That would be 1 setup yes… as you can see in the above pic I will be going over 4 slightly different setups over the next few posts. I think the variety will help cement the understanding of an evidence based approach.
Essentially you can break it down into a 3 step process.
[ol]
[li]Location and Market flow (on at least 2 scales)
[/li][li]Entry Trigger to prove you are just joining in
[/li][li]Intelligent management and risk:reward judgement
[/li][/ol]
It’s a rinse and repeat set and forget way of doing things and as you will see the trades will setup up slightly differently each time but following the same concept always.
This 2nd trade differs from the first because now we are not only following the trend of Swing 2 but we are also using it to trade the breakout of Swing 1.
The 2 Green boxes I have drawn are on the previous Swing 1 Low and the previous Swing 2 Low. After the previous Green scale Low was broken it is safe to play the breakout of that scale of activity using a swing 2 scale movement. The 2 areas of interest are each of those 2 boxes that were broken. However if you apply the concept of wave relativity then a pullback to the thin long box I have drawn is not really suiting Swing 2 as a relative pullback, therefore the other box makes alot more sense if we are to respect the current market flow. When price returns there a nice tweezer top inside bar combo formation appears and you now have an entry trigger point as it breaks it short.
So now before you enter the trade you know several things.
[ul]
[li]It is a breakout of swing 1 and it is following the trend of swing 2 but it is the 5th push down at that scale which is as far as I am ever willing to go… so all of the management decisions will once again be made with swing 2.
[/li][li]The previous swing 2 low gives you the area you are trading and therefore the tweezer top inside bar combo gives you your stop loss.
[/li][li]The break of the tweezer top inside bar combo gives you your entry point.
[/li][li]You now know your risk and the most conservative reward you can assume will be a higher low on swing 2
[/li][/ul]
So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you… the area of support was broken, returned to, and reacted again but now as resistance via that tweezer top inside bar combo to prove that you are not alone. The pullback was relative to swing 2’s recent history of this swing 1’s move down and so you now have the probability of the trade working out well in your favor.
The trade is also worth it on the risk:reward side of things because you really can expect a lower low on swing 2. If you do then 1:2 risk:reward is available but for the conservative trader this fact means that targeting a higher low is very safe indeed and the fact that it is the 5th push down on swing 2 also weighs in. The conservative higher low will still yield you 1:1 risk:reward which is the minimum requirement there.
This trade goes straight to profit and needs no break even point or stop loss trail.
I really love these charts youre doing Theo.
They make a lot of sense to me from both an SR and SD aspect.
Would love to get my hands on more of your examples but finding it hard to join your website due to not being a member of the social networking sites required.
Have sent you an email in any case.
Cheers
Yes, Supply/Demand (Order Flow Dynamics) and Support/Resistance are always respected in my approach.
It is only ever worth joining in with those who actually do move the market. I just piggy back on them
This 3rd trade differs from the first 2 because now we are looking at trading Counter Trend swing 2 wave but at a great location for it to be a reaction for swing 1. As always we wait for proof though.
The Green box I have drawn is at the top of swing 1’s previous high which was an area reacted from for quite the drop, this is the first time back there since that happened and although it is counter trend on the swing 2 level it has location behind it. As price reacts from the area you can make out tweezer tops once again and the passing of the pinbar backs up enough proof to enter and know you are not alone.
So now before you enter the trade you know several things.
[ul]
[li]It is a prime location for swing 1 to have a reaction but it is counter trend on swing 2 so all management decisions must take keep this in mind
[/li][li]The previous swing 1 high gives you the area you are trading and therefore your Stop Loss.
[/li][li]The break of the tweezer top pinbar combo gives you your entry point .
[/li][li]You now know your risk and the most conservative reward you can assume will be a higher low on swing 2 and the most conservative place for that to happen would be a mirror flip on swing 2’s previous high.
[/li][/ul]
So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you… the area of resistance was returned to and reacted from via the tweezer top pinbar visual which gave you an entry point and proof that you were not alone. Your most conservative target respecting the current market swing flow was above the minimum 1:1 risk:reward and so this trade made sense.
You can probably start to see a pattern here … Location, location, location… entry trigger… intelligent management. ALL based on evidence.
This trade goes straight to profit and needs no break even point or stop loss trail.
This 4th trade differs from the first 2 because now we are looking at trading the 5th push up on swing 2 but it has now synchronized with swing 1. On swing 1 it will only be the 2nd push up on that scale since the move started at the bottom of the chart. For the swing 1 scale pullback there are only a couple of locations that it could happen, these locations are very visible by observing swing 2’s peaks
The Green box I have drawn is at the first potential lactation for a swing 1 scale turn and the most desirable too because it also means that swing 2 has not made any lower high’s or lower lows yet either. As price enters the area it has that first reaction you can see on the big red candle with significant spike. Price then returns in to the area signifying a double tap on a lower timeframe and then displays indecision candles. You now have plenty of evidence supporting this location and the break of the candles north is your final confirmation that you are just joining in with those who do move the market. You have about 8 hours to plot your pending order (buy stop)
So now before you enter the trade you know several things.
