price reaction to major S/R /TLs and entering on LTFs
“I hold no responsibility for whatever analysis presented in this thread. It is not a thread to give signals but to engage like minded traders who prefer simplicity in trading to interact and share their views and technical analysis.”
I am here to teach beginners who are struggling with Technical Analysis and to learn from more advanced traders than me. I have no ego.
I believe in the power of sharing and the goodness it brings within.
This thread will have so many charts for MTFs as detailed as possible. Just say hello and share with us.
Peace for all.
Hello Every one,
What is this thread about in brief?
In this thread I am going to focus on trading Price Action with Divergence for confirmation.
This thread is about analyzing Weekly/Daily/H4 and looking for divergence on the entry TF (h4/H1) or lower for confirmation. In sometimes,, I will be entering based on an expected bounce of Weekly/Daily/H4 Sup/Res/Trend line. This means there will be Reversal setups. In other times, I will be trading trend continuation (for example a new touch to a HTF TL).
I believe market repeats itself and there will always be a bounce. I want to enter as "early as possible" after a reasonable Price Action structure on lower TFs. This will allow me to get most of the move from the beginning and at the same time will enable me to place my stop loss at a reasonable level. I may also use a price filter (for ex price has to move a certain percentage or number of pips from an important level)
In this way of trading, I am not predicting how far the move will go after the bounce. I will be entering with couple of lots with different targets and trailing my profit.
With Price action: I am going to draw Support/Resistance (Zones) and Trend lines on Higher Tfs. I use both Candlesticks and Heikin Ashi.
With Divergence: You can use any indicator you wish like MACD, RSI, Stochastic, RSI, Trix etc.
If you sometimes question yourself how far price might go in case of a trading in a retracemnet (against the major trend), have a look at previous corrections and measure them yourself. This will help you to determine your targets and what to expect. For example, trading a correction on weekly and daily will still deem profitable if traded on H1 if your consider previous corrections' moves.
Some of Price Action Schools:
With Price Action, there is a school of thought that would simply put pending orders on an S/R level (Zones) expecting some reaction off this level.
It is a tempting one and by visually backtesting this methodology, you will find you are enetring the trade before anyone else.
But for me, I want a confirmation and a reasonable level to put my stop loss. So I need more of price structure on Lower TFs with divergence, a break of a TL or a break of weaker S/R, etc.. This will give me guidance to where my stop loss should be.
Another school of trading focuses on analysing waves (Elliot waves or Harmonic patterns for ex) and try to predict where the overall trend on Higher time frames is going.
I am not going to discuss waves or harmonics in this thread but will merely focus on price reaction to major S/R /TLs and entering on LTFs. NB: I am not against them at all. I respect all schools of Technical Analysis.
What are the issues with trading expected bounces of HTFs Supply/Demand/Trend lines?
The most major one is identifying the levels. Are they really good and reliable ones? It is a very subjective thing. How far we should look back in history?
In some case we should be looking at S/R and in other times Channels or any other patterns on HTFs like Broadening formations, Head and shoulders, falling and rising wedges, etc.. Which one is more appropriate? Why many PA traders focus only on Supply/Demand zones neglecting other important patterns and trend lines?
What if there is a divergence against you on higher time frames. Should you wait or trade against them? Again a very subjective decision to make.
As a matter of fact, finding the key levels is the cornerstone of this thread. I invest most of my time on identifying those levels. I usually draw zones. They sometimes get bigger or narrower. They are dynamic and not fixed. A divergence signalling a reversal has no meaning at all if not spotted on a strong level. Divergence is used for confirmation and is not the reason for entry on its own.
You do not need divergence if you don't like it. This is absolutely fine and great. You can rely on lower time frames with their PA structure of ranges and trend lines. That's all you need if you prefer it this way.
My advise is to keep it simple. in this method of trading I am presenting here, you are getting the momentum or the inertia from the expected bounces of key levels. Go and draw your weekly, daily and H4 S/R and Trendlines and find where you would have entered on smaller TFs based on divergences or indicators crossing (use any system of yours) or simple break outs of S/R or trend lines and put what would have been your stop losses and targets. What if you trade 0.5 or 1 percent of your account and split this to two or three lots?
NB: "In case you trade H4/H1 as your entry TF, sometimes the S/R levels on the entry TF are not that important.
Forex Traders are poor cousins of others like Futures, stocks and options traders.
Absence of real volumes (you can still use it in forex but it is a controversial issue).
In stocks you can compare any share against its sector or the overall Index
You can compare the share against the options market.
and so on..
One way to overcome this might be studying one currency against other currencies and pick the one that has better PA.
Price Action Vs Indicators:
Gerald Appel, George Lane, Welles Wilder, and Ralph Nelson Elliott to name a few were not just fooling others. They are great traders and technical analyst gurus who formulated their indicators on paper before computers allowed sophisticated programming.
If you have a great system to filter out your entry time frame, it is absolutely ok. But please post the HTF charts as clear as possible with one or two indicators.
If you are new to TA, please read for John J. Murphy, the father of technical analysis and then expand your knowledge with more readings. You will never find a private course that will give you all the info. Use them to refine your trading skills not as the whole source of knowledge.
Again, you can use your system to refine your entry and enter as early as possible. Don't give away too many pips nor enter before the trade matures.
