Price Action @ Confluence Zones

[Pipsaholic]

Hey Guys,

I wanted to get the feedback of fellow traders new and experienced on the way they take reversals and continuation in confluence zones in trending markets between 5m-4 hour charts. In the spot fx market.

I understand that continuations make up 65-70% of developed market patterns and reversals make up 30-35%.

To my understanding for price action to make a continuation it usually stabs through the Support/Resistance zone or a momentum candle then pullbacks, which may been seen in lower timeframes for it to hold to make a continuation. Reversals usually make a pin bar reversal signal at a major structure level or between 38.2 - 78.6% fib level at times a double pin bar. I also seen at times price hugging the S&R lines especially in the Asian session coming into Europe for price to pullback and breakout only for it to fake out and then breakdown or a true breakout after a false breakout. Also, price tends to have a control point at 00 numbers with it either poking through and reversing or blasting through and continuing.

What's your experience been like? Please stick to the topic.

 

[bbmac]

In respect of your question (and sticking to the topic !) there simply are no absolutes and I doubt that there is any emprical evidence (available) beyond that you are able to gather yourself, that can catagorically answer the questions you pose.

My general [but proven sound over may years] observations involve repeating market behaviour reflected on a price chart

On any given t/f (s)

1. Markets trend and pullback.
2. There are classic overall price action (opa) trends - ie a succession of fractal price swing HH's/HL's - uptrend, LL's/LH's -downtrend and general trends - where this succession may be interupted by a L or a H but generally the overall price direction is clear.
3. Pull backs can occur at potential support/resistance factors/areas and and such pullbacks should be treated as such until price action on successively higher t/f's suggests otherwise, ie this is my owrking assumption versus the alternative assuimption that each pullback may lead to an outright reversal.
4. Some pullbacks extend further than the first potential sbr/rbs area and it is these pullbacks that give rise to the general trends as opposed to a classic trend. (an extended pullback)
5. A pullback on one t/f may seem like an opposing trend on a t/f below it. (ie could be an extended pullback on a t/f above.)
6. A trend tends to go further that it seems possible...and therefore thru potential support/resistance, - and this gives rise to the central theme/question of your post:

How do we know if when price is trending it will

a. Go straight thru any potential supp/res without any pullback to speak of
b. Pullback from any potential supp/res and then meet with buy the dip/sell the rally buyers/sellers obtaining a better price to get with trend and this may be at potential rbs/sbr in the trend.
c. Pullback from any potential supp/res, and this pullback turns into an extended pullback and then a complete reversal of the trend in question.

Dealing with a first, I tend make this working assumption if price is strongly trending on an above the t/f's of interest to me with big definate bullish/bearish candles and price is inside a known 20 period atr, that period being somewhere higher than my highest t/f (ie if day trading it is the 20 day atr, and I'll stick with this eg for the rest of this post and this particularly the case when price range is less than the 20 day atr and the potential supp[/res in question is not a confluence of potential supp/res factors of any kind.

Dealing with b and c, if price approaches the pre-identified potential supp/res via smallish candles (on the trend t/f as opposed to big definate bearish/bullish candles) with big lower/upper wicks respectively and repeating patterns of oscillator extremes/divergences are present on the trend and lower t/f's - this may indicate a pullback/extended pullback and this in itself may be trade-able and may in turn become an extended pullback or more. This is particularly the case if the 20day atr is exceeded and the potential supp/res is a known and repeating confluence of potential supp/res factors. I then look at the the price action that develops on the successively higher t/f's from that potential supp/res and make a judgement accordingly as to potential for more contra trend progress or not aware of where the potential sbr/rbs is.

* So, [and notwithstanding the above] always favour the trend (if there is one present) on your highest t/f, particularly if that trend is with the t/f (s) above it and your middle (intermediate) t/f pa is trending with it as well. This does not mean that some pullbacks may occur or that they indeed may be trade-able but that more likley the pullbacks will be bought/sold and the trend will continue.

* Remember that most 1st b/o's are false and that more probably privce will re-test the b/o area in a pullback before the 2nd truer b/o after the pullback.

G/L

 

[Pipsaholic]

Great feedback bbmac.

In respect of your question (and sticking to the topic !) there simply are no absolutes and I doubt that there is any empirical evidence (available) beyond that you are able to gather yourself, that can categorically answer the questions you pose.

Yes, I am aware there are no 110% answers in this business or game however you play it, we must understand that everything is subjective as is life.

My general [but proven sound over may years] observations involve repeating market behavior reflected on a price chart

On any given t/f (s)

1. Markets trend and pullback.

What about ranging periods of is this another myth that the 95% use as I always see trends within the so called ranges?

2. There are classic overall price action (opa) trends - i.e. a succession of fractal price swing HH's/HL's - uptrend, LL's/LH's -downtrend and general trends - where this succession may be interrupted by a L or a H but generally the overall price direction is clear.

Can you elaborate on fractal price patterns how you define fractal swings over regular swing hi's and low's. Personally, I look for pin bars at swings with 2 bars left and right closing hi or lower than each side.

3. Pull backs can occur at potential support/resistance factors/areas and such pullbacks should be treated as such until price action on successively higher t/f's suggests otherwise, i.e. this is my working assumption versus the alternative assumption that each pullback may lead to an outright reversal.

