Strategy development

[bracke]

sulong


I am not sure if I should be posting this on this thread or on dbp's supply demand thread.
If this is not the best place to post it please tell me.

On the 5 year chart below I have inexpertly added support/resistance lines and an area which I think looks like accumulation.

I should mention that this stock has been the subject of takeover rumours after it reached the bottom but nothing definite happened until approx 2 months ago when the company announced that they were in talks.

Would anyone care to comment trying not to use the benefit of hindsight.

Regards

bracke

 

[sulong]

sulong


I am not sure if I should be posting this on this thread or on dbp's supply demand thread.
If this is not the best place to post it please tell me.

On the 5 year chart below I have inexpertly added support/resistance lines and an area which I think looks like accumulation.

Would anyone care to comment trying not to use the benefit of hindsight.

Regards

bracke

bracke,
It depends on what you're trying to accomplish here. I would like to keep this thread as a study of entry strategy's.
If you're asking about acc./dist. type stuff, this thread is not good for that. ( I don't use those type of words, as I don't care. I'm more of a pattern man, with no need to know "why")

If you're interested in a study, to determine "how" to enter, following that congestion area, I'm all for that.
You'll need to break the chart down in to sections, in such a way that we can see the individual bars.
And then we can explore how to enter, the next time we see it happening.

PS. I added a couple of lines to your chart, where I thought were important S/R.

 

[sulong]

In our study of a pullback trade, following a breakout, I took the opportunity over the weekend, to look closer at the "congestion" part of the trade.

At this point, I want to introduce the concept of "commonality" and "similar".
The focal point, is step2 of the 6 steps I posted.

"2. A contraction of the daily range, with price continually testing the S/R area. ( in this case, for 2 days, but for 1 day, may be enough for a lesser move.)"

The whole idea behind congestion, is price building energy.

Some types of congestion, viewed as patterns, on the price chart, are shrinking horizontal trading ranges and triangles ( lower highs, higher lows).

When looking at a daily price bar, an "inside day" could be a form of congestion.

Another point, is that the longer price stays in this congestion zone, the larger the potential "break out " of that zone. ( The more time, the More energy)

The "commonality" part that I'm suggesting, is that no matter what the pattern, it's the shrinking price range thats important, when looking for a potential BO, in which to enter on a pullback.

 

[bracke]

In our study of a pullback trade, following a breakout, I took the opportunity over the weekend, to look closer at the "congestion" part of the trade.

At this point, I want to introduce the concept of "commonality" and "similar".
The focal point, is step2 of the 6 steps I posted.

"2. A contraction of the daily range, with price continually testing the S/R area. ( in this case, for 2 days, but for 1 day, may be enough for a lesser move.)"

The whole idea behind congestion, is price building energy.

Some types of congestion, viewed as patterns, on the price chart, are shrinking horizontal trading ranges and triangles ( lower highs, higher lows).

When looking at a daily price bar, an "inside day" could be a form of congestion.

Another point, is that the longer price stays in this congestion zone, the larger the potential "break out " of that zone. ( The more time, the More energy)

The "commonality" part that I'm suggesting, is that no matter what the pattern, it's the shrinking price range thats important, when looking for a potential BO, in which to enter on a pullback.

sulong

Your post throws up a number of questions which may not be relevant if the method you are suggesting is applicable only to pullbacks.

1 "An inside day could be a form of congestion" but are you saying it is, and if you are, surely one inside day does not make a congestion area other than in micro terms ie hours, minutes or ticks

2 If you hold to you view that an inside day is a form of congestion, if it does not hit support or resistance how do you trade it ? or does s/r not matter for a pullback trade ?

3 When you talk of congestion zones what time frames are you thinking of - days, hours, minutes. ticks ?

4 Are you saying that entry must be geared to the shrinking price range. If so, a stock may be hitting support and resistance without its price shrinking but it will eventually give a breakout signal.

5 If your method is for pullbacks only, you are expecting the price to go one way. If you are suggesting its use for other situations do you intend to discuss the method for deciding the direction of breakout.

I hope I have not got hold of the wrong end of the stick and misunderstood your post, if I have please say so.

Regards

bracke

 

[maxpain]

Try read the index changes parallel with up/down volumes. Look at the last 3-4 days actions and you could smell something was to happen.

 

[sulong]

sulong

Your post throws up a number of questions which may not be relevant if the method you are suggesting is applicable only to pullbacks.

1 "An inside day could be a form of congestion" but are you saying it is, and if you are, surely one inside day does not make a congestion area other than in micro terms ie hours, minutes or ticks

2 If you hold to you view that an inside day is a form of congestion, if it does not hit support or resistance how do you trade it ? or does s/r not matter for a pullback trade ?

