Hi Gaffs,
Story time, but first a couple of comments:
1. Although the principles of this analysis are correct, you really do need to start with the previous low/high rather than half way through a chart.
2. Whatever you are trading it is essential that you are fully aware of your time frame and what level of trend you are prepared to play with.
Consider Mr Gunslinger – he looks for short-term patterns and trends. He has a stock universe of some 200 movers and is quite happy to play close to the price action and move onto the next deal and deals with EOD data.
Also consider Mrs Trender – she also looks for short term patterns but longer term trends. She is prepared to hold positions for as long as she is comfortable to do so, has a universe of c 50 stocks.
Mrs Trender is not as aggressive as Mr Gunslinger, she is prepared to let the major trends develop, but both are pretty ruthless in their approach to reading the chart and applying their particular timeframe to it.
I have taken FB’s BA chart, re-based it, cut off all the references etc….
Both look at this chart, both immediately identify the support and resistance levels in the market. The immediate thoughts are:
1. To the downside, a close below 4.5 would complete a double top and would provide an entry point.
2. To the upside a break of 12 would negate any chart patterns and provide a bullish entry point.
At the moment there is nothing to be done, the only trend in evidence is a bear as the price is being squeezed downwards.
Time for action by both, the price has closed above the resistance level at 12 and it is time to buy the next day. Both can also draw in the beginnings of a bull trend which will provide a close point should it be broken.
The next day the price opens at the high, they wait till the first flushes of madness are out of the way and get filled at 11.
To their dismay, the price drops over the next couple of days, breaks though the trend line, but manages to close above it. At this point the trend line can be widened to encompass the new low. This is only done because the price action failed to close below the original trend.
To the relief of both, the price action continues to recover and the new trend is in force.
As the chart unfolds, MrG notices that the level of 12.5 is becoming more important and that the price action is being pushed against it, developing an ascending triangle. He measures the height of the price action going into the triangle and comes up with a target trade of 10 points, or 22.5 as a level. He immediately puts a sell stop in. To his delight the pattern breaks and he gets filled on the third day. That is him out of the market for the moment, having bagged 11.5 points.
MrsT also notices the triangles, is very happy to see that they are going in her direction, and is also happy to see them break. However, her priority is the base trend which is progressing nicely. She does not trade the pattern, merely regards it as an extension of her trend.
Both now take note that 12.5 – the break level of the triangles is retested and becomes support. 25, the high of the market now becomes the main resistance point.
As time progresses MrsT is becoming happier and happier, the support at 12.5 has held and now new levels at 15 and 20 have been established. She notices that the price action is accelerating away from her base trend line, so draws in a second phase trend.
MrG has been off trading other things, but continues to keep an eye out on this chart as part of his universe.
He is delighted to see the price action break to new highs, triggering a trade where he gets filled at 27.5. He notes the base and phase 2 trends, but is also particularly interested in the faster trend that has developed since the break through 20, this gives him a very low risk point as a break of this trend would signal an exit for him.
MrsT is now in raptures, the price action continues to accelerate upwards and she can draw in a phase 3 ‘fast’ trend, however, she is cautious about getting too close to the price action and selects the recent break point at 25 as her ‘pivot’ for the trend line, this will suffice until a better defined point arises.
MrG is also delighted to see the price action move quickly away from his entry point. He follows the fast trend. At one point the trend is broken intra-day, but recovers by the end of the day, so he widens his trend line slightly to encompass this low. Eventually the price action closes below his trend line and he closes out his position at 32, bagging another 4.5 points to add to his original 11.5. He immediately notes the resistance at 37.5 and the support at 28 – moves onto the next trade somewhere else.
The price action continues to move upwards, breaking through the previous highs, MrG takes this as another entry point and notes the 3rd phase trend and the even faster trend which he is working against. He gets filled at 41. Within 2 days the price reverses and breaks through his trend, he closes at 34, a loss of 7 points
MrsT sees the move above 37 as confirmation that she can include the lows at 30 as part of her 3rd phase trend – this becomes her close point, should the trend be broken.
All good things must come to an end, MrsT sees her 3rd phase trend broken and decides to close her position at 32, giving her an overall return of 21 points. She notes support at 27 and takes that as an entry point for a short play, and notes the overhead resistance at 42.5 as an entry for another bull position – the same levels apply for MrG.
In this case MrsT made a better return from the trades than MrG – it isn’t always the case. The important thing is that both identified the points at which they were prepared to close their positions by studying the chart and by applying their time frames.
