Plan the Trade

No worries, I will continue to do so. I notice you are running Fibs off of candle bodies and not wicks/tails...

I personally think that the reaction bounce off of the 61.8% fib on Dax daily is significant, as it means the fibs are still in play, thus higher to come (in tandem with the Dow) for a couple of weeks yet, perhaps to 10,390 (fib level) or 10475 (prev Support). But in any case, as shown, i generally play Dax/Dow 40tick charts intraday.

My fave pattern just keeps on giving;



Nice easy 33 pips following bollinger, but prob should hold until Neg Div. Good R:R again though.

Just to add another chart into the mix along with yesterdays Index observations.

This is the current Daily Spanish Ibex chart;



Wave C or 3 is clearly 161.8% of wave A or 1 (they both have same fib relationships).

It doesn't answer the question as to whether we have topped on the Dax and soon to do so on the Dow yet, but it does give more clues. A fresh high and we are printing 5w, (and obviously you can not have one single 5w set), thus much higher to come later, or a break of last sig low and we will probably be heading to fresh lows on Ibex & Dax, with the Dow more than likely finishing it's wedge;





Daily two nights ago;

First trade of the week, One of my fave patterns; Dax 50tick;



H&S. To be honest, i wasn't convinced about the 123, so i shorted after the fresh LL, a fraction more risk, but better to have confirmation with such a shallow retrace.

Fave trade again a moment ago. Dax 50tick C&H;



First, the divergence, then a 123. I ignored the first one as at that moment, despite the divergence, it is counter-trend and thus risky. Hidden divergence could lead to failure. It would be an aggressive trade.

Once we get our HH, HD can no longer form on this scale, thus we wait for our pullback and a nice 123 forms to get back into the uptrend.

Failed trade. Further to above chart, i traded the next 123 in the sequence, but it quickly failed.

Firstly the chart showing set-up. No fresh low, (at that stage), so uptrend intact;



We actually create a larger bowl. There was a smaller 123 on the first pullback after the HH of the larger bowl, but i missed it. Trading the second one (circled) failed as shown i the chart.

Now if i post the same chart but with EW labeling, i think we had an 'irregular' corrective wave, (where wave 'b' makes a fresh high);



Look how wave 'c' was in 5 waves, with a tiny a&b. of an expanding diagonal. Wave 'd' (the 123) gave crossover with wave 'a' and wave 'e' then completes the cycle with a fraction of a LL, thus stop out. But just as you think we might now have a H&S pattern to the short side, PA takes off to the longside again without me onboard!

Nice! Deciphering all of this is easier in hindsight, of course, not so easy to see in real time, thus it was an easy mistake to make.

As a general rule, wave A or wave 1 will take out the last sig HL/LH, thus we should look for an abc move to correct the 5w before our 123. You have to match the last HL/LH's to the timescale that you are watching, but i am generally talking about wave A or 1 taking out the previous wave 4 (the last 5w sequence), in this case being to the short side.

I made the mistake of not watching for a reasonable sized abc correction to match the size of the 5w long cycle and corresponding larger bowl. Capiche?!

Irregular 'b' waves have always been the enemy of a pullback trader. Not much you can do in all honesty other than take it on the chin.

So UsdJpy this time, same story. I don't think i need to label the subwaves, but this is standard stuff, with wave A or 1, making the new high to create the C&H, a deeper abc pullback ending with our 123;

What a horrible day! So Ok, we know that this method requires a trend for it to work best. The H&S pattern is a reversal, of course, but generally needs a previous 5 waves to be able to a) read and predict 5th wave end and b) create divergence between waves 3 end and 5 end. Thus even that requires a decent trend beforehand.

The pullback flags and 123's or C&H patterns are all continuations within a trend. Today, everything i'm watching thus far has twisted and turned and just when you think you have a trend, it reverses.

Ok, so not always the case, but generally, the more reliable set-ups are when the 123 creates a shallow flag angle. Deeper/steeper pullbacks are basically saying price is weaker (or stronger if set-up is for short), thus a shallower angle indicates the opposite, PA has underlying strength and more likely too take off quickly after trigger, (which basically is what we want!).

The best set-ups are when the 123 breaks out of it's trendline and then subsequently backtests it with point 3;

Hindsight chart of the Bund to demonstrate above;



The 123 creating a nice shallow flagline.

Note that there is a small 123 from the end of 'c' (of the pullback), but in my mind, it is better to ignore and wait for it to prove itself as subwaves 1&2 of a larger set, (a larger 123).

It can often be difficult to judge whether a shallow pullback for point 3 of our 123 is not simply a subwave 4, but a backtest of a prior flagline (drawn off of wave b end), is usually worth the risk...

