Pattern Setup on the Dax

[Plugger 10]

I find the best trading setups are where traps catch out one side of the market forcing covering of positions.

 

One setup that I find very useful is best shown on a one minute chart with volume setting up conditions.

 

I am looking for a low on an expansion bar and with high volume. I have marked it - Exhaustion 1.

 

The second exhaustion has slightly less volume and forms after a retracement.

 

This exhaustion bar is usually at new lows but can be at a slightly higher low.

 

 

The theory is that these exhaustion bars get rid of the majority of sellers leaving the potential for a reversal to the upside.

 

The entry is based on a failed move to the downside which traps sellers forcing them to cover.

 

I expect a fast move to the upside, so if price doesn't move quickly I will close out.

 

There is a few potential entry areas that I have marked.

 

The reverse is applicable for downside trades. (The entry area for the short should read Lower High)

[DugDug 10]

sorry to be blunt - but i am not sure what you are trying to point out.

it seems as if the points you are making on the chart are obvious in hindsight thats all.

do you enter long when it goes back up, or do you try and pick the higher lows.

[BlowFish 10]

Hi Plugger,

 

Which part actually traps sellers? The second exhaustion or the failed move to the downside? A lot of sellers are going to be getting short on a break of the exhaustion. To me the higher low actually is showing a lack of sellers imho (the fact they could not test the previous exhaustion low). At the end of the day it sounds like a decent basis for a trade plan which is what matters I guess

 

Edit: do you like to see at least 2 exhaustions? On the final move up on your chart (resulting in a potential short), could the second exhaust possibly be considered a lower high? I wonder why you annotated it exhaustion 2? If you need to see 2 exhausts that would explain it. Cheers.

Edited November 25, 2009 by BlowFish

[Plugger 10]

Sorry that I didn't explain the entry criteria.

I was trying to get across the structure of the market needed before the trade setup.

The higher low area is the entry area on the long side trades.

I need to see a failed retracement at this point.

This is where sellers are forced to cover with the previous price structure exhausting selling strength.

The second exhaustion is on lower volume and a test of the first exhaustion.

My entry is 2 bar high then an entry on the next higher tick for a long trade.

I find my risk is small compared to potential reward. The setup I trade in real time. I can only show examples here in hindsight.

This is a setup on the Dax I traded today

Edited November 25, 2009 by Plugger

[DugDug 10]

makes more sense - and its one of the setups i have used for a long time as its very reliable.

I have never seen anyone code it so discretion is required. Ultimately you need a lot of patience. I usually use a little saying "three times a charm" to help the patience.

ie; I dont take the first exhaustion, i dont take the first rally. I might take the second trade as quick trade, but the third time - definitely get on board.

Not so detailed but it keeps me sensible.

it works on every instrument really - i sometimes trade the AUD attached 10 min chart that it worked well on.

I dont use volume at all - never have (no real reasons for or against)

Its very flexible for me, this stops me from trying to be too specific on entries and exits levels