Patterns in Short-term v Long-term

[timsk]

. . . I see what you are getting at in regards to TA, but I wouldn't necessarily suggest to novices to treat it as complete codswallop . . .!

Hi Nowler,
Yes, you're quite right; I over egged the pudding somewhat. Apologies!

The point really is that novices would do well to question everything and not to automatically assume that XYZ must be correct and/or apply to them because lots of people on T2W (or wherever) appear to be of one voice. The key is to keep an open mind, rid oneself of assumptions and know that what has value, meaning and purpose for you might be completely useless to someone else. And that's why trading is so tough: there are relatively few universal truths that apply to us all.
Tim.

 

[darktone]

Gives you some idea. Regardless of time frame the general process is the same.

 

[mpups]

To make money using tardical analysis you have to be good all-round as a trader, hence its not as straightforward as one hopes in the beginning

 

[Nowler]

...The point really is that novices would do well to question everything and not to automatically assume that XYZ must be correct and/or apply to them because lots of people on T2W (or wherever) appear to be of one voice. The key is to keep an open mind, rid oneself of assumptions and know that what has value, meaning and purpose for you might be completely useless to someone else. And that's why trading is so tough: there are relatively few universal truths that apply to us all.
Tim.

Ain't that the truth!
Thanks for the input mate, I'm sure others will find it beneficial also.

 

[Nowler]

Gives you some idea. Regardless of time frame the general process is the same.
*video*

Interesting angle!

Cheers

 

[Brumby]

The price action over the past 24 hours on the EURUSD is both informative and illustrative of trading as opposed to TA and specifically regarding price patterns.

TA is about analysis and out of that trade decisions are made. In other words, analysis and trading are effectively two separate components. At the outset of my comments, I emphasized that price patterns while easy to identify after the fact it is not the same as trading the patterns as they evolve in real time. In other words, patterns can morph into various forms and the only certainty is after the fact. Studying and knowing about price patterns and trading them requires different skill sets. The problem is the natural assumption that knowledge of price patterns mean one can successfully trade off them. This is far from the truth.

The second point I would like to make is that there are various market forces at any point in time that can influence price movements resulting what may be random price movements and consequently any individual trade result may simply be a random distribution of events driven by timing and luck.

The third point is that price movements normally has a fundamental driver. The problem with TA is that it ignores the "why" and instead focus on the "how". Trading price patterns is about mapping out how it will develop and positioning the trade accordingly. Unfortunately "why" is what cause price patterns to develop and because events are specific to time and subject, they do not necessarily repeat in the same form and manner as other events as reflected in previous price patterns. In other words, fundamentals always trump TA.

My purpose in using the EURUSD pair and to explore how it can be traded in real time using price patterns is meant to bring out the issues of trading price patterns.

I will update the EURUSD chart once I have a bit more time.

 

[Brumby]

An updated chart on the EURUSD reflecting recent price action. The EW count has been re-labeled.
Based on the latest EW count, I can conclude a number of things.
(1) The recent price action in the last few sessions are corrective in nature.
(2) Trends do not begin with a 3 wave structure - always 5 waves. As such, there is no evidence of a trend reversal.
It should also be noted that trying to determine the final structure of a corrective count is a fool's errand. Money is lost trading corrections and made in trading impulse. In other words, know when to stay flat.

 

[FXX]

An updated chart on the EURUSD reflecting recent price action. The EW count has been re-labeled.
Based on the latest EW count, I can conclude a number of things.
(1) The recent price action in the last few sessions are corrective in nature.
(2) Trends do not begin with a 3 wave structure - always 5 waves. As such, there is no evidence of a trend reversal.
It should also be noted that trying to determine the final structure of a corrective count is a fool's errand. Money is lost trading corrections and made in trading impulse. In other words, know when to stay flat.

(Sorry if this is hijacking the thread)
I don't trade wave theory and noticed you mention 5 waves. I am currently looking at the EURUSD from a daily time frame and this is where I am at in my thoughts. The euro has had what looks like at least 4 waves (I am not sure the degree of measurement that fits the definition of a wave). Where the fundamentals are now between fed and ecb, I see at least a 38% correction being played out. As you can see by the chart my trade levels in play (swing trade of course).

 

[Brumby]

(Sorry if this is hijacking the thread)
I don't trade wave theory and noticed you mention 5 waves. I am currently looking at the EURUSD from a daily time frame and this is where I am at in my thoughts. The euro has had what looks like at least 4 waves (I am not sure the degree of measurement that fits the definition of a wave). Where the fundamentals are now between fed and ecb, I see at least a 38% correction being played out. As you can see by the chart my trade levels in play (swing trade of course).

I think it is important to ensure I am not misunderstood and so I would emphasize a number of things :
(I) The nature of the thread is about price patterns. My aim is to engage in some form of meaningful conversation connected to how price patterns my be traded, its limitations and its usefulness.
(ii) I specifically selected EW because there are very specific rules in how waves are identified and labeled. Consequently I believe there is more structure and objectivity to any discussions about price patterns as opposed to discussions about say, head and shoulders.

Having said that, if you look at the daily chart on EURUSD, there are a series of lower highs and lower lows since September. If you have a view that the EURUSD will go lower that is a reasonable position just on price action alone. However we know prices don't just go one way as there are typically two way price action. The challenge of every trader is to attempt to position a trade at the inflection point to take minimal heat and extract maximum profits.

I will take the 4H chart from EWI that I shared earlier and add further thoughts to it.