[ul]
[li]It is a prime location for swing 1 to have a reaction and it is also a prime location for swing 2 to have a reaction, plus it is still following the trend of swing 2
[/li][li]The previous swing 2 low gives you the area you are trading and therefore your Stop Loss.
[/li][li]The break of the indecision candles gives you your entry point .
[/li][li]You now know your risk and the most conservative reward you can assume will be a lower high on swing 1 or swing 2 since they are now in sync.
[/li][/ul]
So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you… the area of support signified by that previous swing 2 low was returned to and the size of the wave down was that of a swing 1 scale also. This support was spiked from and then reacted a 2nd time giving plenty of time to enter once the indecision was broken in the direction of the trade you are expecting.
Location, location, location… entry trigger… intelligent management. ALL based on evidence. This trade had amazing risk:reward also and was an easy 1:3. On the way up you can see the little indecision area that was then broken north again as it went to target. That was a great location to move your Stop Loss up and lock in some profit. Based on evidence once again
In all of these examples I have pointed out the most conservative take profits. I prefer not to be greedy but you certainly could be a little riskier with your take profits if you wanted to and shoot for the expected higher highs or lower lows of the swing you are trading.
Here we have the same chart and there are several breakout trades on there but let’s just move on from Trade 4 that we just reviewed and look at the one that cam right after.
A major area of Resistance was broken and the swing trade was now over with great risk:reward… the direction and flow is clear and providing this same area of what was once resistance now acts as support you have your location proof. The indecision candle cluster shows the area is holding up and your entry trigger is a break of that high created on the first push out. Stop Loss goes below the cluster and shooting for a 1:1 risk:reward is the conservative non-greedy play.
These breakouts maintain the same concept as the swing trades… Location Location Location, Entry Trigger, Good management / risk:reward
I just wanted to take the time to say thank you. The way you are able to explain these concepts are excellent. I have been trading very similiar methods with TL/S+R/candlestick patterns with moderate success(havent blown the account yet). The biggest problem I have had in the past is missing trades even with beautiful setups because im afraid that my originally identified trend is still in place. This has often caused me to miss huge initial moves in price. With this material i can already begin to see holes in my analysis. Many thanks to you.
What I have outlined in detail is evidence based swing trading where you use those swings also to help with your expectations and your stop loss… which give you your risk:reward pre-trade.
I have then just introduced breakout trading which as you can see can be traded on it’s native timeframe…but breakout trades on a higher timeframe can actually be traded as swing trades in the same fashion but on a smaller timeframe
This means that the same rules and concept can be rinsed and repeated on all trades that you take and you do not have to learn a whole bunch of different trades separately. You basically learn one concept and with it comes several solid types of trade.
I did not cherry pick the chart I used, I just opened one up and took a snap of quite recent history… but why don’t you find me an H4 chart that looks messy to you and I will use that to pick apart some more trades for the next posts of this thread.
I will definetly post a chart that seems a bit unclear as time allows me. I would like to add my take on it in relation to the methods in this thread so that my thoughts can also be critiqued if you dont mind. I have been using price action methods of trading by using free material from traders such as will hunting (known as wmd4x) and johnathon fox so to get an experts opinion would be very beneficial.
-RoP
In this screenshot I have marked out your dates with the Green Box and mapped out the overall wave activity (swing1) of this timeframe (H4) using the Green lines again. The next level down (Swing2) is quite small and will mess up the chart but you can visually see the smaller swings that are going on. I will mark them in this next screenshot.
Here is the first safe evidence based trade I see in your Green box.
This is a range breakout, you can see that on the swing2 level there are several lower highs and higher lows compressing in to a triangle or range. Some people draw this in as triangles but I generally keep everything horizontal these days. I have drawn the range in using the smaller Green box.
Once price breaks out of the our range we have proof that things are changing, by waiting for the indecision and pullback on a lower timeframe (but still visible here on the H4) we have an entry price and stop loss established. On a breakout I always just go 1:1 with the risk:reward because we are trading ITS momentum and it is not a swing trade so I can’t target previous recent highs/lows. (once you develop the ability to see all this using multiple timeframes you can take these H4 breakouts on M30 or M15 and have much better risk:reward but that comes later as it is more complicated/advanced)
If you were to just trade the breakout of the range or triangle you would need to use an arbitrary number for stop loss and take profit. Waiting for the evidence of it breaking out and pulling back to the other side of it gives you an idea of current momentum with entry point and stop loss so that you can plot the take profit.
