https://dl.dropboxusercontent.com/u/143105519/AUDUSD 240 1.gif https://dl.dropboxusercontent.com/u/143105519/AUDUSD 60 1.gif https://dl.dropboxusercontent.com/u/143105519/AUDUSD 20 1.gif Charts utilizing Adam Grimes' three timeframe charting - 240 min is the higher timeframe, 60 min the trading timeframe, 20 min the lower timeframe, along with analysis via Wyckoff, David Weis, and your standard good ole TA. David Weis, in his book on his version of Wyckoff techniques "Trades About to Happen" talks about "a change of character". I find that good trends, from a Wyckoff pov, tend to have a kind of "rhythm" (for lack of a better term) and that a change of character might be observed when price breaks that rhythm; a dissonant note which, considered in the context of some basic TA, may clue one to a reversal. First I consider price structure in the higher time frame, especially the entire trend or consolidation just prior to the potential trade setup: On the 240 min chart on 10/13 there is a reversal at A on the widest spread up bar since 9/30 as momentum (MACD, bottom pane) makes a divergent higher low; the start of a new uptrend. Following a strong upswing to B, at the shallow pullback at C one could draw a lower channel line (trendline) with an upper channel line at B. Sometimes tl's work, sometimes channels work, sometimes not and not. However, if a trend is technically orderly and has that rhythm, tl's and/or channels may provide relevant price structure for interpretation of trend strength. At D price rallies to previous resistance on another strong upswing, closing outside of the Keltner band, indicating a possible over-extended condition. While momentum fails to make a new high I think it still looks relatively positive as its pullback was right at the 0 line and its upswing sharp and steady. However, note that price cannot get to the upper channel line before retracing. The pullback to E is very shallow, mostly sideways, well above the rising 20 period center ma of the bands, at the channel demand line. From here at F the widest spread up bar since A, on strong bar volume, to previous resistance. This turns out to be an upthrust. At G the widest spread down bar closing at the low since 10/10, there is a shortening of the thrust compared to the previous swings, it is the 3rd leg of the trend, at previous resistance, over-extended at the upper Keltner band. It again fails to reach the channel supply line at the high however that one down bar traverses the channel to the demand line (one could instead draw a wedge here, I prefer channel lines. Same difference), wave volume is contracting and there is a significant momentum divergence. The shortening of thrust, momentum divergence, and especially that wide spread down bar closing at the low is a possible change of character, especially in context of the overall technical price structure. That bar at G is the dissonant note in this uptrend. At H price breaks firmly below the channel. Here one might consider selling in anticipation of a reversal, so we go to the lower timeframes to look for a pullback. On the 60 min, the trading timeframe chart, G & H same as on the 240 min, with the same channel and the 123 corresponding swings. From X to G, following the strong up breakout bar closing on the high to X, the pullback to G is flat on narrow spreads with a series of higher lows, which looks good. However that G bar, the widest spread closing on the low in the trend, wiping out that previous breakout up bar, in an over-extended condition with momentum divergence, is a change of character. The decline to H breaks the channel to previous support. Here we watch the nature of the pullback. Which, to I, is very shallow, sideways. Note also on the 60 min that, at H to I, price drops back into that previous trading range following the 2nd upswing and remains in the lower half of that range. This is often a clue as to strength/weakness. The bar at I a relatively wide spread down closing near the low, below support. If the higher and trading timeframes are lining up, I find that in the lower timeframe one is really looking more for what price is not doing. On the 20 min I the same as the 60 min and this timeframe is not showing any kind of activity that would contradict the higher timeframes. So, back to the 60 min, I take a position at the close of I, with an initial protective stop either just above I or above the high of the consolidation at 2 or above the midpoint of that wide spread down bar at G, depending upon the nature of the setup. Given the structure of the breakdown from G to H - smooth, sharp, no up bars, strong wave and individual volume, completely wiping out the breakout from 2 - I take the last. Were one to overlay a volume profile from the consolidation at 2, around that G bar midpoint would be a low-volume rejection area; a reversal here would also be