Thanks trader88. OK, 3600 posts at Raging Bull is a lot for me to read, so I'll ask some questions here. First, does it make any difference what key boundary the stock is trading at? For example, when I'm looking to enter a trade, does it make a difference whether the stock is trading at BP1, BP2, DS, 50 DEMA, etc.?
mjt It depends on how you want to trade the stock. A breakout trader will wait for the price of the stock to pierce thru BP1 and enter long; for shorting, you wait for the stock to break down below the BP2 level for your entry. If you plan to play the intraday range of the stock, you enter long when the stock starts to show strength on the BP2 level (resting at support and starting on an uptrend). The reverse applies to shorting - wait for weakness at the BP1 level (resistance) and go short. With this style of trading, you are basically playing the intraday oscillations of the stock. With the previous style mentioned above, you are playing breakouts.
I guess what really has me confused is this. What do all these trading levels represent? What is BP1, BP2, DS, TC1, TC2, and what are you supposed to do with those levels? The manual didn't explain what the different levels actually mean.
MJT - I strongly recommend, that have a thorough look at the TP Trading Guide, which you should have downloaded together with the manual & software.You'll find a lot of explanations and examples how to apply TP's caluclations and program-functions. Fow what concerns your question : It is answered in detail in chapter II.6.2 of the trading guide - page 22 - 25. BP1/BP2 : TP's breakpoint boundaries used as long and short entry boundaries when breached TC1/TC2 : TP's internal trading channel boundaries, also used as long and short entry boundaries when breached ( use the closer of either BP or TC boundaries for entry, unless the two boundaries are less than 1/2 point of each other, in which case use the further out of the tow to insure, that the price clears the Support / Resistance cluster ) Dir. Swing ( DS ) : TP's computed directional swing price level used by directional swing-traders for trade entry. SR's : Support & Resistance price levels to help you manage the trade ( trailing stop , profit taking ) - these are not trade entry levels ! Probability boundaries : Price channel, in which the price will move most likely for short / longterm. They include calculation of volatility. As 3MT says - these levels are, of course not absolute, but they help you in that you know, at which price levels you can to expect action. Hope this helped a bit.
I understand that they are possible entry points when breached. What I don't understand is what the difference is between them. I saw on some other threads that traders will go long at BP1, and short at BP2, (or vice versa?) but I don't understand where this distinction comes from. From reading the manual, it appears that it doesn't matter which level the stock is at; if it gets breached, you look at S&P futures, the market, etc. to decide whether there is confimation to go long or short. Then, if there is confirmation, you trade it regardless of whether it's an EMA, DS, BP, whatever. Is my understanding incorrect?
Hi MJT, BP's,TC's and DS are not only "possible" entry points. They are "the" entry points. A significant difference ! They show either the breakout of from a trading channel - TC's - or a breakout through important resistance / support - BP's. BP's can be within or without the boundaries of TC's. I.e. : depending on the stock's volatility, it can have a fairly wide trading channel. Say a stock trades currently at 50, but the TC boundaries are at 40 for the low side and 62 for the upside. The BP1 (to the upside ) could be 54 - which has been i.e. the high of the previous day or is a 20 day MA or whatever significant level, and BP2 could be 48 - which might have been the low of the previous day ( or any other significant level based on TP's calculations ). In any case, BP1 and BP2 would be within TC's range but would trigger longs and shorts when breached. The also provide significant support and resistance. Let's go a day further, the stock has managed to climb to 60 at the close ( after the break through BP1 at 54 ) . The TC's may still be 62 at the upside since this level has not been breached yet. The next BP1 could be 61.50 because of an intraday high of the previous day. Now you may have two entry-signals ( when breached ): BP1 at 61.50 and TC1 at 62. Both are in the range of only 1/2 point. Once the stock has passed through this levels, use them as support / stop loss levels together with other S/R levels. If you trade narrow or near channel stocks from the TP scans, you'll find, that sometimes BP's are outside the TC