RULES FOR CHANNEL's To create a down trend channel 1. 1st draw top line connecting highs 2. Then draw a bottom parallel line (copy). For the bottom line use the lowest part of the channel. {we are assuming we only need 1 low point at the bottom} To create a up trend channel 3 We first make the bottom line 4 Then copy it to the highest high in the channel {Once again making the same assumption of one point} his is a lot simpler and understandable and what I was doing, I hope I'm not cutting any corners here. Correct me if I make a mistake. In the next post by Nodoji, we see on the chart, some new concepts. 1. Support becomes resistance. This resistance/support line is identified by a horizontal line taken from the bottom of the previous apparent low. 2. Trend lines are then drawn to connect highs and lows during a horizontal consolidation. These lines are not parallel. This seems to be more accurate. In this case we have a "wide symmetrical triangle formation" So Until otherwise corrected, I will say that: {Whenever possible, we use non-parallel lines to make a triangle instead of a channel?} 3. In this triangle formation we are to assume that that there will be a significant break out. NoDoji waits to see which way it will break out. Once it is seen that that there is a failure to touch the the higher trend line trend line (TL). She then switches to a 1 min time frame and notices that it crosses the moving average and finds resistance there. As soon as she sees resistance with the 20 EMA she assumes that it will not pop back up. Therefore, it will have no choice but to cross the lower part of the TL which will cause a large drop of X magnitude From this we conclude that 1. Support form a low can become resistance later on. 2 Triangle formations give us an idea of when there will be a break out as the TL's have an intersecting point. So, we know that a break out must occur before this point. 2 By viewing what is going on inside atriangle we can make an assumption about where the break out will occur. 3 If it price fails to hit a trend line that means that there is pressure for the stock to fall in the direction opposite of the untouched TL. It is unclear how important of an indicator this is. it may just be giving us a vague idea 4. since this triangle occurred in a down trend, it is most likely to fall down. watch movement in a 1 min chart to confirm (not hiting a TL, not hitting a 20-EMA,) 4 We can use a 20-ema as an indicator when we see price is finding support or resistance to it. It is unclear how important of an indicator this is. it may just be giving us a vague idea 5. When we have an indication of price movement that may not be a strong indicator we can look for another weak indicator to confirm our move {Maybe they are both strong indicators and the EMA indication was used more for timing }
Now we move on to the next post by metal. From time to time I will reorganize the rules. Metal shows a chart and suggests that trend lines are more of an art and to find an area that works best. His first channel indicates that he does not adjust his trend line. This can be seen by the fact that his shorts are all in areas where the trend line was penetrated and re entered only. If the trend line was indeed adjusted, these areas of shorting would be inside the trend line and would not indicate a short opportunity. It is possible that everyone has there own way. Maybe he who adjusts trend lines would short when there is a touch to the trend line. In this case both methods would show the same areas to short. Rules (will edit in a bit) 1. If you don't adjust your trend line short in a downtrend when price just cross's TL and comes back in. there is no need to wait for another bar, as soon as it crosses you can short. 2. if you do adjust your trend line, then short when ever rice touches the top TL in a down trend and price is seen going back down. 3. keep shorting every time this happens untill we hit the lower trend line In the pink channel we see that by not adjusting the trend line Metals non adjusting method seems to give more opportunity to short however it is possible that these shorts, though more plentiful may be a bit riskier? we also see. 4 Once a trend line is broken, we can make a new trend line. We can go deep into the old trend line to find points that support our new TL {if the points in the old Channel don't connect with point in the new channel can we simply igonor points within the old channel 5 We short when a bar re-enters a channel (non adjusted Channel) and we sell when it hits the bottom of the channel 6 we only short in downtrends and only go long in uptrends {is this corrcet} 7. It sounds like not everyone sees the same trend lines. 8." Trends do reverse. Think of resistance or support as a sand wall, as it keeps getting hit, the wall starts to crack and eventually will break." as stated by oraclewizard77 CL -is crude oil the idea behind a pivot point has not yet been explained. I assume it is either the TL or a moving average or an average of all the lows highs open and closes. In the later, since it is an average it would be changing all the time (like a moving average) which would mean that it would be some thing more software related.
