May as well start off with the most basic of the underlying ideas. A W on RSI is a potential buy signal and an M on RSI is a potential sell signal. There are a lot of filters they need to pass through first, before they become confirmed signals to trade.
At this stage I am only going to show W formations. I used to refer to rising Ws, but now I don't bother. The pt 3 MUST be higher than pt 1, if it's level or lower then it's no trade!
Throughout my work, the emphasis is on RSI points and levels - I have the RSI window on Double thickness Points, any line is added by using the segment drawer or ZigZag set on Point=1.
With minimal practice you will soon be able to spot Ms, where of course pt 3 must be lower than pt 1.
The 5, 6, 7... pt shapes are those I use in my WM finder software package - hence I've kept the naming. RSI is ALWAYS 14, so that will not be mentioned again.
The pt 1,2 & 3 labels are those used in the 1-2-3 system on Price, so I have kept them even though I work on RSI.
For an excellent view of 1-2-3 trading, I suggest you read:
Mark Crisp's 1-2-3 trading.
[Some systems will prevent you getting there directly BUT just click on the link you come to, it works.]
The matter of when a W forms is personal - reversal within the same candle is a nightmare!
I allow a 1 pt leeway before entering - see diagram above.
I also like at least 1 pt difference on RSI between, pt 1 & 2, and 2 & 3 - otherwise I am leaving myself open to attack from "market noise". The candles on Price should have "chunky" bodies, so dojis and "almost dojis" also get rejected by using this criteria.
cheers theory
Would just like to say thank you for such an excellent blog. It has given me a much clearer picture of how you approach trading WMs.
ReplyDeleteI am now looking forward to finding my first HPLRHPM M trade in a correlated DS moo river!
ps as a fellow gardener I wish you a pleasant weekend in the garden. Lay down the tools and enjoy the wonderful scents of summer.
kind regards
nbt
Morning NBT,
ReplyDeleteThanks for that, just popped in for a cooling drink, gardening done, now time to enjoy the rest of the day.
Even if it's the world's best HPLRHPM trade tread carefully, aim to survive and ride the big ones for all they are worth.
If in doubt get out, have no regrets, no matter what happens and wait for the next one.
I messed up the M I waited for all day on the FTSE yesterday, got out stopped out too early but it looked bad at the time - still here to trade on Monday!
cheers theory