The main question is whether the recent price rally into the $1.1870 region is complete or not. My view of the price action and the rejection of prices off that region (in 3 waves) suggest to me they are corrective in nature and not impulsive. I believe (referring to 4H chart) there will be some form of further two way price action before the correction is complete based purely on proportionality in terms of how long it took Wave 1 to complete 5 waves down. In other words, I think only wave A is complete, with wave B forming but another rally of wave C is yet to develop.

 

[mpups]

hi guys
i just wanted to add another perspective to the E/U chart, I don't have a trade view on it at the moment or disagree with any previous charts I just though it might be interesting to add my simple take on it (no indicators or candles). Basically chartwize I only "see" the downward trendline being broken to the upside and now a bounce off the other side being attempted, but overall you could also say its been going sideways!...

 

[piphoe]

You might also say ALGOS & HFT are eating trendline traders lunch.

You could say that, and not be too far off the mark

This is the 21st Century. I try to read b/w the lines

 

[mpups]

You might also say ALGOS & HFT are eating trendline traders lunch.

You could say that, and not be too far off the mark

This is the 21st Century. I try to read b/w the lines

I don't care who's lunch they're eating man, you go read between the lines its all good..

 

[piphoe]

I don't care who's lunch they're eating man, you go read between the lines its all good..

no, most of it isn't good. its a real bitch out there in the trenches...

 

[mpups]

no, most of it isn't good. its a real bitch out there in the trenches...

it is really hard but if it was easy there would be less potential reward (like in life) thats the way i look at it. Anyway i dont want to stray off topic I was just adding an alternative chart

 

[mpups]

it of course depends on your timeframe...and you could also say its simply moved to the middle of this blue box or to the previous levels of S/R as marked by the price line. This isnt of particular interest to me (by definition) but EUR/USD is the pair that's being looked at here.

 

[mpups]

hi guys
i just wanted to add another perspective to the E/U chart, I don't have a trade view on it at the moment or disagree with any previous charts I just though it might be interesting to add my simple take on it (no indicators or candles). Basically chartwize I only "see" the downward trendline being broken to the upside and now a bounce off the other side being attempted, but overall you could also say its been going sideways!...

View attachment 248300

Quick update for anyone interested. The simple bounce-off-the-other-side-of-the-trendline trade would be working (if also your entry tactic worked of course) and anyone taking this (i didnt :|) could be trailing and/or cashing some now for xmas shopping

 

[Brumby]

Quick update for anyone interested. The simple bounce-off-the-other-side-of-the-trendline trade would be working (if also your entry tactic worked of course) and anyone taking this (i didnt :|) could be trailing and/or cashing some now for xmas shopping

View attachment 248358

So why didn't you take the trade?

 

[mpups]

So why didn't you take the trade?

Hi brumby

It was never a set up I had selected as one I liked as such, as I said, it was just a perspective on the pair being talked about.

To answer your question hypothetically though, assuming i had chosen this as my trade, it would likely be on the H1 or M15 or M5 - not the daily. They are just my preferred TFs at the mo, and i would want to get in a bit earlier at the equivalent of say 1.1770 but this is hindsight now and i cant be sure.

I don't look for this set up much though, as i said its just what i could "see", among other things

k

 

[Brumby]

Hi brumby

It was never a set up I had selected as one I liked as such, as I said, it was just a perspective on the pair being talked about.

To answer your question hypothetically though, assuming i had chosen this as my trade, it would likely be on the H1 or M15 or M5 - not the daily. They are just my preferred TFs at the mo, and i would want to get in a bit earlier at the equivalent of say 1.1770 but this is hindsight now and i cant be sure.

I don't look for this set up much though, as i said its just what i could "see", among other things

As I said many times before, analysis is not trading. I remind myself all the time about set ups I missed taking but basically it boils down to "If you could you would have but since you did not it is simply academic." It is an issue IMO which is a mirage for many traders and that is somehow recognising set ups after the fact is the same as able to trade them in real time. This is the reason why I inserted the EURUSD pair into the conversion. How would you trade the pair in real time using whatever patterns or setups or TF that you choose but call it in real time but not after the fact. There is a big difference.

I can demonstrate to you a very specific technique not just where to enter but where to take profits using EURUSD as an example. Did I trade it as per technique? No. As such it becomes an analysis and not trading.

I am referring to a technique known as median lines aka pitchfork. Statistically the probability of reaching a median line is 80 % and is backed up by research that I have seen. I can show you using ML how the EURUSD could have been traded on the 1H TF.

In order to understand how to trade using ML some background information is important :

(1)There are very specific rules in terms of how ML's are drawn;
(2)The vibration in time and price must be validated before its initial usefulness can be established;
(3)Once price reaches a ML, it either reverse; stall and zoom through; or just zoom through;
(4)Once it zooms through the ML, there is a 80 % probability it will reach the outer ML;
(5)If it zooms through the outer ML; the same rules apply to the 1st warning line and the 2nd warning line and so on until the vibration in time and price is no longer valid.
(6)Sometimes there is a shift in the ML which allows the introduction of a parallel line.

The places where I have marked with a circle are the points where there are vibration in price and time. Note that in most charting software, the purple area are not typical of ML and should simply be shaded as green to represent the outer and ML.

 

[Jason101]

Hi Nowler,

Just to add to dbp's comments, it's worth looking out for a confluence of levels across different time frames - especially if price is at a major round number or testing an all time high.

Tim.

Whaaatt! No way. This can not be right!
Sound trading advice from Tim