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response to: A simple price action approach, for beginers

Discussion in 'Trading' started by traitor786, Jun 14, 2011.

1. traitor786

I have been reading A simple price action report started by metal.

It is a great thread and very informative, some of us may be a bit newer and starting at page 1.

Also there are some basic elements that may need to be explored a bit for a newbie.

In this thread we will try to explore the basics, we will also explain terms used to increase our vocabulary. hopefully we get some of the posters on metals thread here to help out.

I am not used to forums and feel if i post on that thread I may interrupt their progress with basic questions.

Thank you.

2. traitor786

Expanding on what was said about making channels, I will ask a few questions about the basics of making a channel. Through out this thread we will gather up a set or rules and add to them.

RULE for channels

To create a down trend channel

1. 1st draw top line connecting highs

2. Then draw a bottom parallel line. For the bottom line use the *SWING LOW mid point of the top line.

3 In a down trend, we first make the bottom line and then copy (make a parallel line) to the top

4. a channel by definition is 2 parallel lines that income most of the trend.

5. Trends need to be adjusted from time to time under a set of rules

Correct me if I make a mistake.
____________________________________________________
Questions.

If we see that a the bottom of a downtrend is showing more lows that can be connected to form a strong trend line can we make the first line on the bottom and copy it upwards? likewise in an uptrend, can we use first make the top trend line if it is showing more consistency then the bottom?

It would seem in this case the swing low is a point that is between the top trend line. Some times, it may occur that we have a few low points in that area. In that case do we put the bottom f the channel to cover all the lows in that area?

What if there is a low that protrudes the bottom trend line but is not n the center?

Does the term swing low always apply specifically to a big low in the center of the top trend line or is it a term used for any big low?

Is it more important to be exactly in the center when identifying the swing low or is it more important to find the low around the area that makes the channel the biggest

3. traitor786

Here is the chart he used. If any one can let me know the best way to past the chart in here that would be great.

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4. traitor786

In the second post, we see that the chart has continued. Two new lows have been added. Both these lows cross the bottom of the channel.

The first new low does not open and close under under the channel.

The second new low does open and close under the channel.

1. If there is a open and close that are under the bottom of an uptrend channel We can enter as soon as we see a close back in the channel.

2 If the open and close are not under the channel it is not a place to enter.

5. traitor786

the attachment

6. traitor786

In the third post we now see that the channel has been expanded.

Lets examine the basic rules for expanding channels and add them on to the list as point B

RULE for channels

To create a down trend channel

1. 1st draw top line connecting highs

2. Then draw a bottom parallel line. For the bottom line use the *SWING LOW mid point of the top line.

3 In a down trend, we first make the bottom line and then copy (make a parallel line) to the top

4. a channel by definition is 2 parallel lines that income most of the trend.

5. Trends need to be adjusted from time to time under a set of rules

B. Expanding channels

1. Channels can be changed and expanded.

2. A channel can be expanded if a higher high is made.

3. We will put our trend line now at the next highest swing low That is, the higher low above the previous one.

Questions

There is some confusion between next "highest swing low" and "higher low". Are these 2 concepts the same?

What if the next highest swing low is not as low as in the picture?
In this case, is it OK to cut off the bottoms of the other previous lows? Or should we try to include all lows in to the channel at this point ? Also, can we change the slope or steepness at this point?
Can the top of the channel also be adjusted if need be.

I will now go see if I can find the answers to these questions to clear things up. from there we will see if there is any interest by users in this thread. If so, we will continue. I know its very basic stuff. But we have to start some where. By looking at more advanced concepts and finding the basic reasoning behind them, we have a bit more interest in learning. Also we develop a sense for the more advanced ideas as explained in the other thread. Hopefully, as time goes on, we will have covered much of the basics.

7. tomahawk

You might want to take another look at #2 and #3.

For #2, I'm not sure "*SWING LOW mid point of the top line." is necessarily accurate. To me a better description of where the parallel line should be drawn (for a downtrend) would be "parallel to the trendline and touching the one pivot low whereby all the bars that follow are contained within the channel." Presumably you're trying to judge where the channel line (the one drawn parallel to the main trendline) will next be touched, so it would be drawn immediately after the trendline is determined, and therefore would only have one pivot low touching AT THAT TIME. Once the parallel is touched a 2nd time, price may or may not bounce back and forth between the lines, but once it goes outside the channel then it's usually time to reset the lines.

#3 - was that a typo? ... it's in an UPTREND that you first make the bottom line, etc. ...

8. traitor786

That would make sense, the idea of the swing low being at midpoint would suggest that the channel could only be drawn after the trend was completed.

Also I have been looking for the answers to the questions I generated and am finding it very difficult to get the answers. I am surprised that it is so hard to get the basics down. I'm not sure how to proceed.

Should we just ignore the basics? hope some one fills in the blanks?

By no way am I an experienced trader. I would imagine 90% of the readers on this thread know more then me. Where did everyone earn the basics?.

I will try find answers. It's depressing having so much trouble just with a trend line!

9. traitor786

For #3 you are correct it should read in an uptrend we first draw the bottom line

As for #2 it makes sense what you are saying, I'm just having difficulty understanding why in the first few posts of "A simple price action approach on his chart he says that we should us the down swing at the midpoint to identify the lower part of his down trend.

10. traitor786

maybe what he meant by in between was in between the 2 high points.

In this case would it be better to say that in order to make a channel for a down trend, we first connect the 2 highest points. and then copy it to the lowest point.

Or do we need to have 2 low points.

His trend line was done after the trend occurred, I think that is where the confusion lies.

So once the top trend line is done, do we always copy it it right away to the lowest part or the channel, or do we need 2 points to that ?

this would be the way I would do it

for adjusting the trend line, i think you implied that once A higher high or a lower low occurs we can readjust it right away.

His post seemed to imply that there as an event besides the penetration of the trend line that would need to occur in order to be able to change the trend line. but he was corrected so maybe there was confusion.

In this case I will go with your idea. Hopefully it can get cleared up later on

#10     Jun 14, 2011
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