Reading Charts in Real Time

[Mr_black 10]

Flag on 5 min long setup

little bit late on first pic ...target@ 77

[thalestrader 14]

Crude Oil - Yesterday and Today ...

 

 

Best Wishes,

 

Thales

[thalestrader 14]

Canceling orders on this 6E ... I do not want to get involved in this this late in the day. If something more compelling happens to develop, I will reevaluate. For now, I'm flat and happy.

 

Best Wishes,

 

Thales

[Mr_black 10]

little bit late on first pic ...target@ 77

my stop was hit - 18

[patrader 10]

Crude Oil - Yesterday and Today ...

 

 

Best Wishes,

 

Thales

EIA Petroleum Status Report released 10:30 est

[Dinerotrader 10]

Crude Oil - Yesterday and Today ...

 

 

I normally do better on consolidation/range days than trending days. Trending days are hard for me because price looks overextended the entire day making reversals look attractive over and over again but they just stop you out over and over again.

 

Being able to trade either day profitably or know how to stay flat on the one you can't trade profitably truly is one of the greatest hurdles to becoming a good trader. It took me a while to realize that.

[thalestrader 14]

EIA Petroleum Status Report released 10:30 est

 

Yes. But today would likely have traded as it has with or without that news item, don't you think?

 

I was posing the question based on the two shaded areas of the chart, which represent the pit traded hours from yesterday and today respectively.

 

Best Wishes,

 

Thales

[Dinerotrader 10]

Yes. But today would likely have traded as it has with or without that news item, don't you think?

 

I was posing the question based on the two shaded areas of the chart, which represent the pit traded hours from yesterday and today respectively.

 

Thank goodness for inventory today. I made most my ticks right after it came out. Today has been a pretty slow oil day otherwise. Tight range. Things just finally started moving a little more a couple minutes ago which is a little late for me.

 

Wow, what happened. 12,500 contracts in 1 minute. News? I guess I wasn't done for the day.

Edited February 3, 2010 by Dinerotrader
huge oil spike

[patrader 10]

15m 6E chart

[Dinerotrader 10]

Good eye but don't forget to draw your support lines

 

Sorry about that. I was trying to get a clean chart for posting before price went anywhere so i didn't put my S/R in. For those interested here is how it turned out. I exited at circle for ~40 ticks making up for the losses I had trying to catch the reversal on each of the 3 indianpushdrives to the bottom.

 

[patrader 10]

I normally do better on consolidation/range days than trending days. Trending days are hard for me because price looks overextended the entire day making reversals look attractive over and over again but they just stop you out over and over again.

 

Being able to trade either day profitably or know how to stay flat on the one you can't trade profitably truly is one of the greatest hurdles to becoming a good trader. It took me a while to realize that.

Excellent post.On 2/2 price was in a strong trend and just pausing for a few bars before continuing up thru any minor resistance that formed.When wedges are failing this is a heads up that you should be thinking strong trend and trade with trend.On 2/3 price is in trading range and bouncing from top to bottom of range.Wedges were working better especially when they formed near the top of the trading range.Selling the top and buying the bottom until price breaks out of the trading range and starts trending again would be advised or just stay flat.

[thalestrader 14]

Excellent post.On 2/2 price was in a strong trend and just pausing for a few bars before continuing up thru any minor resistance that formed.When wedges are failing this is a heads up that you should be thinking strong trend and trade with trend.On 2/3 price is in trading range and bouncing from top to bottom of range.Wedges were working better especially when they formed near the top of the trading range.Selling the top and buying the bottom until price breaks out of the trading range and starts trending again would be advised or just stay flat.

 

Excellent post, patrader. That is what I was trying to get at with the crude chart I had posted - price action on each day was markedly different in character from one another, and what works the one day will spell disaster on the other. Both can be traded, but many traders find that one type of day is easier than the other. The problem, as Dinero alluded to, is how do you recognize that you are in a trend day versus a range day. Your observation concerning wedges and how price acts at the culmination of the pattern seems to be a very good way to do so.