boundaries. In this case - TC's and BP's can mark important entry-levels. Take the BP's and TC's for what they are "the" most important entry signals for the given trading day. Now, just don't buy or sell every break of a BP or of a TC. Instead, set your alerts to a price close to the BP's and TC's, say 1/4 point away. Once alerted, watch the action on Level 2 or better - times and sales, closely. Remember, that BP's and TC's function as strong S/R - that's why breakouts from these levels are often fast and combined with large volume. At least, that's my experience when trading them. As for watching futures or any other technical indicators - normally I'd say that you don't need to watch any other indicators than the price / volume action when a stock approaches one of the BP or TC levels. If you trade one of the leading stocks in an index, it is certainly useful to monitor the appropriate futures. However, I had trades, when the futures went down and the stock was still up and went on with it's uptrend - and vice versa. So I'm most interested in what the stock is doing - to a lesser extend what the market does. Use of other technical indicators : It is probably useful to know, whether a stock is in oversold or overbought conditions once it reaches a BP or TC level. But this would require to have the right indicator with the correct timeframe applied at this very moment. You know probably from your own experience, that a stock can be overbought on a 1 minute chart while it's still in the first part of it's uptrend on a 5 or 15 minute chart. Same is true for MACD, MA's and other indicators. TP's calculations are based on EOD data together with some intraday data of the previous trading day. Significant price-levels with a high validity can be detected on 30 minute or 60 minute charts, rather than 1 minute or 5 minute charts. So, either you trade TP levels with technical indicators in the appropriate time frame, or you trade only price - volume action combined with Support / Resistance ( TP's solution ). When trading TP's BP and TC levels, I'd prefer to use no technical indicators at all besides Price / volume and T&S. It's never good to have too many cooks in the kitchen at the same time. The most important aspect is anyway psychology and emotion. Unless you trade narrow channel issues, you'll find, that BP's and TC's are often 1 - several points away from the current price. One could feel, well - a few extra points could help when I enter the trade earlier when the stock is on it's way to the BP / TC. It doesn't work like that. TP provides very accurate entry levels with a high success-rate. The "space" between these levels can be considered as noise, unless you're a scalper. Then you wouldn't need TP anyway. If you dodge these pre-calculated levels, you may run into the problem of not knowing where to look for S/R and how to manage your stop-loss properly. At this very moment, you might instead feel the need, to consultate you technical indicators ( whichever you use ) or looking for confirmation by watching the futures - well, you know what I mean. In any case, you probably will feel yourself uncomfortable with your trade at this moment since you have no feeling where this thing is heading to. If you're not convinced about the accuracy of TP's calculations, than I'd suggest, you just monitor the stocks and how they behave at the pre-calculated levels - after a certain while, you'll find out, that TP works. Start with the daily swing-trades or daytrading stocks discussed in the TP bulletins, or use TP's S/R landscape for your favourite stocks. Draw the major price levels on your intraday-charts and set your alerts. Check out also the options-tools, especially the unusual volume scan and Put / call ratios - they might also give a hint on the most probable direction of the stock you want to trade. Well, a long post, hope it was of some use for you.
Long post and still forgot something : You asked whether to long on abreach of BP1 or short on a breach of BP2 ( TC1 and 2 ). Well, I thought that's clear, maybe not - you buy the breakout through resistance and you sell the breakthrough through support. You buy the upside breakout through a major MA ands sell the breakthrough. As already said above : BP's, TC's, DS and key EMA's are the most important levels - all other S/R levels are supposed to support you in your trade-management. Once you bought the breakout above BP1 ( or TC1 ), watch for resistance at the next upper stop level. Once you sold the breakthrough, watch for support at the next lower stop level.
MJT - no problem, hope you can profit from the info. Just noticed the many typo's I made - shouldn't write posts after a 14 hr. working day. I was sooo tired !