Next trade in this chosen period of time tomorrow…
Havent posted any charts myself recently because im having trouble finding one that is currently troubling me since reading through this thread, so thank you. I only trade a few pairs on 1d/4h/1h.
In relation to the chart above, where I would be looking is the origin of the breakout from the top of the range you’ve drawn. I cant see too well but it appears theres a pinbar poking down into the cluster that confirmed the breakout. Bearish price action is pretty weak going into this level and based on the strength of the breakout I think that would have been an excellent place to for a continuation of the bullish momentum.
Upward trendline play also seems possible but I cannot apply one to the chart at the moment.
Well said, my thoughts exactly and that pinbar allows for a SL to combine with your Entry Price… therefore giving you your risk and minimum target to shoot for.
I find that these setups, because you are trading the creation of a higher high and using the lower low on that little scale, gives you an idea of how “elastic” the move will be and 1:1 risk:reward works a very high % of the time with some left on the table.
With regards to Trendlines I don’t think they hurt too much and I used them for several years as part of my trading, then about 2 years ago it clicked that I was always needing a horizontal area to combine with what I was seeing via the Trendline, therefore I didn’t need the Trendline. Anyway long story short, after trading without Trendlines nothing negative happened and I just had a cleaner chart and one less to think about. I also observed that Trendline breaks were keeping me out of perfectly good trend continuation trades. I find horizontal area of price more accurate and so that is all I use now. What I do like angled lines for though is to judge the momentum of a Trend and where I think any given new high/low of a swing will reach for TP … but then once again I then find a horizontal area to match up so I don’t leave the angled lines on the chart after looking. I will go over that as this thread advances
In this next trade the area of Demand was created by the previous breakout trade. This is the box I have drawn in. Price then came back to it on a Swing2 scale and reacted a first time with no significant entry patterns that held good risk:reward. Price then came a little deeper in to the box/zone and gave a nice little pinbar that was then immediately broken north for your entry trigger.
This was not a big enough pullback to be considered a Swing 1 trade yet and must be treated as a Swing2 trade which means that the recent high just created is the most conservative and safe Take Profit. Considering that you are following a trend of higher highs and higher lows you could intelligently expect a higher high, that is why the target I mentioned is the conservative one. It does allow for a 1:1 risk:reward or higher and the trade is a go.
You can see that this is above 1:1 risk:reward but that first push up didn’t quite hit your Take Profit. It was then followed by that little red IB which the break of South would have allowed for the 1:1 and could have been used as a manual exit. As a complete set and forget trade though this one just went to profit anyway so either way worked fine.
OK, lets move on to the next trade/s of the chosen time period.
In this first one you will understand why the limitation of H4 candlesticks could make you miss the entry, here we have a perfectly good trade with tons of proof behind it but before there was a closed candle to use as an entry trigger price had already gone too far.
As you can see, great trade but no entry trigger to use unless you were at you screen and watching the charts in which case you could have entered the minute the blue candle ate up that red one at the base of the move. Something you would do with experience if you liked the location and structure behind it which in this case was very clear. Another way to get this trade is to use a smaller timeframe for fine tuning entries, reducing stop loss, and increasing risk:reward even further in your favor. That comes later as we advance.
For now lets look at the next trade available to anyone just checking in once every 4 hours at candle close. The set and forget way.
Another breakout style situation here just to follow the herd some more. A new congestion area at a swing2 high with three reactions then is spiked through via that red pinbar, price pulls back briefly before heading off again leaving it’s own spike behind it. Now you have an entry point and stop loss and as a breakout trade you can use this as a guide to how ‘elastic’ the market is on this move and shoot for a 1:1 risk:reward. This trade goes to profit easy enough.
Thanks for putting up some more ideas. I dont think I would have taken this trade…I tend to be more conservative with entries. I havent taken a breakout trade in quite some time but it definetly worked out in this situation.
Overall, I would have been looking for a clear breakout and retest and would have not gotten an entry. Not sure what the 1H timeframe looked like (the lowest chart ill enter off of) but seems like a missed opportunity with my plan.
This one is a trend continuation breakout style trade here on the H4. Unlike the breakout trades that we have had so far on this chosen time period we have plenty of proof for direction on swing 2. There is not a lower high, higher low, lower high situation and so we don’t need the box I have drawn broken first and wait for a pullback.
In fact this time you would be waiting for a relative pullback to a great location to buy… but in this case it did not happen and instead it went kind of sideways… a pause in the already well established trend. So now as that blue Inside Bar/Pinbar combo closes you have a perfect entry trigger level of proof to break this area and follow the trend some more. Only 1 question is left, what is in the way over there to the left?
There is your answer, and so this is also a breakout of a significant area of resistance, or a high/low breakout as I like to call them. So, the trade is a go and there is enough proof to make this have a high probability of success.