 

Best Wishes,

 

Thales

[thalestrader 14]

Current view of the es shows a yet to trigger long sequence that would target the resistance area show in red ...

 

 

Best Wishes,

 

Thales

[patrader 10]

Excellent post, patrader. That is what I was trying to get at with the crude chart I had posted - price action on each day was markedly different in character from one another, and what works the one day will spell disaster on the other. Both can be traded, but many traders find that one type of day is easier than the other. The problem, as Dinero alluded to, is how do you recognize that you are in a trend day versus a range day. Your observation concerning wedges and how price acts at the culmination of the pattern seems to be a very good way to do so.

 

Best Wishes,

 

Thales

Trend days have lots of "thin" areas with continuous large trend bars and very little overlap.On trading range days price is constantly pulling back to test previous minor breakouts with lots of overlap creating "thick" areas.Trending trading range days are the same as trading range days except they are slowly grinding in one direction most or all of the day.

[Dinerotrader 10]

Excellent post.On 2/2 price was in a strong trend and just pausing for a few bars before continuing up thru any minor resistance that formed.When wedges are failing this is a heads up that you should be thinking strong trend and trade with trend.On 2/3 price is in trading range and bouncing from top to bottom of range.Wedges were working better especially when they formed near the top of the trading range.Selling the top and buying the bottom until price breaks out of the trading range and starts trending again would be advised or just stay flat.

 

patrader,

Could you post a quick chart of showing the wedge failures/successes from yesterday and today's oil you are talking about. I learn better with visuals.

[TradeRunner 10]

Stopped for this obvious reason, errors do happen!

 

Hi Marko

 

Was this an error or a valid trade that didn't work?

 

I took that trade as well and also took a -1R loss. So that error that I see here for me was alowing it to go for a full loss (although it did reverse quickly) and also being distracted with this trade and missing the 6E trade of the day.

 

TradeRunner

[patrader 10]

patrader,

Could you post a quick chart of showing the wedge failures/successes from yesterday and today's oil you are talking about. I learn better with visuals.

When you find yourself drawing lots of tcl's that price keeps pushing thru forcing you to redraw increasing more steep tcl's than your probably looking too hard for a ct trade and should be thinking trend trades.Also when price strongly goes thru S/R levels without even pausing then think trend trades.HTH

[Dinerotrader 10]

When you find yourself drawing lots of tcl's that price keeps pushing thru forcing you to redraw increasing more steep tcl's than your probably looking too hard for a ct trade and should be thinking trend trades.Also when price strongly goes thru S/R levels without even pausing then think trend trades.HTH

 

FYI patrader, I can never read your charts because there is no attached thumbnail for me to use to enlarge the picture. See Thales' post above as example of thumbnail.

[thalestrader 14]

FYI patrader, I can never read your charts because there is no attached thumbnail for me to use to enlarge the picture. See Thales' post above as example of thumbnail.

 

Dinero, do you not see the bar at the top of his charts that says "click view full sized image"?

 

Best Wishes,

 

Thales

Edited February 3, 2010 by thalestrader

[Dinerotrader 10]

Dinero, do you not see the bar atth etop of his charts that says "click to enlarge"?

 

My Bad. All this time on TL and I always use the thumbnails and didn't ever use the yellow "click to enlarge" bar. Sorry about that. :crap:

[patrader 10]

Price came up to a larger degree wedge but there was no major resistance level at that point.Price has pulled back to previous resistance that is now support with lots of overlapping bars in a trading range.

[MidKnight 12]

Good reaction just slightly ahead of the R zone. I'll be selling the R zone again if we go back up there. Shorts are entered aggressive and scaled out less aggressively with 1/4ths. Will buy support level less aggressively and scale out in halves, preferably on a probe below 1.5833. Just looking at the weekly chart, this area has been very significant support for a long time, should it finally truly break the move down could be significant - I'm keeping that in mind...Anything obvious outside of the zones is scalp style all in/out.

