New idea + old faithfuls

OK let's start with a standard trade.
If you need the practice go through the checklist:
RSI shape,
RSI level,
Price/Bollinger,
Possible initial reward:risk assessment.

Apologies for the next bit two bits being rather "wordy" but I can't think of a way to avoid it.

I then have added a new idea. It's a standard support level as shown on the diagram as the green line BUT it's validated by the trade following from the W delivering the 0.5% return or better. This validated level is then the basis later on for a bounce OR crash through trade. I have been focussing on the unexpected crash scenario (more fun) and kept missing out on the expected bounce.

It was the market behaviour at 4500 which made me realise I was missing out. The top of that 1Hr M held out many times, OK I got the crash through spot on but opportunities were missed.



On the next diagram the support level appears as double thick green dashed line, the double bit will become obvious when you look at what happened.

The black lines are downstream channels based on previous Highs. The lower ones are the standard parallel click and drag through previous Lows.

Apologies for the red lines they are part of something I am trying out.

So I was ready for either the bounce or crash scenario. Once it was a confirmed move below the support line AND break through the trendline, I would go Short going with the double whammy. If, however it bounced and went back inside the channel then I'd go Long. The support was confirmed so the line was made double thick.

The thin green line on the next chart shows the PDH used during trading the following morning. During the night the index moved way above where I was expecting it to be - nice surprise. Once it came below that level I put covering trades on and so was neutral. There was no specific evidence to close the trade but I was looking at a healthy profit. The light blue trendlines showed the possibility of more to come BUT the early moves to close gaps and high volatility make this my least favourite time to be running a trade. The purples ones were added later.



So what made me remove the cover? Well it was the weak signal from the W in the next image. No way is this a system ENTRY but it was good enough to warrant letting the trade CONTINUE. If need be, go back and re-read the section on trend reversal shapes and trend continuation ones.



Trigger on the UKX board and of "moo river" fame, would be proud of what's in the next image. The upstream crossing of a downstream river and a breakout.



Finally just a few simple trendlines, a continuation W where the RSI signal that confirmed it had formed, was as high as any we have had. It delivered 20+ on Price, with the RSI hitting a maximum afterwards of nearly 80.

Key point here is that for continuation WMs it's the shape and NOT the level that matters, plus the Price/Bollinger is totally ignored - unless of course you include the Price moving along the SD=2 band!



cheers theory

Third trial Cable trade.

The W has 7 points, as referred to in the first post in this blog i.e. Stage 1.

My software identifies the Pt 1, 2 and 3 - as used in the pdf on 1-2-3 trading. Point 0 is the one before Point 1 and Point 4 is the trigger one on RSI.
The least number of dots is therfore 5, Points 0,1,2,3 &4.

This shape has Points 0,1,2,2a,2b,3 & 4 i.e. 7 in total. What are 2a and 2b? They fill in the gaps between Points 2 & 3.

I prefer my WM shapes on RSI to have as few points as possible and 7 is my maximum.

A quick run through the checklist should confirm the trade meets all the rules.

The following images show how I use trendlines. I prefer to think right to left, so my trendlines are based on the latest information. In the case of an uptrend like this, the latest two Lows form their basis.

The single black line was all I used to start with. The initial two Lows define its slope, the third touch confirms it, the breach calls for a re-think.

The horizontal lines in red are my S/Ls, my style is to split trades. The upper dotted line is the "snuggle up" position and the solid line the "time to close down" level. I want to allow the trade as much freedom as possible but without throwing profit away, on allowing too big a retracement before closing it down. They are positioned below both a previous Low AND the trendline.



The latest Low is then used to construct the next channel. This time the upper trendline, formed by click and parallel drag on the chart, fits data that is already there, so it now goes in double thickness and I chose red to show up well in the posts.



After that I added the next trendline, using different colour and design of line. The problem becomes having too much info but this is a trial trade, so what the heck.



I have included RSI14 in the image below, using the standard line setting. This shows a W on RSI, of the continuation type, forming when the Price bounces off the already established red trendline again - context,context, context!



The split trades finlly finished when 16300 was hit and then finally 16275.

cheers theory

Cable trades - widening the net.

The first M, in red, was a valid trade. It was possible to get to B/E and wait for it to deliver. IMO it didn't deliver enough to warrant being rated as a potential "failed M etc...." trade. On the FTSE I use 0.5%, which on Cable equates to around 80pts. Trading the breakout through its top would have been over aggressive IMO based on FTSE findings.

The second M is a cracker. I've included the S/L, entry and initial target on Price. The reward:risk ratio is clearly OK. Make sure you go through the checklist for all the other rules.

When there was a chance of the W forming I moved into defensive mode and locked in profit. My exit would have been on the W forming on Price AND moving within the SD=1 Band.

