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Re: Combination Strategies

Postby goldtop » Wed Nov 11, 2009 1:56 pm

Navajo Joe wrote: I prefer to witness a slightly stronger leading bar push with a little oomph behind it before considering an entry.

I’m seeking confirmation that price is reacting off something likely to influence a determined follow through push either up or down (according to the current bias) with sufficient strength to offer me a reasonable reward for the risk I’m prepared to take.


You mean something similar to the intense price reaction to the British Pound after the comments issued to the market by the Bank of England bosses at their Inflation report meeting?

That was one mighty clout they gave it this morning. Am I correct in thinking you would set up a sell order below the low of that move, on a break through 1.6620?
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Re: Combination Strategies

Postby Joe Whitehorse » Wed Nov 11, 2009 2:42 pm

goldtop wrote:You mean something similar to the intense price reaction to the British Pound after the comments issued to the market by the Bank of England bosses at their Inflation report meeting?

Am I correct in thinking you would set up a sell order below the low of that move, on a break through 1.6620?


That’s exactly the type of scenario I mean.
You could have picked any one of the main GBP pairs to trade off the back of that news item to be honest, but essentially an aggressive momentum thrust like today’s price activity is ideal for this type of trade set up.

Yep, the 6620 momentum low touch would be the level to set the follow through order at.

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Re: Combination Strategies

Postby carl » Wed Nov 11, 2009 3:21 pm

I pulled this quote of yours from one of Monday’s posts.

Navajo Joe wrote: Wait until something inspires or influences the price action in order to drive it aggressively in one direction or the other, then bide your time & step in at the appropriate level.

There’s usually plenty enough time to work out your stop loss exit & next potential upside/downside destination.


You certainly weren’t wrong about that today!! :wink:
Talk about taking advantage of excessively skewed psychology.

I wonder how many ill-informed gamblers jumped on the long trades down at 1.6630/40 trying to “pick a bottom” only to get well & truly mugged as price continued back down through 1.6620 :lol:
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Re: Combination Strategies

Postby whipcrack » Sat Nov 14, 2009 7:42 am

Joe,
What precise criteria would it be advantageous to use, apart from the 5x5 sma & rsi indicators, to confirm you’re no longer looking for a particular directional bias on a pair?

I know you’ve already mentioned, & kindly provided examples, that this type of momentum trigger can be used on various timeframes, but what timeframe do you normally refer to when deciding on a potential trend bias change?

I realize the 5 sma & 5 rsi that you’ve started this thread with can be used as a confirmatory indication of possible failure, but do you, or would you ordinarily refer to anything else?

Some traders use trend lines or channels to signal possible reversals & continuations, whilst others use moving averages & oscillator type indicators, but I find them very subjective & quite often conflicting.

Thanks.
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Re: Combination Strategies

Postby Joe Whitehorse » Sat Nov 14, 2009 12:44 pm

First & foremost whipcrack, you don’t need anything on your chart apart from the price bars or candles.

I started this thread with those 5 period moving average/rsi indicators on the Daily chart timeframe because they represented a very simple, basic heads up to quickly determine the state of play for someone not very familiar with the geography of a technical chart.

But to be honest, there isn’t an indicator out there than can tell you anything other than what you can see with your own eyes.

You don’t require trend lines & channels, neither do you need all those fancy oscillators & moving averages. They’re nothing more than eye candy.

whipcrack wrote:I know you’ve already mentioned, & kindly provided examples, that this type of momentum trigger can be used on various timeframes, but what timeframe do you normally refer to when deciding on a potential trend bias change?


My primary reference is the Daily chart
I use that to gauge the potential momentum strength & directional bias of the pairs & instruments I’m interested in watching & building positions in.

What do I look for when deciding to continue pressing (adding to) a core position, or instigating a fresh trade?
That’s real easy.

I want to see either a continuation bust of prior momentum highs in an up trend (as evidenced via the Daily chart timeframe), or a bust of momentum lows in a downtrend.

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.

That’s it.
That really is all you need, to decide whether you should be buying dips or selling rallies.

I’ll give you a visual example of what I mean in the next post.
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Re: Combination Strategies

Postby Joe Whitehorse » Sat Nov 14, 2009 12:55 pm

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”.

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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.

Image

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.

Image

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.
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Re: Combination Strategies

Postby shona123 » Sat Nov 14, 2009 5:33 pm

Thank you for yet another terrific post! Fascinating stuff!