3 When you talk of congestion zones what time frames are you thinking of - days, hours, minutes. ticks ?

4 Are you saying that entry must be geared to the shrinking price range. If so, a stock may be hitting support and resistance without its price shrinking but it will eventually give a breakout signal.

5 If your method is for pullbacks only, you are expecting the price to go one way. If you are suggesting its use for other situations do you intend to discuss the method for deciding the direction of breakout.

I hope I have not got hold of the wrong end of the stick and misunderstood your post, if I have please say so.

Regards

bracke

1. For me, yes it is a form of congestion. For you, or any body else, you need to study it to see if it fits your own idea of what "congestion" is.
As I said before, I'm a day trader, that's why the 5m and 1m charts.

2. S/R is always the most important factor, for a "break out".

3. In my view, it don't matter what my bar intervals are, because the principal applies to all bar intervals.

4. No, I'm saying that this is one way the conditions for a "break out " are setup. Remember,1st a BO, and then look for a pull back to enter. ( there's other ways a BO can be setup, but this study is on "congestion" as a set up.)

5. I'm not totally sure what it is you're saying here, but for now I'll assume that what you mean is strategy and not method.
This is a strategy for taking advantage of a certain type of price action. And no, I'm not expecting a BO. to go in one direction or the other. Which ever way it go's I'm ready.

No expectations, if it sets up, I just go with it, no guessing.

 

[JumpOff]

1. For me, yes it is a form of congestion. For you, or any body else, you need to study it to see if it fits your own idea of what "congestion" is.
As I said before, I'm a day trader, that's why the 5m and 1m charts.

5. .....And no, I'm not expecting a BO. to go in one direction or the other. Which ever way it go's I'm ready.

No expectations, if it sets up, I just go with it, no guessing.

Sulong, once you have determined where S and R are for the congested area, do you trade the channel while waiting for the BO?
JO

 

[sulong]

Sulong, once you have determined where S and R are for the congested area, do you trade the channel while waiting for the BO?
JO

JO,
This may sound rude to you, but it's not meant to be.
The purpose of this thread is to develop strategies, to take advantage of certain market conditions.
So what I do in the mean time, is not important to this thread.
Focus on the topic at hand, is super important, not only in communication and strategy development, but in actual trading.
When we practice focus here, and stay with the plan, it will only help us when we are trading.

 

[JumpOff]

It didn't sound rude at all. I was just curious to know if part of the strategy for trading a breakout (identifying the congestion area and S & R, watching for the pull back, etc..) is to sit on your hands while you wait for the magic moment. I only asked, because you said earlier that you are a daytrader. I wasn't asking _how_ to trade the channel - that is another topic. I'm still curious about how you bide your time..
JO

 

[barjon]

sulong

Well behind the pace (been away for a couple of weeks) on this interesting thread you have started. Trying to keep it to the subject of break out and pullback entry there are two main problems when working in real time without the benefit of hindsight:

1. when is a break out a break out
2. when is a pull back finished

For example on the chart below there seems to have been a good breakout and you might have been tempted to enter in the blue circle (on the more detailed chart) only to find it kept going 'til well back into the congestion range (with you stopped out for a loss ) and although the red circle looks a good entry in hindsight I think you'd be going some to take it in real time????

good trading

jon

 

[sulong]

It didn't sound rude at all. I was just curious to know if part of the strategy for trading a breakout (identifying the congestion area and S & R, watching for the pull back, etc..) is to sit on your hands while you wait for the magic moment. I only asked, because you said earlier that you are a daytrader. I wasn't asking _how_ to trade the channel - that is another topic. I'm still curious about how you bide your time..
JO

JO,
I didn't mean to ignore you, but I left just after my last post, and so didn't see your post till now.

Basically yes, if I don't see the type of BO that I've mentioned, I don't enter any pull backs.
But, if the price is not close to S/R, then I'll spend my time studying "other type of potential entry's.

I only trade NQ about 1.5 - 2 hours in the morning, (usually) and then close up shop.

At any rate, I've got a pretty good idea on how long I can focus on the market efficiently, and so I limit myself. Otherwise, the "risk" of making a dumb trade is too high.

 

[sulong]

sulong


1. when is a break out a break out
2. when is a pull back finished

For example on the chart below there seems to have been a good breakout and you might have been tempted to enter in the blue circle (on the more detailed chart) only to find it kept going 'til well back into the congestion range (with you stopped out for a loss ) and although the red circle looks a good entry in hindsight I think you'd be going some to take it in real time????

good trading

jon

Jon,
I did my study on the NQ, and so the + / - 5pts for a BO. is related to the nq.
The "principals" are the same for any market.
A separate study needs to be done on each market, you'll want to be trading.

