We can never be certain in real time whether a particular price bar will print what eventually becomes a swing high or low. But we can identify the price action patterns that indicate a greater likelihood of a level holding as S/R or breaking out further. On this chart, you noted a low, followed by a high. The low is not identifiable as a swing low until two or three subsequent bars close; the high is not identifiable as a high until two or three subsequent bars close. But you can assume the risk based on positive expectancy price action patterns and reap the reward more often than not. Once that high printed and then pulled back, Iâd expect the previous range high that broke out to hold as support. If buyers stepped in there and were able to push price beyond a previous 5-min bar high (excluding inside bars), then itâs likely the previous swing high will be at least tested if not exceeded. . There are two ways to play the pullback to the range high as new support: Anticipate that it will become support and place a limit order at the range high with a stop below the range low, or place a buy stop above a previous 5-min bar high IF the range high price is touched and appears to hold as support (again, I exclude inside bars) with a stop below the bar that breaks upside. If using a limit order, youâre filled during what looks like the 9:30 bar and take a small loss. If using a stop order, no trade is triggered. So the limit-filled long looked promising for a moment, but the break of the inside bar produced no follow through and the range breaks downside with some conviction. Technically, Iâd now expect the range low to hold as resistance. Again, two ways to play this, either placing a limit to sell the previous range low that broke down, or sell stop just below previous 5-min bar low IF the range low price is touched. The bar where your red dot marks LH touches the range low, and either your limit is filled or your stop is triggered on the next bar. How you manage that one is up to you. I personally would bail for a scratch after the weak break of the first LL you marked, although holding with the initial stop loss in place keeps you in a fine short trade. So thatâs how, without knowing in real time whether or not a price will become a LH or HL, you can take a leap of faith that technical levels will hold and subsequent price behavior will trigger a profitable move more often than not, which is what positive expectancy is all about.
I also could not identify them in real time so I decided to use a MA to determine when price was going up or down. Regarding targets, the only way I was able to be profitable during my testing period was not to use targets but to let the market stop me out when the slope of the MA changed. Using profit targets of 1, 3, 5, 8, 10, and 12 ticks resulted in more winners but overall losses. Regarding stop losses, I had to do the same thing. Predetermined stop losses resulted in missing big swings which were necessary for overall profitability. I would let the market stop me out by having the MA change slope. Sometimes it was a small loss and sometimes large. I know that's not quite what you were asking but I hope it helps. Some people say to use the previous high or low to stop you out. The idea was to enter long after HH HL and vice versa for short. More specifically, the idea was NOT to enter long after LL or short after HH. I wasn't paying attention to pivot points or S/R or anything like that. I actually like what you're doing in this thread by paying attention to those things. Basically I was trading all over and you are looking only at certain points. I wonder if these two are compatible. I am very interested in this thread and find the hate you are getting to be hilarious. Just like in my thread, everyone tries to tell you their way is right without providing evidence that they know what they're talking about. A lot of it is classic stuff that "everyone knows" but most traders lose money so how effective is that, really? Oraclewizard77 also never answered your question about why HH HL is "real price action" but your price patterns and ORH ORL are not, or why 5 minutes is valid but your 5,000 is not. I am also curious about what the answer is.