I have found when price breakouts out at potential zones as price is pulling back is usually most of the time an extended pullback hence the requirement for a large stop initially until price breaks previous structure. Using higher TF 1-4 hours usually see a momentum breakthrough. So, do I go with the assumption that price is heading in the direction of the trend even though the higher tf candle hasn't closed?

4. Some pullbacks extend further than the first potential sbr/rbs area and it is these pullbacks that give rise to the general trends as opposed to a classic trend. (an extended pullback)

I usually see price extended pullback to 1/3rd of the original candle that broke out until it continues do you agree with this?

5. A pullback on one t/f may seem like an opposing trend on a t/f below it. (i.e. could be an extended pullback on a t/f above.)

What I observed today on the EUR/USD on the 5m was 2 bullish Gartley that developed signaling a breakout to the upside overall we know long term Euro is bearish, however price reversed as we seen at resistance zone.


6. A trend tends to go further that it seems possible...and therefore thru potential support/resistance, - and this gives rise to the central theme/question of your post:

How do we know if when price is trending it will

a. Go straight thru any potential supp/res without any pullback to speak of
b. Pullback from any potential supp/res and then meet with buy the dip/sell the rally buyers/sellers obtaining a better price to get with trend and this may be at potential rbs/sbr in the trend.
c. Pullback from any potential supp/res, and this pullback turns into an extended pullback and then a complete reversal of the trend in question.

Dealing with a first, I tend make this working assumption if price is strongly trending on an above the t/f's of interest to me with big definite bullish/bearish candles and price is inside a known 20 period atr, that period being somewhere higher than my highest t/f (i.e. if day trading it is the 20 day atr, and I'll stick with this e.g. for the rest of this post and this particularly the case when price range is less than the 20 day atr and the potential supp[/res in question is not a confluence of potential supp/res factors of any kind.

Do you mean engulfing candles, inside/outside bars? Also, the ATR do you calculate this manually or use the indicator and would ATR confirming both on preceding and succeeding timeframes increase the probability than on the daily itself?

Dealing with b and c, if price approaches the pre-identified potential supp/res via smallish candles (on the trend t/f as opposed to big definite bearish/bullish candles) with big lower/upper wicks respectively and repeating patterns of oscillator extremes/divergences are present on the trend and lower t/f's - this may indicate a pullback/extended pullback and this in itself may be trade-able and may in turn become an extended pullback or more. This is particularly the case if the 20day atr is exceeded and the potential supp/res is a known and repeating confluence of potential supp/res factors. I then look at the price action that develops on the successively higher t/f's from that potential supp/res and make a judgment accordingly as too potential for more contra trend progress or not aware of where the potential sbr/rbs is.

* So, [and notwithstanding the above] always favour the trend (if there is one present) on your highest t/f, particularly if that trend is with the t/f (s) above it and your middle (intermediate) t/f pa is trending with it as well. This does not mean that some pullbacks may occur or that they indeed may be trade-able but that more likely the pullbacks will be bought/sold and the trend will continue.

* Remember that most 1st b/o's are false and that more probably price will re-test the b/o area in a pullback before the 2nd truer b/o after the pullback.

Yeah, I notice that, also price action swings back quite a bit after a fake out to breakout.

G/L

Thanks.

 

[bbmac]

Hey Pipsahloic, I'll answer your questions in your post above in the order you raise them - they are replicated in black italics and my answers are below ;

What about ranging periods of is this another myth that the 95% use as I always see trends within the so called ranges?

I see market conditions on any given t/f in terms of overall price action-peak/valley analysis, - sometimes a t/f may be trending (as explained in my post above) and other times it may be ranging - ie a seemingly random succession of HH, HL, H, L, LH, and LL in a given range...

Can you elaborate on fractal price patterns how you define fractal swings over regular swing hi's and low's. Personally, I look for pin bars at swings with 2 bars left and right closing hi or lower than each side.

Probably best you read the bit that covers this in this document (post #97) as to how I define a fractal price swing.
http://www.trade2win.com/boards/gen...free-seminar-london-sat-29-jan-2011-a-13.html

I have found when price breakouts out at potential zones as price is pulling back is usually most of the time an extended pullback hence the requirement for a large stop initially until price breaks previous structure. Using higher TF 1-4 hours usually see a momentum breakthrough. So, do I go with the assumption that price is heading in the direction of the trend even though the higher tf candle hasn't closed?

Sorry, I don't understand the question.

usually see price extended pullback to 1/3rd of the original candle that broke out until it continues do you agree with this?


If price breaks out of something and comes back to re-test whatever it broke out of that is the most likely potential sbr/rbs...as for a % of the candle that broke out - this is just arbitrary - you have to ascertain where are the most likely places that buy the dip/sell the rally players will enter-re-enter the market in the direction of any opa trend or b/o.

Do you mean engulfing candles, inside/outside bars? Also, the ATR do you calculate this manually or use the indicator and would ATR confirming both on preceding and succeeding timeframes increase the probability than on the daily itself?


No I mean big definate bullosh oir bearish candles not neccessarilly engulfing, but just definate bullish or bearish with big bodies even thrusts where the body is at least 90% of the total. As for ATR - I have a custom indicator that works it out.

G/L

 

[MajorDutch]

good stuff as always BBMAC!