Thinking about this some more, what I have been trying to look for is if there is any value in getting in on a retracement not only after it is one point above the lowest point of the trough, but rather after it clears the highest point of what would be the swing high just before the ret began. which in your example would be 3050. The advantage of this is that you don't get sucked into the trade if the price doesn't even reach 3050 and forms a lower high, and if it forms a double top then even better if lets say your buy stop is 3051. Of course the risk is now that you don't have as much comfort in giving price a bit of room to move. You should stay in the trade as long as you don't get a lower low, below the low that forms the trough of the RET. But if you get in so high, then this trough can be a few points away. So you're either getting in earlier, as you say you get in during the trough, and risk entering in an area that might be chop. Or you wait a bit and enter in higher to clear what might be chop or a double top, but then you have a take higher risk once you are in. This is definitely things I am looking for. But once I'm more comfortable, I'm sure it makes more sense to get in sooner, and in the long run, your scratches don't cost you nearly as much, and your gains capture those few extra points. So getting in in the middle of a crest or trough as opposed to waiting for it to clear will more than likely end up being more profitable.
Ha! I had no idea you wrote this while I was spending some time typing up my thoughts! I'm happy to see I am following this idea well as I do believe I said roughly this same thing in my long winded analysis.
So in the premarket, the overnight highs and lows are marked by the blue lines. The pink box shows a rough trading range. Its rare to have the limits of a trading range match up to the tick on every test of the top and bottom, so identifying trading ranges seems to be a bit of an art. The question is how strict do you want to be with how exact the price must be each time it is at the top and bottom, and then of course you have the issue of how many tests of the top and bottom do you want before you call it a trading range. This one I would say looks decent, but I have no formal rules yet. So what's the point of mentioning this? Well, here, once price leaves, it leaves! A couple of dozen of these examples and I will be able to formulate a hypothesis on trading ranges, and hopefully how to trade them. Hopefully it will be as simple as buy or sell at one point above or below once price exists the range. This will of course require rules to scratching as well. Moving along. Using letters this time to denote areas I will talk about as this should make it easier to follow since numbers should be reserved for price. After leaving the trading range, we have A and B, almost a double top. There was no trouble leaving the overnight high of 3712, but price does settle at C for a bit once going lower after A to B. Since this is still premarket, taking that failure to go above A and B might not be wise as there might not be enough sellers to push price down yet. D and E exhibit the same behavior with more follow through this time than A and B. Price curiously stops dropping at F, the overnight high. I should note that although I am watching these levels, I know they are minor levels, not the macro ones from hourly charts. There, they might offer an interesting level or they might not. When price does reverse and goes up, it only goes to G, which is still below D and E. Since we are now after the open and price fails to go above D E and G, a short here makes sense. How to get in though? Need to study this behavior more, but since its like a reversal, just getting in a few bars later seems right because by then, the failure to go higher than G is apparent. We stop again at H, although we do have a brief poke. This could be worrisome if the short was taken. Price rallies up to I, which is lower than G, another great confirmation that buyers aren't interested. Thankfully, this time at J price breaks through. Since we couldn't go higher we have to go lower, and that overnight high is perhaps not reason enough why price can't drop. The more immediate behavior is that price can't go above D E G and I, not the overnight high. Below J, just as I am thinking that the small hinge is forming, price drops out the bottom. The overnight low of K offers a bit of a ledge, but price does break though. Curiously, it hits L, which is the exact level of highs from the hourly chart back in February. Not sure if this is still in play, but price does react to this level for whatever reason. Price rallies back to M, would you know it, that overnight high. Back down to N, would you know it, that overnight low. Then up to O, a lower high from M. Down to P, a higher low from N. So now we have the bigger hinge drawn in. Price leaves to the upside, and doesn't looks back. At Q, the overnight high once again, price reacts to it in the form of a retracement that may just be coincidental, but doesn't have too much trouble with passing it. If I had to make a guess at this point, I would say hinges offer almost better trades than trading ranges, for at least a few points. BOs from trading ranges seem to come back more often and test the range again or even go back into the range than BOs from a hinge. We get to R and S which looks similar to D and E in terms of price not being able to go higher. Perhaps if a short was taken after S, depending on where the sell stop is, it might have triggered but would quickly have to be scratched. If following the SLA, the DL is not broken at this point, and the lows after R and after S respectively are higher. Add to this the fact that we are in the middle of nowhere, and so looking for a short is I guess just silly. We make our way through another level, 3723, but not by much. We form a high at T, and just a bit of a spike shortly there after. I think I'm fishing with these spikes here, looking for bunnies in the clouds, but the spike in hindsight does now represent the ultimate high of this move. T U V and W are all lower highs. The DL would have broken somewhere around U or V, so the drill would be to look for a short. The drop to X is stronger action than the wobbling down from T, and although we rally up to Y from X, Y is still a lower high after W. Z is a lower low after X, and then we have a lovely drop. So what do I make of all this? I like the action at D E G because it is a few minutes after open and its a strong case that buyers can't bring the price higher than D, so looking for shorts seems appropriate. The action around the overnight high might be coincidence, so taking trades here may not be as sound. The smaller hinge I like and will look to incorporate into my plan. The reversal at L seems like a good trade once I outline rules for reversal. A long is even more appropriate once the higher low at N forms. Taking the trade at the even higher low of P is obvious in hindsight, but real time, you got that bigger hinge to make you second guess. Once price leaves this, which is just a minute or two after P, then this should be reason enough for a long, which in this case proves to be quite profitable. The lower highs of T U V W seem like good trades now as well, especially with the break of the DL. The trade just because of a double top at R S is far too random and didn't work in this instance. How is D E different from RS? One thing I think is the time of day. D E is just after open, buyers are more jumpy to get in on anything. But D and E have further confirmation at G, where as R S very quickly would fail as a short. The action as I have been typing this has been just as good... need to follow up with another post.
