- Only exit when stopped at the point where trend reverses.
- When you sell because you think that it has gone far enough, or the opposing forces are becoming stronger, you are essentially predicting the short-term movement of the price. Nobody can do that successfully. Let the fighting take place and resolve itself.
- Ignore the immediate momentum, only the structure matters. The
- Immediate momentum can be clearly down but it is just a temporary rock, it cannot alter the structure / shape of the stream.
- Let the stream flow its natural course, there will be rocks along the way that attempt to impede the flow, but the flow will continue.
- If you get stopped out when your stop is at a logical spot and price quickly went back to your entry price, re-enter immediately
- The re-entry does not require your fresh entry criteria to be satisfied.
- This is for the situation where there is a shake out that is quickly repelled.
- The stop for the re-entry would be your original stop. In the case of a long, the first violation of your stop made a lower low. After you re-enter, if price hits your original stop again, it would have meant that price went up, made a lower high, came back down and hit your stop. So you would have a lower low and a lower high — a trend reversal, so you should not be holding your long position. Reverse for a short. By right it would also mean that after you re-entered, and you see a lower high forming, it is also time to get out of the position even before the initial stop gets hit.
- If you get stopped out when your stop is at a breakeven level, you re-enter immediately if the logical spot level holds
- In this case the re-entry price need not be the same price as the stopped out price, since the stopped out price was at the same level as the previous entry. Just apply the usual entry rules.
- Re-enter immediately if you get shaken out (i.e. you manually exited your position because you fear the position going against you) by immediate momentum
- If you are shaken out by immediate momentum, you have just made a trading mistake. Get back in immediately.
- Support and resistance still needs to be obeyed (including major levels such as VWAP, day high, day low, prior day close). If a level is acting as it should, follow it.
- E.g. if trend is down, you get to an area near a support level, tighten your stop to a momentum stop. Once your stop gets hit, place a re-entry stop order at the spot where it shows your countertrend exit is wrong.
- A support is not a reason for going long in a downtrend. In a downtrend, a support means you should get flat, and wait for the support to be broken to get back in.
- A resistance is not a reason for going short in an uptrend. In an uptrend, a resistance means you should get flat, and wait for the resistance to be broken to get back in.
- If you end up getting out too early, stop chasing, wait for the pullback, be satisfied with the bit that you got because it is too risky to chase further.
Archives of “Support and resistance” tag
rssGetting Started in Chart Patterns -Thomas Bulkowski (Book Review )
Thomas Bulkowski is probably the best known chart pattern researcher. Among his credits are theEncyclopedia of Chart Patterns and the three-volumeEvolution of a Trader. In this second edition ofGetting Started in Chart Patterns (Wiley, 2014), a book originally published in 2006 and newly revised and expanded with updated statistics, he introduces more than forty chart formations. Better yet, he explains how to trade using them.
Although the title indicates that the book is for novices, it is equally valuable—perhaps even more valuable—for more experienced pattern traders. Without continually reviewing, testing, and revising pattern trading strategies, it’s all too easy to trade yesterday’s market.
In two action-packed chapters Bulkowski explores trendlines and support and resistance. He considers support and resistance to be “the most important chart patterns” because “they show how much you are likely to make and how much you are likely to lose on each trade. That’s like playing poker and knowing the hands of your opponents. You won’t always win, but it helps.” (p. 35)
The Foundation of Technical Analysis
First Principles
- Markets are highly random and are very, very close to being efficient.
- It is impossible to make money trading without an edge.
- Every edge we have is driven by an imbalance of buying and selling pressure.
- The job of traders is to identify those points of imbalance and to restrict their activities in the markets to those times.
- There are two competing forces at work in the market: mean reversion and range expansion.
- These two forces express themselves in the market through the alternation of trends and trading ranges.
The Four Trades
- Traders usually view market action through charts, which are useful tools, but are only tools.
- Trades broadly fall into with-trend and countertrend trades. These two categories require significantly different mind-sets and approaches to trade management.
- There are only four technical trades. Some trades are blends of more than one trade, or an application of one trade to a structure in another time frame, but these are just refinements. At their root, all technical trades fall into one of these categories:
- Trend continuation.
- Trend termination.
- Support and resistance holding.
- Support and resistance failing.
- Each of these trades is more appropriate at one phase of the market cycle than another. If you apply the wrong trade to current market conditions, you will lose.
M. William Scheier, Pivots, Patterns, and Intraday Swing Trades-Book Review
You can buy M. William Scheier’s book Pivots, Patterns, and Intraday Swing Trades: Derivatives Analysis with the E-mini and Russell Futures Contracts (Wiley, 2014) for a little north of $50 or, if you have money burning a hole in your pocket, can take his ten-lesson e-mini trading course for about $3,000 or buy his indicator package software (included in the price of the course) for $250. Let’s look at the cheapest alternative.
The book is divided into four parts: time frame concepts, day model patterns, repetitive chart patterns, and confluence and execution.
Scheier’s methodology combines “old school” technical analysis with a “new school” proprietary algorithm for what he calls the Serial Sequent Wave Method. In the book he focuses exclusively on the former. (more…)