice to make (there are no economic reports on this date until the afternoon). Once price has found a reaction low at 0827, you could, if it would make you feel better, move your stop up to just below that bar. However, you're now getting closer to target, so the real business is getting as close to that target as possible, using, if you like, an end-of-bar stop, as suggested as the beginning of this thread. This would get you out at around 65 (this would not be considered cutting your profits short since you're so near target). If you were trading multiple contracts, you could sell half here and leave the stop on the other half just below that 0827 bar (price did in fact move a few points higher later in the day). However, it would also be perfectly okay to say the hell with it (since you made target), cash in your chips, and take the rest of the day off. I have another chart to post which covers the trend situation after this initial flurry. If my luck holds, it'll be in the next post. --Db
Ta da! Now here, the first TL is the same. However, since that trend series has fulfilled its function, you can turn your attention to what happens next. In this case, when a new high is made (1), the TL may be rotated so that the reaction low at (2) is used to create a new Stage 2 TL (there will be no Stage 3 TL here, which is not unusual given the time of day and that a Stage 3 has just been completed). This TL is broken at (3). However, there is no suggestion of reversal, so there's nothing to get excited about. If there were going to be a reversal, you would at least want to see price drop below the 0906 reaction low, but since price is more or less drifting, you'd be hard put even to call this a reaction. A better indication of reversal would be a drop below that 0827 (1027) low. However, again, there is no sign of weakness here. There isn't even any testing of these points. Therefore, if you have a contract or two stopped under that 0827 low, you may as well just leave it there, set your alarms, and go watch a movie. It isn't until after lunch that the consolidation concludes and price moves up to 1075, which is five or six pts past target. And in case you're wondering how to squeeze out those last five or six points, you'd follow pretty much the same procedure with regard to TLs and swing/reaction points. You'd already be in the trade, so entry would not be an issue. You'd follow the breakout of the range at 1342, allow price to react at 1357 (what have you got to lose?), let it reach as far as it can at 1406 (moving your stop up to just below the 1357 bar if you want), letting it react again at 1418, then getting aggressive again with an end-of-bar stop when it attempts to make a higher high (remembering that this is all at least five pts past target, making an aggressive stance appropriate rather than greedy). Whether waiting around this long for this number of points is worth or not is, again, up to you, but there it is. The "reversal", when it finally comes, is just below that 1418-1421 low, and the reason why it's a high-probability reversal is because of the failure to make a higher high at 1433-1436. All those people who bought the 1418-1421 retracement thinking that there was worthwhile upside to come have no wiggle room, and when price drops below the point at which they entered, they're going to bail, which adds thrust to the break of 1070. There are a couple of ways to manage this reversal using either TLs or end-of-bar stops to get the most out of it (other than just guessing at the extent of the move and taking a pre-emptive exit), and I'll be happy to put together a chart for you, but it's late and I'd rather do it tomorrow. --Db
Here you see the three TLs again. Watch the breakout at (1). Breathe a little heavy if you can't help it, but try to relax. Let price come back (2). Remember that this has been consolidating for quite a while and it's not likely to pick this moment to collapse. And even if it does, so what? Your stop's in place and you have a profit regardless. Now let price do its thing (3). Move your stop up to (2) if you like. Let price react again (4). Get a senxe of the interplay between buyers and sellers, demand and supply. Now watch price try for that next high (5) and either follow these bars with end-of-bar stops, or relax and let price stop you out at (6). Your choice. Now as to the reversal, you would ordinarily leave your stop at breakeven until the TL was broken, then move it to the next reaction high. However, there is no reaction high until after the TL is already broken. So leave the stop at breakeven, then move it down to the reaction high at (7) when price resumes its decline. You can then either follow the bars with end-of-bar stops, or wait for another TL break. Given the lateness of the hour, though, plus all that congestion, the end-of-bar stop seems to be the better choice, even if hindsight weren't available. If end-of-bar stops just don't set right with you, though, it's perfectly okay to leave the stop at (7) and let price take you out if and whenever it will. --Db
Db, Today has been a good example of a trending day. Up in this case. I put a slope line on my chart that is quite steep. It sounds as though this slope would be ignored and a larger maybe less steep slope or TL would be the focus. Is that correct? Banker
That depends on what you want them to do. Your slopes seem to be consistent with linear regression lines, which are handy for giving a general idea of "trend" -- which is what I understand you want -- but may not be much good for making specific trading decisions. If the NQ reaches the target (1042) anytime soon (and I can quit), I'll put up a chart of what I was looking at this morning. Otherwise, I'll wait until the end of the day. --Db
Incidentally, I'm assuming that you know that when price makes a new high, the TL can be fanned out to incorporate the new reaction low. This enables you to capture a greater portion of the move. If this isn't clear, I'll try to provide a better explanation with a chart later. --Db
No I'm not familiar with fanning. An explanation would be great. I marked a less steep general direction on my chart. I look forward to learning how to fan TL's. Thanks, Banker
The S&P has reached a larger time frame road block. I was trying to explain the concept earlier. Here is a chart of what I mean. It's not guaranteed that today's up trend will stop here, but it is a clue worth noting IMHO. Banker