[thalestrader 14]

Current view view of the US Dollar index shows the DXYO pulling back from our first resistance target. The assumption for now is that the Buck will pullback to the vicinity of the lower two horizontal trend lines, and then make go at clearing first resistance, and clearing that, I'd expect the buck to rally to the next level shown.

 

 

 

The buck pulled back into the zone established between the two lower horizontal trend lines. While I was expecting the Buck to have one more down close, and then rally, it seems as though the party may already have reconvened. Until the buck breaks and holds above the resistance level shown, further pullback is possible, though perhaps not likely. The bounce in the EURUSD, such as it was, may be over, and this morning's weakness may be the beginning of renewed and sustained EURO selling. Again, until the buck clears the immediate resiatnce represented now by the most recent high, further back and fill is possible. I have revised higher resistance levels to show what I beleive to be where the Buck should rally to before it again hits headwinds (assuming that it clears nearby resistance at all.

 

 

 

 

Best Wishes,

 

Thales

[brownsfan019 17]

Crude Oil - Yesterday and Today ...

 

 

Best Wishes,

 

Thales

 

And the million dollar question is - how does one know when to just buy/sell the open and let it ride all day vs. being nimble and taking your profits while it's there? And the question is while it's happening, not after...

 

I agree that the trend chart is super easy to trade - buy on the open, buy the breakout, buy the pullbacks, buy whatever you want b/c it just went up. But how can you do that on Tue and not it do it on Wed when that method would just chop you up all over the place?

[thalestrader 14]

And the million dollar question is - how does one know when to just buy/sell the open and let it ride all day vs. being nimble and taking your profits while it's there? And the question is while it's happening, not after...

 

I agree that the trend chart is super easy to trade - buy on the open, buy the breakout, buy the pullbacks, buy whatever you want b/c it just went up. But how can you do that on Tue and not it do it on Wed when that method would just chop you up all over the place?

 

Hi Brownie,

 

My point wasn't which was easier in absolute terms. I tend to find it easier to trade a market like today, where there were decent sized swings from S to R and back again. Now, a 15 minute wouldn't do it for me, and today is the type of day where it is easier to trade watching a static DOM, i.e. not an auto-centering DOM. I have a friend who, contrary to me, only hits it on trend days. There are certain things he looks for (gap, trending from open, price in relation to prior highs/lows, ORB, etc. He trades the TF, and he absolutely kills it month after month. Most of his profits are made on just a few trading days. The rest of the days he either does not even place a trade or else he trades to small losses/small profits as he stalks the next trend day.

 

My point was that both are easy if you know what you are getting. However, while some folks easily recognize a trend day, others bank their heads against the trend fading it all day long. Then there are those who who can play a range day like a pinball wizard, catching nearly every turn, while others get clobbered buying every "breakout" only to get stopped on the reversal back across the range.

 

Here is the text of an essay Linda Raschke wrote some years back on capturing trend days:

Capturing Trend Days

 

A trend day occurs when there is an expansion in the daily trading range and the open and close are near opposite extremes. The first half-hour of trading often comprises less than 10% of the day's total range; there is usually very little intraday price retracement. Typically, price action picks up momentum going into the last hour -- and the trend accelerates.

 

 

Classic Trend Day - A large opening gap created a vacuum on the buy side. The market opened at one extreme and closed on the other. Note how it made higher highs and higher lows all day. Also, volatility increased in the latter part of the day--another characteristic of trend days.

 

A trend day can occur in either the same or the opposite direction to the prevailing trend on daily charts. The critical point is that the increased spread between the high and low of the daily range offers a trading opportunity from which large profits can be made in a short time.

 

Traders must understand the characteristics of a trend day, even if interested only in intraday scalping. A trader anticipating a trend day should change strategies, from trading off support/resistance and looking at overbought/oversold indicators to using a breakout methodology and being flexible enough to buy strength or sell weakness. A trader caught off guard will often experience his largest losses on a trend day as he tries to sell strength or buy weakness prematurely. Because there are few intraday retracements, small losses can easily get out of hand. The worst catastrophes come from trying to average losing trades on trend days.

