Navajo Joe wrote:Failure to take out a prior momentum high (in an up trend) or a momentum low (in a down trend), would have me on guard watching what the price action was doing as it slipped back.
I’d definitely want the previous swing low (in an up trend) or swing high (in a down trend) to hold with confidence in order to encourage me to continue buying dips or selling rallies.
So here’s what I mean by gauging the bias & remaining on the correct side of the directional flow.
I’ll use the EUR/USD as the example.
The last 6 months has seen steady rises with price maintaining higher swing highs & higher swing lows (the definition of an up trend).
The last major swing low prior to that 1.5060 top could be seen @ 1.4450.
That was the reference point to be wary of if the upside momentum was running out of steam. The 1st alarm bell if you like.
Price pulled back from the years highs on profit taking, & the 1st point of reference was that 1.4450 swing low.
As it pulls back (during 23 & 24 October) & goes about it’s normal transactional business, I’m looking for “continuation buy” reference points. Remember, until 1.4450 is compromised, this thing remains a “buy on dips”.
I get the 1st reference point (marked on the chart) & that’s my momentum high buy trigger.
Price doesn’t break up through there, & instead falls back further registering a second momentum high (No2). That now becomes my new “long trigger”. That actually triggers me in at October end, but fails to follow through & subsequently stops me out. The high of that move now replaces No2 as my new “long trigger” marker.
And so it goes on. I continue to mark out my “continuation buy” momentum high reference points as long as the price action remains above 1.4450.
IT’S STILL IN A CONFIRMED UP TREND UNTIL THAT PREVIOUS 1.4450 SWING LOW CAPITULATES.I don’t need any trend lines, channels, moving averages, oscillators, elliot wave zig zags or any other fancy distractions to tell me what my eyes & plain old common sense can work out for itself.
As soon as all the profit taking has subsided & buyers are in agreement about a fair value level, then the price will rise again - & when it does, I want to step back in on a break through of momentum!
I get that opportunity at the 5th attempt on November 4 @ 1.4810.
If you wish, you can drill down further to say a 15 minute chart to pin point an entry & risk stop if you prefer that particular timeframe. Choice is personal. The levels are the same whichever timeframe you choose, the important thing is that you get your bearings right in context with the primary directional bias.
I now have a higher low (on the Daily chart) referenced @ 1.4625 to book mark as my next alarm bell call should price fail to take out the years high @ 1.5060.
The 1.4810 add-in entry ticks up a couple hundred more pips over the next weeks worth of trading before signalling a slip back via another lower high (on the hourly) at 1.50.
So to recap:
I use the Daily as my primary reference to tell me what the price action is currently doing.
I then ask myself a couple questions about the current state of play;
Is it trending up or down?
Where are the prior momentum highs & lows where I need to be paying attention to.
Where’s my next likely buying or selling opportunity at.
Once I got those basic levels marked out I can drop down to whatever timeframe I choose & either buy or sell my momentum breaks based on the bias & flows of my primary timeframe reference.