Diagonals & Fibs;

Diagonals usually contain a number of fibonacci correlations.
Here is a chart of the UsdCad as of last night;



The relationships are stated on the chart. Always extend fibs of the 'B' wave for indicated Wave 'C' end. Here C was 161.8% of wave B
Wave 'E' (ending) will usually have a relationship to either wave 'C' or wave 'D' (extended), or in an expanding diagonal waves A-C.
Wave 'A' will also likely have a correlation. Here it is 100% of the rest of the move.

Result;

I made a point yesterday about shallow pullbacks leading to a 'perfect' set-up with entry into the powerful wave 3 what we are looking for;



Now that isn't to say 123's do not work elsewhere. I have covered the bulk of the set-ups in the pic, but that isn't to say i wouldn't take one after a deep pullback, indeed i did just that yesterday for my best trade of the day.

But looking at the number 1 scenario, here it is in practice on the UsdCad overnight. Unfortunately, i was in the land of nod at the time, so this is for illustrative purposes only;



The last LH was not breached with the pullback. Point 3 of our 123 retests the original flagline and creates a new shallow flagline. The pullback to point 3 was clearly in 3 subwaves (an abc of subwave 2), thus we would expect entry into wave 3 with break of point 2. Knowing this we can also try to determine the 5w count...

If Carling did set-ups...

I've been posting these kind of set-ups for years now and to the average trader, it simply doesn't look exciting enough. The example i gave above heralded 15 odd pips at a risk of 7. Most people dream of making hundreds of pips a day.

Well, there is no right or wrong way, if you are making money consistently, then do not change a thing! but i have witnessed screen shots with traders showing some very sizeable gains. Kind of doubling a 10k pot in a month... bravo, but in their posts, their is no system. Merely having a huge pair of nads and falling for fundamentals.

A month ago, there were articles like this being banded around everywhere;

http://www.marketwatch.com/story/why...Link=obnetwork

Tom Demark.

'His predictions have garnered him a certain amount of celebrity status on Wall Street, where he advises the likes of hedge-fund luminaries George Soros, Stevie Cohen and a host of other financial hotshots. '

Later in the article (dated Feb 26th) ;

'The stock market is topping out now after a countertrend rally, and ahead lies an ugly March. That weakness should accelerate after a top due March 1-4, and should culminate in a bottom due the first week of April'

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So this guy is a 'market guru' and predicted a major fall this month.

Now contrast that with my own analysis;

FTSE daily (11-02-16);



Dow 6hr (21-01-16)



combined with Dow Weekly (04-11-15);



I have another scenario for the Dow in which it continues long instead of following the wedge, but the point was, that i was very bullish at the time when everyone else thought a huge sell off would materialise.

What does this matter? Nothing at all to me, but to my colleagues who have shown to have been making loads of money short since the start of the year, but without a system, without utilising stops, a couple of which i know took even larger positions short into this current rise, convinced it was going to dive, are now massively underwater. What looked all rosy for a couple of months, now has a real possibility (if the wedge does not play out wave 'E'), of being wiped out. The loss is now 'too big' to accept, but i have long warned that an extended wave 3 will wipe out any trader who trades with no system and no stops in place.

Now back to my initial point. It's not the mere 15 pips gain from a set-up.. it's the small risk. If we work in percentages, a 5% risk, (which is relatively small, given the perfect nature of the set-up), yielded a 10% gain. My colleagues 10K pot just returned a 1k gain in an hour and a half. None of those sleepless nights, none of those burning red hot flushes, every time the Dow puts on another 100 pips.... 50 pips...

I have arguments running with traders who are in denial. Charts are the past, they can not predict the future i am told. Events can not be predicted. No. Of course they can't and a World war breaking out will end any bull phase, but to put it in perspective, how many times does bad news turn out to be good news in a bull cycle (and vica versa when short)?!

Data is bad, sell off, no wait, we might get a rate cut... it's bullish. We're printing $1T, ooooh good news.... no wait, we must really be in the shit if we need this.... etc etc

I have been self employed all of my life, i successfully built up a transport business when i was still in my teens, sold up and ran a couple of garages, went back to my building roots and started property developing. I made a success of everything i have turned my hand too... a good recipe to become a successful trader?

No. I am one of the worst candidates! Far too emotional, probably far too egotistical (in the past). I envy those who got into this game and easily overcame fear, those who could judge a direction and simply trade it successfully. I watch over and over again, directions coming true after a quick earlier glance at a chart, but i have become too fearful over the years to trade this way.

I have developed many strategies over the years and they still haunt me. The trade i posted above, was exactly the one that i can trade without fear and this is how i have tailored the market to suit myself.

What works for one, doesn't necessarily work for another. Even when a system is developed, there are still two types of trader - those, who require a high success rate (and get hit far more emotionally with a loser) and those who are more aggressive and will trade every set-up, good or bad and not be fazed by the losers, working on probabilities.

I probably fall into the first camp, but having the discipline to wait for a perfect set-up each time, is difficult. A higher rate of success probably lies in becoming the second type and trading every set-up that the system creates. I find that i can do this some days, but my emotional state (and thus external factors) play a part.