Story time, but first a couple of comments:
1. Although the principles of this analysis are correct, you really do need to start with the previous low/high rather than half way through a chart.
2. Whatever you are trading it is essential that you are fully aware of your time frame and what level of trend you are prepared to play with.
Consider Mr Gunslinger – he looks for short-term patterns and trends. He has a stock universe of some 200 movers and is quite happy to play close to the price action and move onto the next deal and deals with EOD data.
Also consider Mrs Trender – she also looks for short term patterns but longer term trends. She is prepared to hold positions for as long as she is comfortable to do so, has a universe of c 50 stocks.
Mrs Trender is not as aggressive as Mr Gunslinger, she is prepared to let the major trends develop, but both are pretty ruthless in their approach to reading the chart and applying their particular timeframe to it.
I have taken FB’s BA chart, re-based it, cut off all the references etc….
Both look at this chart, both immediately identify the support and resistance levels in the market. The immediate thoughts are:
1. To the downside, a close below 4.5 would complete a double top and would provide an entry point.
2. To the upside a break of 12 would negate any chart patterns and provide a bullish entry point.
At the moment there is nothing to be done, the only trend in evidence is a bear as the price is being squeezed downwards.
Time for action by both, the price has closed above the resistance level at 12 and it is time to buy the next day. Both can also draw in the beginnings of a bull trend which will provide a close point should it be broken.
The next day the price opens at the high, they wait till the first flushes of madness are out of the way and get filled at 11.
To their dismay, the price drops over the next couple of days, breaks though the trend line, but manages to close above it. At this point the trend line can be widened to encompass the new low. This is only done because the price action failed to close below the original trend.
To the relief of both, the price action continues to recover and the new trend is in force.
As the chart unfolds, MrG notices that the level of 12.5 is becoming more important and that the price action is being pushed against it, developing an ascending triangle. He measures the height of the price action going into the triangle and comes up with a target trade of 10 points, or 22.5 as a level. He immediately puts a sell stop in. To his delight the pattern breaks and he gets filled on the third day. That is him out of the market for the moment, having bagged 11.5 points.
MrsT also notices the triangles, is very happy to see that they are going in her direction, and is also happy to see them break. However, her priority is the base trend which is progressing nicely. She does not trade the pattern, merely regards it as an extension of her trend.
Both now take note that 12.5 – the break level of the triangles is retested and becomes support. 25, the high of the market now becomes the main resistance point.
As time progresses MrsT is becoming happier and happier, the support at 12.5 has held and now new levels at 15 and 20 have been established. She notices that the price action is accelerating away from her base trend line, so draws in a second phase trend.
MrG has been off trading other things, but continues to keep an eye out on this chart as part of his universe.
He is delighted to see the price action break to new highs, triggering a trade where he gets filled at 27.5. He notes the base and phase 2 trends, but is also particularly interested in the faster trend that has developed since the break through 20, this gives him a very low risk point as a break of this trend would signal an exit for him.
MrsT is now in raptures, the price action continues to accelerate upwards and she can draw in a phase 3 ‘fast’ trend, however, she is cautious about getting too close to the price action and selects the recent break point at 25 as her ‘pivot’ for the trend line, this will suffice until a better defined point arises.
MrG is also delighted to see the price action move quickly away from his entry point. He follows the fast trend. At one point the trend is broken intra-day, but recovers by the end of the day, so he widens his trend line slightly to encompass this low. Eventually the price action closes below his trend line and he closes out his position at 32, bagging another 4.5 points to add to his original 11.5. He immediately notes the resistance at 37.5 and the support at 28 – moves onto the next trade somewhere else.
The price action continues to move upwards, breaking through the previous highs, MrG takes this as another entry point and notes the 3rd phase trend and the even faster trend which he is working against. He gets filled at 41. Within 2 days the price reverses and breaks through his trend, he closes at 34, a loss of 7 points
MrsT sees the move above 37 as confirmation that she can include the lows at 30 as part of her 3rd phase trend – this becomes her close point, should the trend be broken.
All good things must come to an end, MrsT sees her 3rd phase trend broken and decides to close her position at 32, giving her an overall return of 21 points. She notes support at 27 and takes that as an entry point for a short play, and notes the overhead resistance at 42.5 as an entry for another bull position – the same levels apply for MrG.
In this case MrsT made a better return from the trades than MrG – it isn’t always the case. The important thing is that both identified the points at which they were prepared to close their positions by studying the chart and by applying their time frames.