 

Fortunately, it is possible to identify specific conditions that tend to precede a trend day. Because this can easily be done at night when the markets are closed, a trader can adjust his game plan for the next day and be prepared to place resting buy or sell stops at appropriate levels.

 

The Principle of Range Contraction/Expansion

 

Several types of conditions lead to trend days, but most involve some type of contraction in volatility or daily range. In general, price expansion tends to follow periods of price contraction, the phenomenon being cyclical. The market alternates between periods of rest or consolidation and periods of movement, or markup/markdown. Volatility is actually more cyclical than is price.

 

 

When a market consolidates, buyers and sellers reach an equilibrium price level -- and the trading range tends to narrow. When new information enters the marketplace, the market moves away from this equilibrium point and tries to find a new price, or "value" area. Either longs or shorts will be "trapped" on the wrong side and eventually forced to cover, aggravating the existing supply/demand imbalance.

 

In turn, the increase in price momentum attracts new market participants, and pretty soon a vicious cycle is created. Local pit traders, recognizing the one-way order flow, scramble to cover contracts. Instead of price reacting back as in normally trading markets, "positive feedback" is created -- a condition in which and no one can predict how far the price will go. The market tends to gain momentum rather than to check back and forth.

 

 

We can tell when the market is approaching the end of contraction or congestion because the average daily range narrows. We know a potential breakout is at hand. However, it is difficult to predict the direction of the breakout because buyers and sellers appear to be in perfect balance. All we can do is prepare for increased volatility or range expansion!

 

Most breakout trading strategies let the market tip its hand as to which way it wants to go before entering. This technique sacrifices initial trade location in exchange for greater confidence that the market will continue to move in the direction of trade entry.

The good news is that breakout strategies have a high win/loss ratio. The bad news is that whipsaws can be brutal!

Conditions Preceding a Trend Day

 

Several key price patterns can serve as alerts to the potential for significant range expansion:

· NR7 -- the narrowest range of the last 7 days (Toby Crabel introduced this term in his classic book, Day Trading With Short-term Price Patterns and Opening-range Breakout);

· a cluster of 2 or 3 small daily ranges;

· the point of a wedge-type pattern (which usually exhibits contracting daily ranges);

· a Hook Day (wherein the open is above/below the previous day's high/low -- and then the price reverses direction; the range must also be narrower than the previous day's range; leads traders to believe that a trend reversal has occurred, whereas the market has instead only formed a small consolidation or intraday continuation pattern);

· low volatility readings, based on such statistical measures as standard deviations or historical volatility ratios or indexes;

· large opening gaps (caused by a large imbalance between buyers and sellers);

· runaway momentum (markets with no resistance above in an uptrend or no support below in a downtrend. This condition differs from the above setups in that volatility has already expanded. In a momentum market, however, the huge imbalance between buyers and sellers continues to expand the trading range!)

 

 

 

Trading Strategies

 

A breakout strategy, or intraday trend-following method, can best capture a trend day. Wait for the market to tip its hand first as to which direction it is going to trend for the day. Rarely can this be determined by the opening price alone. Thus, most breakout strategies enter only after the market has already begun to move in one direction or the other, usually by a predetermined amount.

 

Add the following techniques to your repertoire. All of them will ensure you participate in a trend day.

 

· Breakout of the Early-morning Trading Range. The morning range is defined by the high and low made in the first 45-120 minutes. Different time parameters can be used, but the most popular one is the first hour's range. Wait for this initial range to be established and then place a (1) buy stop above the morning's high and a (2) sell stop below the morning's low. A protective stop-and-reverse should always be left in place at the opposite end of he range once entry has been established.