People don't get that the key to profitability is a far larger % mental, then analysing ability. Of course, you need an 'edge', but that's only when the fun really begins!

I'm off to phone Soros now cos clearly Demark can't read a chart to save his bacon.

Spot the difference;

Dax;



UsdCad;

Hello I enjoyed reading your charts.

I also like the cup looking formation, I have always regarded it as a breakout pullback entry.

To me the GOAT pattern is the Quasimodo.

Keep posting charts!

Hi Barloc and welcome!

Yes, i call that the Head & Shoulders pattern, where the important part is the last HL being taken out to create the LL. I think the turning point you call 'the quasimodo' is also labeled 'tweezers', but i do not pay too much attention to candle patterns. I have a basic understanding, but that is all.

The patterns that i post simply keep happening over and over again. I am placing an emphasis on the 123 creating a shallow flagline as discussed yesterday.
When a pullback is deep, unless the end can be determined by fibs, there is too much likelihood that a 123 is only part of a 'B' or 'X' wave and it is too risky to be triggered into a trade that will almost immediately fail.

By having the discipline to ignore those and wait for the shallow flaglines you give your self a far better chance of entering straight into a powerful 3rd wave. Lets face it, none of us like to see our trade run deeply against us. Entry into the 3rd should see the position go almost straight into profit and keep going until the 4th.

Yesterdays overnight UsdCad recap trade example;



and same pair, earlier this morning;



Simply waiting for this style pullback and trading nothing else will bring a high success rate, thus breed confidence = $$$'s

(Back)testing charts is always biased, your brain sees what it wants to see, you seldom notice the false triggers that you actually consider in real time.

I am going through loads of charts today just to see how many set-ups i can find, if i were to stick purely to the strict criteria of last couple of days topic, (the 123 backtesting a prior flagline off of wave 'B' of the pullback) and then creating a shallow flagline off of point 2 of our 123).

These are hindsight trades, but worth getting an idea of how different they might look in setting up. The actual set-up itself is really quite similar every time.
Whereas i would prefer to find these after a bowl (ie immediately after a fresh LL (if short/HH if long|), but they work perfectly merely as a pullback within a trend and if you are unsure if the trend is valid, (without the last sig point bejng taken out, the quality of the set-up shows that it has a high probability outcome.

Here's what i'm talking about;

UK listed company RBS chart 15min;



So without waiting for the last significant HL taken out, we can see that a LL/LH sequence is enough with the quality of the set-up. We get our abc retrace, with 'c' in a 5w expanding diagonal. We draw an initial flagline from start off of wave B end. The 123 then backtests this line with point 3 and creates a fresh shallow flagline, once this breaks we basically get a fresh LL simultaneously. Again, in this instance we had waves 1&2 of a fresh cycle.

NzdUsd 30min;



Again, not exactly a bowl beforehand, just merely a pullback within a downtrend. The original flagline being backtested by point 3 etc.
The 2nd (lower) set of flaglines in the chart are amid potential divergence and thus i have not traded this.

Ok so what happens when wave 1 of a new cycle doesn't create a flagline but instead makes a HH (if long/LL if short)?

Well, we get a C&H formation, of course!



Now entry criteria for the C&H is normally dictated by the pullback. I always look for fib levels, or at least decent 3w abc structure, which can be broken down. Even if PA is obscure for some of a move, if the 'C' wave can be deciphered we can usually know when to expect the reversal.

If none of this occurs, however, as a last point to consider, we can go long upon the fresh HH as in the RHS illustration. I would only decide to do this if the rise to create the original fresh HH looked a sure 5w move and if the pullback wasn't too deep (max 61.8%).

This of course opens up new potential trades on a bigger scale. As stated wave A of a major corrective move or wave 1 of a new impulse cycle will often take out the last sig point, thus creating the C&H scenario.

If this is our outlook then we will be expecting either wave C or waves 3,4&5 to follow, thus if no tradeable 123 is visable, a trade upon fresh HH (or LL for short) could be considered.

As always a picture says a thousand etc;

Royal Sun Alliance, UK listed stock 1hr (but i could use dozens of examples!);



Ok so when it is from the bottom, it is actually a (reverse) H&S formation, but they are basically the same thing.

The last LH is taken out in what looks to be a single 5w set, Even though the retrace thereafter does not appear to be visibly abc & there is no identifiable 123 to trade at the turn, we can still expect much higher to come thereafter, thus entry can be upon fresh HH.

What we effectively have is a much larger 123 (waves A&B or 1&2).

Now bearing in mind what i have just posted, it is important that the last sig point gets broken in one set. If not, it is likely to be a corrective move instead;



The centre illustration is clearly different from the RHS as it takes out it's previous sig HL in a 3w corrective cycle. Here's a typical example from the DAX to better illustrate;