It's also possible that you're onto something that people don't want you to be onto so they're trying to mislead you (like it has been suggested Anek did with his AHG thread since supposedly he doesn't trade that way IRL, and perhaps not coincidentally that thread is about HH and HL and that's the direction people are trying to pull your thread in). Maybe that thread was started just to troll people since he has a "twisted sense of humor." *takes tin foil hat off*
The lower the time frame, the more noise is introduced into trading. Volume can be used, but I would use the volume defined by prime numbers that ProfLogic used in his thread. Also as noted in his thread lower volume is only used to help enter trends defined in higher volume charts. So again, using low volume charts is the same problem of using low time charts, too noisy to determine trends that are based on non random price action. 5 minutes is valid for day trading. If you are holding for days, weeks, or months, then I would actually only use higher time frame or volume charts. In a 5 min chart, I am also able to incorporate much of the price action from higher time frames. For example, in Ninja Trader, you can set it to print say for example 5 days worth of data. Then you could draw lines or just look back at previous days to see if their was important support and resistance levels that may carry forward into the current day that you would not see in 5 min chart of that day. Also, there are web sites that print the pivot points for each day for free that you can use. As noted, NoDoji just explained how to generate a trade based on HL, HH, LL, and LH without knowing for certain where price is heading during the day. There is no holy grail. The important thing to do is be able to generate a positive win% for each trade when using equal risk vs reward. The risk vs reward you choose needs to be based on your trading plan. Some of this can be based on practice. For example, if you notice that you keep getting stopped out on winning trades, its possible your stop is too tight. However, just pulling for example a price driver out of your ass and not using a stop can lead to getting a margin call or your account being blown out.
So let's look at the steps I do before trading with real money. 1) I don't use a news service, but am aware of certain times and dates important information comes out. For example, if I trade oil, I know Wednesday inventory news comes out which affects the price of oil. If I trade ES, I know jobs reports will affect the price of ES futures. I normally do not want to trade or have trades pending during these time periods. If you were to trade stocks, you need to know when each stock releases its earnings reports. 2) Next I look at how the day is going which means I don't trade before the market opens. 3) Especially for ES, but normally only when it has gone to a new high or low not covered by a previous day, I look at a website that has the floor pivot levels since these are extremely important. Since the current 5 min chart will not tell me where the next support or resistance level is if we are making new HH or LL. 4) Finally, I look at the morning's HH, LH, LL, HL, DB, and DT. And since as noted by NoDoji I don't need to know this in real time to make trade, but I want to know what the market has been doing for example is it forming a trend, is it in a range. If the market is just going sideways, I don't even trade it. 5) Then I look for price action setups that I have learned that worked. Now, if you don't see a setup, you need to be patient and wait for one. 6) Then I may look at an indicator to confirm my price action setup, but many setups, you could in fact not use an indicator, but for me it does help in some instances, but not all. However, the price action setup overrides the indicator. For example, if the market is making new lows, I will not just go long if an indicator tells me too. Also, I may not trade a price action setup unless the indicator also has a similar directional bias.
Thanks for answering. Surprised to see a recommendation for him, though. From what I've read of his posts he seems to post a lot without really saying anything. Is he a profitable trader? I've only seen his after the fact charts (the huge ones that are like 4,000 pixels wide) with his ergodic indicator that no one seems to be able to recreate. The "rules" for his system approach the complexity and ambiguity of jack hershey's system, and I don't think I've ever seen him give a clear, concise answer to any question whether on this forum or at TL (where another thread on his method turned into a multi-year ambiguity fest. I know he sells expensive courses on his website, though. All his charts were multiples of 49 or something, right? I did read through his thread years ago. I was unable to learn anything from it. So if you could post a clear and simple summary of his "volume defined by prime numbers" it might help. Also, doesn't he use constant volume bars? You're telling 1a2b3cppp not to use them? If he's a profitable trader then more power to him. Have any ET members successfully incorporated his teachings?
I don't use his method since his indicator only shows for example the correct location after the fact. For example, let's say the market is going down, and his indicator prints a HL. Then, the market goes down more, the indicator erases the HL and prints a new one. So the charts look brilliant after the fact, but for me are not useful in real time. However, the standard Ninja Trader indicator prints a HH or LL, and that does not change, so I use it instead. The only reason I brought him up is that I agree that if you are going to use volume charts, its better to base them off of prime numbers then just randomly pick a chart.
Why? That sounds like fib voodoo (the belief that fib numbers are better than other numbers, for example, that 233 tick charts will somehow "work" but 232 or 234 will not).