an upthrust of that consolidation; it gives the trade room to breathe while having a reasonable initial 1:1 price target based on the previous trend structure to first support. Now, managing the trade. This is where I'm conflicted; how discretionary do I want to be once I'm in the trade and I see possible change of character behavior? Do I want to be discretionary at all? While I never extend my protective stop, I am considering considering tightening it. On the 60 min - the trading timeframe - the down swing I to J is sharp but does not get to the initial price target, has been riding the lower channel and is a bit over-extended. Looking at the activity on the 20 min during this reaction there is a long, very sloppy consolidation Y to L that is not at all commensurate time-wise with the I to Y brief reaction. However, at K, neither higher timeframe is putting up any red flags. On the 60 min at K there's a 50% retracement of the I/J swing and price is unable to even breach that previous range support/resistance. Here, as price rolls over, I consider considering moving my protective stop to above I. I don't, but I think I probably should have. On the 60 min at L another breakdown, here of J, on a wide spread closing on the low; good, sharp reaction to M. Also looks good on the 20 min. 1st price target hit, protective stop moved to just above K. From here there is a change of behavior to N: An 85% retracement, well into the previous J/K/L consolidation, a good rally from Z to N, a break of the larger down channel (purple) at Z along with a significant break of the 20 period ma, all the way back to the upper band line. One becomes more cautious. Stopped out at O but should have gotten out earlier.
Is this a statement or a question on how to manage the trade? I looked at what you say but to me it's helpful to see the 3 time frames separated by a factor of 5. So 240, 50, 10 min. Also post those charts with most of the UP trend channel visible so that we can see the changes in MACD on lower time frames. Lastly, you do not seem to be including the slower line on MACD. To me that is critical part because it shows histogram which can also give clues.
I have always found 3 of anything to be overkill unless it is monthly, weekly, daily but as far as minutes...One is showing one thing and other showing something else and end up with mixed bag of too many rules. Zig Zag accumulation, farther the swing more bozos joining the trend, I look for reduction of just volume as hint the end is near, and look for breakage of highs to get smaller from distance of one pivot to another pivot. Like 9/28 pivot high is broken by 10/19 and the highest price bar is having small trading volume, so sell below the low of that bar or wait for close below that bar, better to do breakout and hedge. I never cared using Keltner, just like using Bollingers and watching upper band as it is more stable to me. I prefer to use more chart patterns like triple tops/bottoms. "Z" is failed attempt of taking out lows and entry to go long on close above lowest high. But very good effort for many to see what it takes to do much study and back testing, thousand ways to trade and this is one of them. But as I get older, I want more simple. Wonder what age I be when I go back on Depends-LOL.
I like trendlines and retests. Volume at the top and bottoms can be helpful, for sure. All just a game of probabilities anyways. Nobody really knows how long and how far. Also wise to trade using ur P&L as a gauge. If I keep getting long and keep getting smacked, maybe it's time to go short?
Maybe time to learn to hedge? Like in 40 plus commodity markets, I check 9 year charts, at certain areas I stop going with trend and reverse in beginning and it might take me two dozen tries but I will nail highest highs/lowest lows and market will be going other direction, but unless you learn how to hedge your positions, you would go broke. It is not cause I enjoy losing, but it is about the safest way to trade when you consider risk to reward being small and reward being large, same goes with stocks, you enter, put on hedge to reduce risk, many will say it takes away from bottom line, but to me this game is all about risk, if you can semi-control that, profits will come. Just remember one option only covers half of 100 shares. We won't know if five minutes from now if our heart be still be beating and yet so many think they know where something is going. Their are reasons why market moves and that is always supply and demand and why trendlines work, people buying on likely trendlines out number the those selling, it is no different Fib traders, or those who trade using the planets and stars, all are rules in which man lives by and we just have to control risk.
Markets simply move when more traders are wrong. Find the spots where more traders are wrong and hopefully not be one of them.