Although I ‘got’ where you were coming from in your previous posts, that last one has put even more meat on the bones.

Do you, or would you ever consider taking a trade against the main Daily trend?
Reason I ask is that on Thursday it formed a classic 1-2-3 reversal, smack bang on a big figure (1.5000), a set up I particularly like!
The number 2 point of that decline would presumably qualify as a possible momentum low according to your rules?

I assume that number 3 point (the lower high) was your exit area on the long trade from 1.4810?

I know it bucks everything you said regards trading with the major flows, but I’m curious if there’s ever a specific scenario or situation where you’d take a counter trend trade on?

I can clearly see from your great explanation of how the price action behaves, that there would be some very profitable counter (main) trend opportunities virtually every week.

That 1.5000 level for instance is a big psychological area, & one that would maybe include potentially large stop orders, both long & short?

(I’ve been looking at the Dollar Index chart today & it certainly confirms your intention in looking for buy orders on eur/usd. It’s approaching a key support level which should offer another lift to the Euro & Pound v/s the Dollar if it drops through there next week)

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Re: Combination Strategies

Postby whipcrack » Sun Nov 15, 2009 3:44 am

Navajo Joe wrote:First & foremost whipcrack, you don’t need anything on your chart apart from the price bars or candles.

But to be honest, there isn’t an indicator out there than can tell you anything other than what you can see with your own eyes.

You don’t require trend lines & channels, neither do you need all those fancy oscillators & moving averages. They’re nothing more than eye candy.


I appreciate your very detailed responses, you obviously go to a lot of trouble to answer queries & for that I'm grateful.
Thank you.

Isn’t it funny how I, as I’m sure many others do, constantly look for the less obvious, & infinitely more complex alternative. You see so many examples on other forums of complicated rules & structure, accompanied by charts laden down with whole bunches of indicators & lines all over the place.

Trouble is, most people don’t really know what to look for on a naked chart. I guess the reliance on all these indicators is due to the fact they/we simply don’t know how to read the price action correctly, hence the need for the crutches!

I wonder if that’s one of the main reasons that amateurs make this business a lot more difficult than it really needs to be.

Thanks again. The way you observe & interpret the charts are indeed refreshing & your posts are both inspiring & encouraging.
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Re: Combination Strategies

Postby Joe Whitehorse » Sun Nov 15, 2009 4:02 pm

shona123 wrote:Do you, or would you ever consider taking a trade against the main Daily trend?

Reason I ask is that on Thursday it formed a classic 1-2-3 reversal, smack bang on a big figure (1.5000), a set up I particularly like!

The number 2 point of that decline would presumably qualify as a possible momentum low according to your rules?



Sure, I’ll take counter trend trades on via a strong intraday momentum move, similar to the Cable example highlighted last Thursday.
I’ll admit they’re few & far between, but occasionally they’ll be one or two that catch the eye & fit into an acceptable risk profile.

It’s really down to individual choice, style & experience.

If you’ve got a specific set up or strategy that has proven to work consistently enough to make it a lower risk option, then you’re going to take it on providing it ticks all the boxes.
You have to go with what works for you. The 1-2-3 is a valid & robust set up. I'm not surprised you enjoy playing it :wink:

Yes, the number 2 of your 1-2-3 reversal would qualify as a momentum low alert.
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Re: Combination Strategies

Postby Joe Whitehorse » Sun Nov 15, 2009 4:07 pm

whipcrack wrote:I appreciate your very detailed responses, you obviously go to a lot of trouble to answer queries & for that I'm grateful.
Thank you.


You’re welcome. Just as long it helps & doesn’t hinder.

Isn’t it funny how I, as I’m sure many others do, constantly look for the less obvious, & infinitely more complex alternative.

You see so many examples on other forums of complicated rules & structure, accompanied by charts laden down with whole bunches of indicators & lines all over the place.


I guess there are still a lot of folks out there, including new traders fresh into this business, who automatically assume that “more equals better” ?

Folks will use whatever they feel is necessary to come out the other side of a trade alive & intact.
There are as many different tools & appliances available out there to assist in clicking that buy/sell trigger as there are traders. Some will use a whole array of weird & wonderful gadgets to tackle the market, whilst others will go in armed with nothing more than a bare chart & couple of guideline levels.

To each their own.
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