One thing I did not go into, was trade management while in the trade. I left that part out on purpose. Shall I do it all?

But looking at your charts, I can plainly see a BO, and a low risk pull back entry. The question is, how to manage the trade? After the entry, what should price ought to do, to confirm a bo?

PS. I don't see ether of your circles as the pull back being discussed, If you're interested in the pull back I suggest you reread the thread carefully. I'm sure you'll pick up what I'm trying to tell you.

 

[barjon]

OK, now for how to enter. The way I see it there are at least 2 ways.

1. After the breakout, from the 46 area,the price climbed about 5-5.5 points, (to 1451+/- ) and then found some R.
One could have simply put in a limit order at around the 47 area,( the top of previous congestion) and hope that what you're seeing is in fact a pullback, from a successful breakout. And a stop at 44.5, figuring that a pull back that far is actually not a pullback, but rather a return to congestion, for further churning.

2. The other way, is to wait till you're sure that you are in fact looking at a pullback, and enter at the highest high, of the last down bar, with a stop loss set at the bottom of the same bar.

The stop loss's would be about the same distance from entry, And in both cases, the stop loss being triggered would tell the same story, a return to congestion.

sulong

The first circle (blue) is pointing to the first bar where the high of the last down bar was exceeded. As your 2 above? I suppose you could argue that this had occured on the third bar after the breakout bar but I'd have thought I was looking at a pause rather than a pullback at this stage.

The second circle (red) is the next time this occurs (bearing in mind the closes) but you'd have been well into the return to congestion then.

Or am I still mis-understanding what you're getting at?

jon

 

[sulong]

sulong

The first circle (blue) is pointing to the first bar where the high of the last down bar was exceeded. As your 2 above? I suppose you could argue that this had occured on the third bar after the breakout bar but I'd have thought I was looking at a pause rather than a pullback at this stage.

The second circle (red) is the next time this occurs (bearing in mind the closes) but you'd have been well into the return to congestion then.

Or am I still mis-understanding what you're getting at?

jon

Lets look at 1.
"1. After the breakout, from the 46 area,the price climbed about 5-5.5 points, (to 1451+/- ) and then found some R.
One could have simply put in a limit order at around the 47 area,( the top of previous congestion) and hope that what you're seeing is in fact a pullback, from a successful breakout. And a stop at 44.5, figuring that a pull back that far is actually not a pullback, but rather a return to congestion, for further churning."

If you enter via a "hope" area, then you're correct with your circles.
or

"2. The other way, is to wait till you're sure that you are in fact looking at a pullback, and enter at the highest high, of the last down bar, with a stop loss set at the bottom of the same bar."

And you said....

I suppose you could argue that this had occured on the third bar after the breakout bar but I'd have thought I was looking at a pause rather than a pullback at this stage.

There is no rule, as to the minimum depth of the first pull back. ( in this case you called a pause)
And yes, that was what I was referring to, in my last post to you.
An important question is, how would you manage the trade once you entered. At what point does it make sense to move your stop to break even? And will that "point" also make sense on other examples of pullbacks that do in fact move on in the direction of your entry?

 

[barjon]

sulong

mmm, ok - I'm swing trading mainly so my thinking was influenced by that. I'm generally looking for 3 lower lows for the "pullback" swing. Allowing for that, I still think my first entry was on the basis of your 2 ( I note you say here ... "wait 'til you're sure you're looking at a pullback")

On the managing trade question, if I had to enter on your example it would be when the high of the down bar was exceeded at around 49 and bits with a stop just under 46. I'd move it to b/e when the price cleared 52.

jon

 

[sulong]

sulong

On the managing trade question, if I had to enter on your example it would be when the high of the down bar was exceeded at around 49 and bits with a stop just under 46. I'd move it to b/e when the price cleared 52.

jon

I would say thats a good plan, for the first step in trade management.

 

[bracke]

sulong & barjon

I am confused ( no rude comments please barjon ).

I am having trouble identifying the bars you are referring to in the 3 or 4 posts above.

Would it be possible for one of you kind souls to post the chart showing the bars you are referring to and when the BO occurs and where to place the stop.

Apologies for the rquest but I am pulling my hair out trying to follow the discussion and I can't afford to lose anymore.

Regards

bracke

 

[sulong]

sulong & barjon

I am having trouble identifying the bars you are referring to in the 3 or 4 posts above.
bracke

Is this what you are looking for?

 

[barjon]

or this

 

[bracke]

Is this what you are looking for?

Thank you for posting the chart.

Yes...........and no.

The posts above refer to prices 1451. 1446 etc.

You appear to be discussing two different charts and I am having trouble with sorting one from the other

Is it possible to put the comments relating to the other chart on the other chart. Yes, not only do I want my cake I want to eat it too !

Regards

bracke