A request to any trader interested in this methodology or school of thought this thread represents:
When you post, please Kindly Share with us what do you see on HTFs and give us the full picture. Do not post one M15 or M5 chart with couple of indicators. We are here to learn and teach others. If it was a cross of couple of indicators on M5 and M15 that will secure tons of pips, we would all have been billionaires. I and other traders will not benefit from a posting a single M5 chart.
Few free to use any indicator(s) as long as you provide the full picture with clear S/Rs or Trend Lines on HTFs.
For Beginners: I strongly urge you to post and try to share your analysis. Shying away is the reason why you can not progress. You will be surprised to find that your questions and difficulties are also shared by more advanced traders.
The heart of this thread is dedicated for education.
For Advanced traders: Please post and let everyone learn from you and comment on your analysis.
An example of this school of thought when trading bounces at important levels.
In AUD CAD, I saw a weekly S/R and was expecting a bounce for a good 100+ move. I entered quite earlier than the vertical Line (your possible entry if more conservative-which is a great thing).
On H4, there was an almost double bottom. There was no real bullish divergence but rather the acceleration of Trix and MACD at the second bottom was noticeably higher.
On H1, you could wait for the breakout of the H1 range and enter at the vertical line.
so far my profit is about 150 pips for each lot.
I entered this NZD CAD based on an expected bounce off Weekly Support.
Found some reaction on H4 and divergence.
I was not sure at the beginning, because I felt price did not deeply penetrate the weekly support (range).
H4 and H1 presented something to trade and level to put my stop loss (below the double bottom on H1).
The trade netted around 100 pips
Observing NZDJPY next week.
On daily we had a support and price moved already around 70 pips.
On H1, we have an inverse Head and Shoulder in formation. If I trade a break out, it will be more of a continuation setup. Price has already moved around 70 pips after touching the daily support.
I'll wait and see.
Watching this one for next week
On weekly, the picture is not very clear. We may have a resistance zone or we may test upper TL. The upper TL may also be redrawn to act as immediate resistance.
On daily, we have a bounce of Resistance (or a small correction). H4 and H1 show a downward move and attempt to retest previous H4/H1 trend line.
There is a bearish divergence as well on H1.
I will see how price will react to this downward trend line if it touches it or if it simply breaks south through the smaller upward trend line on H4/H1.
In this case, it will be a continuation move with the trend. But remember, If we trade it, we are not entering at the beginning of the move.
EURNZD is also on my watchlist for next week
In short, we may be at a weekly Resistance as price has almost touched it and may retest it again. On H4/Daily, one can argue we are seeing a flag that has not been broken yet.
However on H1, we may be seeing a diamond pattern. are we going up or down?
I will be following.
Follow up with NZD JPY posted above
I though of taking advantage of the inverse head and shoulder on H1. I found support on the two shoulders.
After that, I told myself I should have entered with two lots. One to target the neckline and the other for a possible breakout.
Any way, I have one lot now and will trail it.
Edit: exited at 30 pips in profit.
NB: There might be a breakout though
Good analyses mate! Perhaps you may consider adding 5 SMA to the W1 and D1 tfs. It may help minimize the problem of entering too early.
Trade safe and prosper.
Thanks for your post.
Well, I hear you with applying the short SMA. Some traders do use one or two SMAs filter on HTF and trade shorter ones accordingly.
However, this will not help with the "Technique" - if I can call it so - I am after in this thread. (It is not a new technique at all).
If you have a look at my previous charts and my First Post (a bit long one ) you will find I am trading expected reaction to major weekly/Daily pivotal points (S/R/TLs). In Many times, there will be reversal setups.
For Example (in my most recent CHFJPY and USDJPY charts ). We are in a downtrend on weekly TF bouncing off weekly/Daily support, the 5 SMA or any other MA will never get below the price on weekly or daily TFs. So I will miss lots of Pips.
There is more in my first post about my technique (or school of thought) of trading immediate bounces.
In short: Some PA traders would put pending orders at major levels but I want some PA mainly on shorter TFs for confirmation (Range breakout/Trend Lines break out/ Divergence, etc..). But I do not want to place a trade far away from the bounce. This thread is about a happy medium that is more inclined towards "as early as possible" bounce. ---More info in my first post--.
Please KeenPips, share your analysis with 5 SMA if you wish with two or three charts for the bigger picture you see and let us analyze together and exchange our views.
You too trade safe and prosper.
NZDJPY flew north for 90 pips. I should have had another lot to keep running.
Hi, mate! I do a weekly-technical analyses of pairs on my watch list and manage a thorough going thread on that. Although I don't reference the 5 SMA or any MAs in my posts, I use the 5 SMA as a trade trigger.
What interested me in your thread is that you do aspects of what I do, e.g. using S/R levels based on the W1 and D1 tfs and entering at an ltf.
Trade safe and prosper.
I have previously profited from shorting this pair Post #2
Now I entered long. It is counter the trend considering the overall downward channel on Daily ( although one can argue price has bounced off Daily Support).
The trigger is the current touch of theH4 trend line. I am watching this pair very closely considering this type of setup.
At least I found something to trade other than EUR and GBP Pairs awaiting Brexit and European Union negotiations today and tomorrow.
Edit: Price moved 30 pips in my favour so moved stop loss to a fraction of profit. Price went back and hit stop loss. Attached M15
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