Learning to read Price Action with P&F Charting

In case anyone is curious, I exited MT when it was 86.04 and XTO when it was at 64.16. My rationale? I didn't want to think about what it was doing while I had classes ... next time will just institute trailing stops as Holy Grail prudently suggested.

 

You still did OK with the trades so congrats.

 

So far today was a day that if you took only level 2 and 3 pnf signals you would have had no losers. I will show a chart later today.

 

Here is a 4 x 3 chart of ym today. All level two and three pnf signals were profitable. Of course it all depends on how you play them, but there were some very decent gains to be made almost no matter how you played them.

Your best gain would have come from waiting for a reversal from bullish to bearish or vice versa, but to be honest I did not play them that way. I went with pre-defined targets.

edit: for those not following a level two means it is the second bullish or bearish signal in a row. Level 3 are three consecutive bullish or bearish signals in a row.

 

Potential swing trade

AIG just broke out at 48 with a level two trend.

 

Another potential swing trade.

This would be a great buy if it reaches 82.

3M ready for a level 2 breakout. Relative strength already broke out.

 

Put BAC on your watchlist. This is going to be a big move when it finally does happen.

Typically on a triangle breakout the breakout will occur in the direction of the last pnf signal which in this case would be a downside breakout.

Remember if you get stuck in a false breakout immediately take the other side because this will be a big move one way or the other. It's a coiled spring.

 

Here is a very interesting chart of Coach.

We have a potential bullish catapult forming should the stock hit 34. It will also be a level 2 buy signal at the same point.

 

OK, last chart. Comcast cable

This will be a level 2 buy at 21. Relative strength already broke out, and main downtrend will be broken.

No more free homework for the peanut gallery.

 

HG, There is one topic that I think deserves more discussion. What "expectancy" ( as per Van Tharp’s book “Trade Your Way to Financial Freedom") can one expect from this trading methodology? What is your target and/or historical risk/reward ratio? Do you subscribe to a predefined formula? Do you use R multiples (how much you win or lose on a trade as a percentage of your initial risk) to monitor your performance? I realize we all have different trading styles, which will have a direct impact on our results but it doesn't hurt to discuss it and compare notes.