Following our drop after Z, we hit a low of A and then up to B. The mean of this little trading range that is forming is a 50% move down from the up move. We have a series of highs between B and D that just cannot be broken. We also have the lows of A and C that seem to provide support. Ultimately, we drop down to E, that darn overnight low again. Is it just me, is today just a random occurrence, am I just seeing what I want to see? The overnight action is providing levels that seem to have meaning. I would think the market participants over night aren't as powerful as during the day since there are just simply less of them and in this game, the herd wins. Volume is the herd, and the volume happens during the NY trading hours. But hey, what the heck do I know. I just want to be able to identify trades that have a high probability of getting me 5 to 10 points so that I feel confident trading 10 contracts and after making $1000, I call it a day. And of course if my first trade is a scratch, I want to be confident enough to put the next trade on. And if that is a scratch, I don't want to be phased in the slightest.
Doing some homework tonight, and although I haven't forgotten about my trading ranges, since the hinge proved so instrumental today, I decided to do a quick hinge analysis first. So using 30 second bars, I scrolled through weeks worth of charts, focusing on just the NY trading hours. I took a screen shot of anything that looked like it could be a hinge and the following action. A few things became apparent right off the bat. Not every hinge is created equal. Some are just beautiful and launch price to a wonderful profit if you are on the correct side of the trade, but others aren't as text book. I soon came up with a definition of what looks like a good hinge and what doesn't (better shown on picture). I made sure to try and keep my chart having at least a 20 point range in the Y axis. I mention this because if the price action is very narrow, the hinges tend to look different. Lower highs and higher lows just aren't as significant if there is a only a tick in contraction. So first picture just shows my collection of screen captures. Next we have a series of what constitute good hinges. Since each bar is 30 seconds, you can see some take much longer to form than others. Will have to compile stats on the outcome of long forming versus quick forming hinges, but the difference I think is there. The most important factor I think is how many times each extreme limit of the hinge is tested. Its clearly nice when price just shoots out of the hinge, but I wanted to see what happens when price doesn't, can you tell based on the formation of the hinge? Please refer to the attached pics for examples as its easier to talk about them there. So after a few hours, its clear that hinges should be traded. The nicer looking the hinge the better, but anything can happen.
