With the occasional exception, the price should not drop below the last reaction low for a long. In fact, in a good trend, it should not drop below the last reaction high, making a stairstep pattern. If it does, you've got a 2B. If it then makes an attempt at a new high but doesn't get there and fails, you've got a head and shoulders. --Db
That's good to know. I dont really know how to thank you enough for all your help Db. Since you've mentioned the 2B reversal in some of your posts, I've been trying to learn to spot them while they are forming (it's a lot easier to spot them when you look back). Based on your experience with 2Bs how well do they do in NQs? I'm still having a difficult time in getting myself to get the 2Bs right because it seems like kinda 'jumping the gun' before the breakdown happens... but I'm sure this part is psychological on my part as I'm used to double tops/bottoms more. Thanks again Db.
A 2B is a type of double top/bottom, but is more "diabolical" in the way it traps so many more people on the wrong side of the trade. Today's chart provides an example of a 2B that fails and one that works. A 1m chart is used because my 3m is already marked up and I don't want to do it over, but there's no important difference. 1. The opening high. 2. After a retracement, a new high. 3. Price breaks the uptrendline and drops below the previous high. 4. Price rebounds, working its way back above the first high (1). By my rules, this nullifies the 2B, so I exit. This may have been a little early to take a trade of this type, but the risk is minimal. 5. Price advances past the second high. 6. Another 2B effort is made, and this one succeeds. There's always the possibility that a 2B can morph into an H&S. The right shoulder should not come all the way back to the left, but it's important to define the risk ahead of time. You may choose to exit if you dip underwater, then short the right shoulder if price stalls. But it's not a good idea to wait for the neckline for entry. --Db
Reviewing the last 2 days trades, it's easy to see the reverse plays that came out from the failed opening range breakouts. Being new at this strategy, I did get in both ORBs. For tues, I got in at 972 & ran out with slight 1pt gain after seeing that the ES was in a hurry to go south. For today, my entry was at 967 right after 9:50 & did get stopped out at -4. The only consolation was I did get into yesterday's reversal, though missed today's coz I wasnt too sure about it. My question has to do more with how to avoid getting into the ORBs that fail or at least some of them, or were the entries more or less correct and is part & parcel of the strategy. Were there any hints from the market I missed being new with e-minis? Also, what wouldve been a better thing to do the past 2 days? BTW, I currently use 1min charts and 3min to confirm. Mostly taking patterns formed by the 1min, is this too short and erratic & should I use the 3min charts for the patterns? thanks.
Arzoo, Just in case your unable to read the annotations (paragraph) on the chart... I'll repeat it here: "Emini runup is very suspicious after the Osama capture rumor. In fact, NQ pop weakly (low volatility) to the upside soon after the opening bell. ES seem to reluctantly want to follow the NQ. 0950am est is first sign of blow off volume at the key pivot point...signal to Short any reversal signal that drops the NQ back below that key pivot point." Thus, via the attach chart...you went Long when most Longs already had very nice profits and were preparing to exit to lock in those profits when you decided to jump on a trend that had been established since the opening bell...often a poor breakout candidate after two upside pops... Therefore, by the time you were buying that breakout...there weren't many Longs around to push it higher... trend exhaustion. Further...the Longs were looking to exit (Lock in the profits) via any exhaustion signs at that key pivot and the pivot point gave them a very good location to do so. Just the same...Shorts were lining up to take advantage of the Longs exiting to lock in those profits. Thus, its' important to understand the internals or what's driving up or down a trend to better prepare for a trade signal...if/when it appears. In my opinion...any Long positions via that type of price action alone...along with the info that had caused the uptrend... are more often doomed and are easy prey for the Shorts...especially within the first hour of trading. Also...that type of pattern... Upside pop...pullback...then Upside pop again...is a high risk Long position via breakout strategies. Thus, a lower risk play may be to find a trade setup that gets you in on the pullbacks prior to those second upside pops. Key Concepts of the Trade: 1. Osama capture rumor 2. How fast and deep the Eminis came back down to equilibrium around 0809am est 3. NQ strongly pops to the upside at 0931am with ES reluctantly wanting to follow. 4. Eminis upside pop...pullback...upside pop makes breakouts after such...high risk entries. 5. Exhaustion occurs near key all session globex pivot point. 6. Blow-off volume 7. Rare Bearish Dark Cloud Cover japanese candlestick pattern in NQ with confirmation via a Bearish Tweezer Top japanese candlestick pattern in the ES. Simply, its critical to understand the price action alone event that's driving any trend...up or down to plan for a trade. This is one advantage to price action alone trading has in comparison to being dependent upon indicators... blending the two together can be very profitable. NihabaAshi
For myself, I stopped using the ORB strategy as posted when there were fewer instances of follow-through and when the retracements became deeper (deep enough to trigger the stops). Instead, I reverted to a retracement strategy, incorporating elements of the ORB strategy. The ret strategy has been much more successful within my risk tolerance. Unfortunately, though this strategy is relatively simple, it's very difficult to reduce it to a set of rules that can be easily conveyed to somebody. I had hoped that interested parties might help in creating such a set of rules, but since there's been no interest in this, that's not likely to happen. I will suggest that you think about exiting your position if price hits your stop and immediately reverses. Though there is occasional trickery here, I've found that if price hits the stop and immediately reverses (i.e., in the same or the next bar), you may as well get out, or at least tighten the stop to two pts. You are looking either at a reversal or the beginning of a congestion (and while many people aren't bothered by being stuck in a congestion zone for a couple of hours, I'd rather get out if the price isn't going to move and wait for a better setup). Once you're out, then look to see if price retraces to resistance/support of some sort, such as the last reaction point. Consider re-entering there. I've also noted, along with everybody else, that we run out of steam rapidly. Therefore, it becomes necessary to pick up on the trend/change of trend ASAP; hence the focus on 2Bs. But, again, I don't know how to make this "simple". --Db
It can be made simpler, though not simple. It's not especially difficult. But it requires a certain interest in trader psychology, and few people seem to have that. Ah, well . . . --Db
Thanks NihabaAshi for the post. Being a newbie, I appreciate and try to learn from all the knowledge & experience that comes my way. It's very helpful. Like Db, I've noticed that there have been a lot more reverse movements and retracements lately. Even early this morning (thurs) was a reverse and partial filling of the gap for the NQs, before the runup. I guess I'm slowly learning since I was able to avoid the choppiness early this morning on the NQs, though I'm pretty sure it couldve been traded since there was a good trend downwards. Just a question having to do with the entry today, hope you guys dont mind. I got in at 999 on the NQ before 11:30 after the 997 break upwards, I did miss the earlier entry signal after the 992 break on the double bottom (if it may be called that)... But looking back I can see that there may have been an earlier (but maybe riskier) entry on the pullback of the breakout of the downward channel at 987 around 10:15 or so. Am I correct? Which of the entries would've made more 'sense', considering the market at that time? I hope the question is too stupid, coz I'm trying to learn as I go along. Thanks.
No. The break of the downtrendline line suggests a change in trend, not a trend reversal. Likewise, buying the pullback is not wise because no new trend has been established; therefore, it cannot be considered a retracement within an established trend. The first opportunity to buy occurs after two signals are given: (1) the higher low and (2) the move above the last reaction high at 1048 (992). None of which has specifically to do with either the ORB strategy or the ret strategy. This is just basic trend determination stuff. --Db