1. Making Channels A) In a downtrend, first draw a top line connecting the highs (TL, or trend line). Then draw a bottom line that is parallel to the top line (this is called copying). This line encompasses all the lows. *** B) In a uptrend, we first make the bottom line and then copy (make a parallel line) to the top. *** {We are assuming we only need 1 low point at the bottom} C) A channel by definition is 2 parallel lines that encompass most or all of a trend. **** D) Channels need to be adjusted from time to time. **** E) Channels can be changed and expanded. F) A channel can be expanded if TLâs are penetrated ****It should be noted that others use a more complex way to do this involving finding a swing low in the center of a trend line to identify where the bottom TL lies. Also, this system seems to have certain rules as to when a TL can be adjusted. This system needs to be clarified**** G) Once a channel is broken, we can make a new channel. We can go deep into the old channel to find points that support our new channel*** ***if the points in the old Channel don't connect with point in the new channel can we simply ignor points within the old channel*** H) It seems like not everyone sees the same trend lines. I) Trends do reverse. Think of resistance or support as a sand wall, as it keeps getting hit, the wall starts to crack and eventually will break." as stated by oraclewizard77 2 RESISTANCE AND SUPPORT. A. Support can become resistance. This resistance/support line is identified by a horizontal line taken from the bottom of the previous apparent low or top of the apparent high 3 TRIANGLES A) Trend lines are drawn to connect highs and lows during a horizontal consolidation. These lines are not parallel. In this case we have a triangular formation. B) Examples of a triangle are: "wide symmetrical triangle formation" a wide triangle the has its center line horizontal. More to come as we come across them. C) Whenever possible, we use non-parallel lines to make a triangle instead of a channel ***Is this correct and Does this apply only for horizontal trends?*** D) Triangle formation mean that a break out will occur. Unlike channels, we have an idea as to were it will break. (Before the lines converge) E) Break outs coming out from a triangle are more strong then ones that come out of a channel*** *** Is this true and is there a way to know how big the break out will be F) If we see that there is a fail to hit a TL of a triangle. It shows a weakness in price to move in that direction. *** *** Is this weekness on its own enough to short in a down trend? G) If a Wide Symmetric Triangle occurs during a downtrend chances are it will break resistance and fall H) To better time and judge a entry point, we can look at a 1 min chart. In the one minute chart we can see if price was not able to cross a 20 day moving average (20 EMA) The 20 EMA acts as resistance and support, We should wait to see it retested. *** **** Is this a rule only for triangles? Or is it a general rule that can used for any trend? If so this should be in a different category. I) By viewing what is going on inside a triangle we can make an assumption about where the break out will occur. 3. GENERAL A) When we have an indication of price movement that may not be a strong indicator we can look for another weak indicator to confirm our move by looking at a 1 minute chart. POINTS OF ENTRY A) If you don't adjust your Channel, short in a downtrend. When price just cross's the channel and comes back in. There is no need to wait for another bar, as soon as it crosses in you can short. B) If you do adjust your trend line, then short whenever price touches the top of a channel in a down trend and price is seen going back down. C) Keep shorting every time this happens until we hit the lower part of the trend line. D) We only short in downtrends and only go long in uptrends {is this corrcet} E) 2 If the open and close are not outside the channel it is not a place to enter*** ** This may only apply for people that donât adjust there channels right away. *** If there is a close out side the channel but the open is in the channel would this be a good place to short?
OK. The first set of rules has come out, by adding to it we can slowly paint a picture that takes in to account basic, medium and advanced concepts. I understand I'm not the worlds best writer. And I know at times my posts are incoherent and long. The goal here is build a knowledge base that has reference to other threads and has explanations on this thread if you dare try to scroll though it. Unfortunately, when I am lost things on the thread will get a bit messy. As we go on we will explore more and more concepts and challenge others at times. Also, we will see the differences in the way different people trade. We will slowly develop a bible for trading that will be in point form and more details will be available here. As it has proven to more time consuming then I had thought I will wait to see how many people are following this thread. If there is interest, and people are willing to help find answers to questions I will continue. You can always add rules to the thread as long as they are explained
If you don't mind, I would like to share a pattern that I have been coming across over and over and over again while I have been backtesting. My backtest consists of entering with the trend on minor retracements. Preferably a pullback to the 20EMA. I believe Al Brooks describes this in his book, but I did not understand it until I saw a post with a chart by NoDoji in Metals thread. At some point hopefully soon, I will have completed a thorough backtest for this pattern and will be able to give specifics as to what the expected outcome for this trade is. For now, it works more times than it doesn't. NoDoji pointed this out on page 69 of "A simple price action approach" and describes it pretty well. It involves a failure of a test of s/r and a breakout of a triangle drawn by trendlines. Here is an attachment for a trade I took using this method today. With any luck, we can get Nodoji to comment.
ok well what i see is a buy in an uptrend after price hits support of a channel.. is there any other indication to buy besides the a bounce off support ?
I was for this as i see it is used alot. but when i look at chartso n my own i use all frames starting with the max al the way down to the 5 min. Im not sure what my favorite time frame is yet but am rying to get used to the the 5 min.
Yes price is in a channel and at the bottom of the channel (support). If you overlook the big news candle and draw a trendline from low to the next low after the news candle our entry bar sits right on that channel. Reason enough for most people to take a trade. However, if you look at the 10:30 and 10:35 bars, you have a support area. For 10 minutes price tried to break that area and could not. Price moves up and makes a new high and comes back down to test and actually poke through support. The bulls defend their position and price cannot close below that 10:30-10:35 area. This is the failure. The bears that entered on break of support have a buy stop above our signal. A secondary trendline is drawn from 10:55 high of day to 11:05. Okay so there is the setup. Confirmation lies in price breaking through the minor trendline and exceeding the signal bar by one tick. That's where we put in our stop order to buy. When our order gets filled, so does the stops from the bears and the momentum quickly sweeps us up to the next level of resistance. I've read that some traders would prefer to just enter as price hits s/r and all that confirmation is a waste of time, but so far, during backtesting, using confirmation has added 12% to the win/loss ratio. Seeing it in realtime drives the point home. You can see price stall around support, slowly approaching the confirmation then pulling away, back to the confirmation and trigger. Price gets shot out of a slingshot right to the next level where the bears are waiting to defend that area. Okay I'm rambling. Sorry.