 

· Early Entry. Toby Crabel defined this as a large price movement in one direction within the first 15 minutes of the opening. The probability of continuation is extremely high. Once one or two extremely large 5-minute bars appear within the first 15 minutes, a trader must be nimble enough to enter on the next "pause" that usually follows. With many of these strategies, the initial risk can appear to be high. However, a trader must recognize that as the trading volatility increases so too does the potential for good reward.

 

· Range Expansion off the Opening Price. A predetermined amount is added or subtracted from the opening price. Though Toby Crabel also described this concept in his book, it was really popularized by Larry Williams. The amount can be fixed, or it can be a percentage of the previous 1-3 days' average true range. With resting buy and sell stops in place, the trader will be pulled into the market whichever way price starts to move. Entry, often made in the first hour, can be made earlier than the breakout from the first hour's range. In general, the further price moves away from a given point, the greater are the odds it will continue in that same direction. The ideal is continuation in the direction of the initial trend once the trade is entered.

 

 

· Price Breakout from the Previous Day's Close. This strategy is similar to the above, with buy and sell stops based on a percentage of the previous 1-3 days' range added to the previous close. The advantage to using the closing price is that resting orders can be calculated and placed in the market before the opening. The disadvantage is the potential for whipsaw if the market moves to fill a large opening price gap. (Another version of a volatility breakout off the open or closing price is the use of a standard-deviation or price-percentage function instead of a percentage of the average true range. All the above methods can be easily incorporated into a mechanical system.)

 

· Channel Breakout. One of the more popular types of trend-following strategies in the nineties, Donchian originally popularized the concept by employing a breakout of the 4-week high or low. Later, Richard Dennis modified this into the "Turtle System," which used the 20-day high/low. Most traders don't realize that simply entering on the breakout of the previous day's high or low can also be considered a form of channel breakout. (Another popular parameter is the 2-day high or low.)

 

Exit Strategies

 

One of the easiest and more popular ways to exit a breakout trade is simply to exit "Market-On-Close. " The ideal trend day closes near the opposite extreme of the day's range from the opening. This strategy keeps the trader in the market throughout the day, yet requires no overnight risk. Most breakout strategies actually test out better for trades held overnight because the next opening will so often gap in a favorable direction. Thus, another simple strategy is to exit on the next morning's opening.

 

Instead of a strategy based on time, such as the close or the next day's open, one can also use a price objective. One popular method is to take profits near the previous day's high or low. One can also determine a target based on the average true range.

For the classic market technician, point-and-figure charts can provide a "count" which establishes a price target. This method is valid only if price breaks out of congestion or a well-defined chart formation.

 

Trade Management

 

In general when testing volatility breakout systems, the wider the initial money-management stop, the higher the win/loss ratio. With breakout strategies, the initial trade must be given room to breathe.

 

However, a discretionary day-trader will learn that the best trades move in his favor immediately. In this case, move the stop to breakeven once the trade shows enough profit. The stop can be trailed as the market continues to trend, but not too tightly. Because a great majority of the gains can occur in the last hour as the trend accelerates, try not to exit prematurely.

 

When trading multiple contracts, scale out of some to ensure a small profit in the event of a reversal. However, do not add to a position: The later the trade is established, the more difficult it is to find a suitable risk point.

A Few Words on Volatility Breakout Systems

 

Trading a mechanical breakout system can provide invaluable experience. The average net profit for the majority of these systems is quite low, so they may not guarantee a road to riches; but they serve as a terrific vehicle to gain a wealth of experience in a very structured format.

 

If you are going to trade a mechanical system, you must be willing to enter all trades! It is impossible to know which trades will be winners and which ones losers. Most traders who "pick-and-choose" have a knack for picking the losing trades and missing the really big winners. The hardest trades to take tend to work out the best! With most systems, a majority of the profits come from less than 5% of the trades.

 

Though most breakout methods have a high initial risk point, their high win/loss ratio makes them easier to trade psychologically. You might get your teeth kicked in on the losers, but, fortunately, big losses do not happen very often. Also, if trading a basket of markets, as one should with a volatility breakout system, diversification should help smooth out the larger losses.