First let me start with saying that I find this work quite fulfilling. I would actually call it fun, but I can see how traders say its boring because once you know what you are doing, its just repetition. Every day is different though, and I find this gives me a good dose of intellectual stimulation. Hopefully one day I find it just financially rewarding as mentally. Next we need to give a shout out to Niko. In the morning he posted an example of an hourly chart he drew, and now after 2 hours post open, this channel held up beautifully. I drew in the channel as he did and am presenting it here. I wasn't aware of this channel while I was watching price, but now I see that had I been aware of it, there would have been a good dose of confirmation to go long this morning after price bounced off 3662 twice. Lets quickly talk premarket. The blue line in the second image shows the low of the overnight session as it was just forming, price kept coming down overnight. There was an incredibly tight hinge that was identified, and although the breakout wasn't spectacular, it seemed to act in the best way possible by testing the exit at A, and then dropping off in the same direction it left the hinge. The low of B and C were made, which is what made me be able to draw is the overnight low. A climb to D couldn't break the hinge test at A. We then make another attempt at going lower than B and C, but price holds at E. Opening! (next chart) I should have marked in another test of 72 just a bit after E, after which price shoots up to F. Back down to G, noting that it doesn't go below 72. Now up to H, which is below F, so lets drawn in a line. Now we make our way down to I and just as I am drawing in a possible hinge, price falls out the bottom. This time it breaks through the opening low/overnight low. A few minutes later it pokes up at J to test, and down it comes. We hit a low of K, who's significance of taking into Niko's channel now is quite obvious, but not at the time. A rally to L is just less than 50% of the drop from J, and back down to M, which is just slighly above K. When I look back to yesterday, this is the exact same thing. Right at opening we have price going up, two attemps to break a high fail, so down it comes. Then two attempts to break a low, so then it turns back up. Not calling it a pattern, just saying the behavior is similar, if not almost exact. In fact, the more I watch each open, the more I see that for the first 15 minutes, traders often have no idea what they want, and both sides can be in control until the dominant side wins out. So now here is my problem. This low doesn't seem that special at the moment. We have a clear supply line (join H J), and just eyeballing it, even at the high of L it isn't broken, so perhaps a short can be taken below the crest of L which would be filled (this short would be a continuation of the move, not as a result of a line break). We hit M, oh ohhhh... a higher low. Then a minute or two later, SL is broken. No worries, the drill would be to just get out. I am actually visually quite good at drawing these in my head and seeing where the break would be. Not saying I am always doing this, but I can connect two points and extend the line and quite accurately trace where it goes when extended, in my head. So I'm quite intrigued by the lower high of M. With SLA, since we had the break, we can enter in the opposite direction after a RET. Well, N to O is our RET, so just a point above O would get us in. Looking at this another way, we have a higher low, from K to M, and a higher high, from L to N. So I'm trying to figure out if K and M really do represent the bottom of this move. Hard to make the call in real time of course. Had I been using SLA, our DL would be drawn from M to O, and hence quite steep which gets broken at right about the blue line at 72. This is of course where your rules and observations come in. How clean is the break? In this case,the break is a ledge, and within a few minutes, we clear the high of the blue line and hence can fan our DL. It isn't broken again until roughly midway between Q and R. Had a long been taken at just above O or N, roughly 69, it is good for 10 points at an exit of roughly 80 when the DL is broken. (oppps.. we can actually make the DL even steeper after the swing low just past P. This makes our DL break even higher up for keeping a higher profit) Without SLA, we are at P, which is slighly below an important level, and there is a micro lower high in there and a micro lower low. Not sure what I would have done, but I do see it. Keep in mind also that this chart now spans 40 points because the move from bottom to top was so big, so these short bars aren't really that short. I try and make sure that my window shows at least a 20 point range each time. When price is hardly moving, I compress the window on purpose so that little bars dont look too big. But on days like this, the little bars aren't really that little. Once we clear the high of P and I stop looking for a double top we hit a series of lower highs again at Q. The higher lows at R, just barely higher, give us hinge. It does break out beautifully and doesn't come back. Its not a huge move, but if a long is taken at 82 when it leaves, its nice to see this level is tested again at T and V but not breached. So at S, we once again appear not to be able to go higher, but after a dip down to T, we do make it up to U. Curiously, this level is the overnight high. Down to V, up to W. We have a hinge forming on the top, but the bottom is mostly flat between T and V. As we make our way to X, we can redraw the bottom to make it more like a hinge, but this bottom line isn't tested several times which is what I like to see in a nicely formed hinge. The break at X was strong. Its hard to see in a static chart, but price dropped quite quickly. Had I been experienced enough to be trading, I would have wanted to short below this, especially once we break the low of T to V. We sadly don't get far though at Y, and quickly turn around and go the other way. I know Db says that hinges often break in the opposite direction of the ultimate move like here. But in my analysis, many hinges were well behaved, and once they dropped, they only sometimes came back to test that level and then went off again in the original direction. So my gut feeling is you gotta take the trade in the direction that it leaves, but be open to SAR. If they do SAR, just take it, and if there isn't much action and just a tight trading range, then your loss is minimal. So hinges I do believe provide good trades. At Z, we see how former resistnace provides support. We have no problem breaching the 91 level as it comes up, but when it returns on the RET, it provides good support. So there is my detailed analysis. I want to study openings in greater detail as it seems like there is a way to take advantage of all that indecision. I should also redo this chart with just using SLA. The trouble for me is that I hesitate, and once I get enough confirmation, the great entry is gone. Mind you, when the moves are big like today, more confirmation might lead to a smaller point gain, but perhaps less scratching. Will have to investigate.