Ws that form on the SAME time setting as the original M are rated as big dangers. I forget the rules for entering a trade, if they form on Price, I get out whatever their quality.

IMO there is a big difference between putting money from the bank into a trade compared to being too casual about conserving profit from a runner.

The trade survived but later another W started to form on 25 min., and I took the view that the market was having another go at reversing. I waited for it to form on RSI and go back above the SD=1 band, got stopped out. IF I had sat back and waited for it to form on Price, like I did with the first one, then I would have survived.

Now for the second trade, in which I did not cover myself with glory.



Inverted H&S, only the black W is traded, no anticipation!

Entry 16190, S/L 16150,initial target 16250. Reward:risk ~ 60:40, OK.

Quickly go through the other rules, no problems.

I just didn't like the way it panned out. Seemed to keep hitting its head on around 16210 and it broke down through a wedge I had drawn on the 5 min chart. So I closed it for a loss of 13 pts. As soon as I did that it started to go back up again, got to B/E and into profit......

I am still very much a novice at trading the Cable since this was my first one! It is a long time since I got caught out like that on the FTSE. I might have closed down half on the FTSE but not all of it, the base of the W never came under threat.

On reflection it was very poor technique, I got drawn into action by the 5 min Price action and forgot about the biggger picture i.e. the 45 min one.

cheers theory

Why isn't this a tradeable W?

Run through the checklist:

RSI Shape is sharp and tight, good internal gaps.
RSI min. is only ~40
Price/Bollinger is great, a double down and up again
Entry is at RSI around 47 or 48 giving a Price of 4164 to 4166.
The initial reward to the middle Bollinger is less than 10.
The known risk to just below the base is more than 15.
The reward:risk ratio is less than 1.0, never mind 1.5!

The bodies of the candles are chunky and alternately coloured. However, the volatility within each candle, means the tail on the one that matters, in deciding the S/L, makes the risk too high to warrant a trade in this case.

IF the middle Bollinger line had been say 25 away, then go for it.

cheers theory

A lot of effort .......

Last night the readings of RSI were below 30 on many timeframes after that fall. I was scanning the standard settings 15min, 30 min, then I tried 31 min, just to have a look.



Notice the internal candles are Red Red Green Green. Nothing wrong with that pattern at all BUT I do like it tighter IF possible.

Now if you double the time setting then either the first two pair up and then second two pair up and give really big internal Red Green candles combination or the inner two do and cancel each other out - doji formation time.

Quick look at 62 min. and it's obvious what has happened this time. Beautiful chunky equal sized alternate coloured candles, no wonder the RSI W is so well defined.



Straight forward trade, check the filters for yourself, it should be coming automatic by now!

Sharp tight shape?
RSI level?
Price/Bollinger?
Entry RSI will be? Leading to price entry @ ?
Reward:Risk?

So today it was fixed in my mind that the signal was on ~ 60 min, so when the M came on the 14 min, it was just "noise" and I defended against it without problems. When the W on 14 min arrived I was in trend continuation mode.




The W on 18 min reinforced the trend continuation in my mind, the later M was a good quality one and just in case I shifted the S/L on my running trades to where it would form on Price. It did and with a vengeance.




Why the title? Well it was all building up towards a taking out of 4200, which was just above the top of the M on 14 min that delivered big time yesterday. That would have been a previous strong M, that really delivered but then failed, time to launch some Longs from the profit of the ones already running.

An awful lot of planning and thinking out possible alternatives went into the day's trading. Just seemed at the time like one very big let down, by tonight I'll be thinking of the profit banked!

cheers theory

This one didn't get away!

The first W from last night met all the criteria except one, the reward:risk was too low, tempting but dangerous.

The next one was a horrible shape internally - no shifting of time setting seemed to give a sharp W on RSI.

The H&S on 14 min RSI was an absolute gift, only the black M is used but the symmetry of the overall shape is beautiful! There was also an M on 16 min if you prefer to stick to 15 min or above. Remember most of the system is rules, this part is a guideline.

Max. RSI is above 65.
Single move of the Price above and back below Bollinger Band.
The entry on price was so close to the top of the M, the reward:risk was fine.

For those who follow the iii board, I was already Long from 4162 (non-system trade). I used the shape to close the running trade for just less than 30. I then traded the M from afresh - there was no way I was going to get caught out two days running!

cheers theory

Was this a missed trade?

The Price/Bollinger is a double break through and back under.
The RSI shape is tight and sharp.

The max RSI is only above 60 rather than 65 or 70, so it's only in Group C but they can and do work.
It is a faller on RSI but only from 63.2 to 62.9, still counts as a faller though.

The distance from the entry level on Price to the top of the M is greater than the distance to the middle Bollinger line - this is what stopped me. The initial potential reward:known risk ratio was below 1.

How do I rationalise missing out on a trade like that? It's simple, it didn't meet one of the criteria, end of story!

cheers theory