So the chart for today is attached. Won't go into too much detail this time tough. Had my overnight levels drawn in, blue lines. Just before open we tested the upper limit of 3722 and a few minutes later tried to get up there again but fell short. The problem is that we didn't fall as low and started to form somewhat of a hinge (first set of green lines). In certain respects, I am not calling all of these actual hinges, I am just trying to track price. I am seeing how price has trouble going higher, then trouble going lower, but then a few minutes later the process starts all over again at another level, forming almost another hinge. The trouble today was getting out of this range of 22 to 08 from overnight. I was visualizing DLs and SLs, but its quite choppy for the first hour. When price finally breaks out below 08 its hard to believe, and there is of course that level of 02 not far away to think about. The steepness of the SL, first one drawn in, was also making me second guess it, I kept thinking it will be broken soon either because of that level or a test of the lower limit of the trading range. When price is beween 3700 and 3684, it is a bit choppy as well as evidenced by my SL's and DL's. At the very end of my chart, we have what looks like a beautiful double bottom at a previous outlined level of 3684. This doesn't end up holding and price just continues to drop even as I type this. So I'm left a bit baffled today and I gotta say a bit disappointed. During the range of the open, I think its appropriate to be cautious as its quite choppy for that first hour. Dropping down to just below 3700 we enter some chop as well and would have been stopped out multiple times (all my DLs and SLs aren't even drawn in had I been following SLA strictly, so the scratched trades would have been even more). It isn't until we get about to below 84 that the downtrend really starts to show through. I suppose we could have had a SL drawn in from higher up, but it would have required constant fanning as it would be broken several times in real time. At first it is very shallow, then once its fanned down to follow price better is gets broken, but later on can be fanned out again, and so on. Anyway, bottom line is that even though we are looking at a 70 point drop, all along the way I kept justifying the more immediate action such as hinges or HLs or LHs or limits of trading ranges to watch out for. In hindsight, failure to go above the opening high or overnight high would put me in a short. I know Db also posted updated charts and mentioned the important level of 3720, which I didn't quite understand as its not an extreme of anything. (I think reading it over several times now gives me the aha moment. The turning radius has the pivot point at 3720, even though the extreme went higher. But this is a new concept that until this very moment escaped me) Along with this, my current bias is still to look at the most immediate price action. The failure at open should put me in short, but higher lows and hinges all throughout that trading range of the first hour kept me guessing. Today seems like a perfect example of me being my biggest problem. At the same time though, maybe all of my objections were valid at the time, and its only in hindsight that it seems clear. My fear of thinking it can turn around at any moment is a major hurdle. I understand the concept of thinking "who cares if I have to scratch as long as the setup was valid", but there are still buts.
Ok... one minute later and its time to shake it off. Tomorrow is another day. Trading is not meant to be an emotional exercise and I therefore won't take it there. Now to just think about what to learn from today.
Spent most of the pre-market figuring out this futures roll over business. Its funny how using NQH4 and NQM4 gives prices several points apart but the moves are all the same. Tried to correlate with investing.com and those values were different as well, almost inbetween thsese two. Perhaps that website averages the price while both are in play. Since the volume was higher on NQM4, going with that from now on. Below is my chart. Mostly a chop day/trading range day. I am finding that even though a nice wide range like this is wide enough to be traded, I'm always second guessing at the extremes. A rule about a break of the range or bounce back into it would be nice to develop. Something along the lines of take either trade, whichever triggers once its a couple of points either in or out. But currently, all I do is think of the "what if". Next point is that I am really at the mercy of price vs information risk. When the move is confirmed, the best entry is gone, and then the process of "what if" starts again. Getting in on the trade at a less than ideal price means a scratch will now cost perhaps more than a couple of points. Just because the price moves even more in your favor doesn't mean that it will continue. I am the classic amateur of being worried about every tick that moves against me. As you can see, I tracked SLs and DLs quite religiously today. I do have a couple of hinges in there too though. Looking back at yesterday, I was doing great by calling all the rejections, the ranges, the failures of buyers and sellers, the HLs and LHs and HHs and LLs. But all this lead to trade paralysis. I found myself justifying too much for both sides, and in the end, missing that huge move entirely. First it was lets clear the range. Then when it dropped out the bottom, it was "what if its over just now". Then it was into another range. Having just followed the SLs and DLs sure I would have been stopped out multiple times in that first hour, but at the top of the range, in the beginning of the ultimate move down I would have been in a short, and the day would have ended up as a home run in terms of profit. I doubt I would have held through all the retracements, but it would still have been quite a positive day. Continuing with this, I find I'm reluctant to pull the trigger after just a break of the SL and DL and getting in on the retracement. I want more confirmation. But then price gets further away, and getting in at a worse price means that scratching when the line is broken now means the loss is that much greater. So I am sure that over multiple executions, (and this is what trading is all about anyway, using a statistical advantage that works over large numbers) getting in early, scratching right away, and perhaps trading a bit more if in chop still leads to more money in the long run. Now I just have to figure out a way to actually do what I wrote above.