Part of me is telling me not to ask, but my curiousity is getting the better of me. I am guessing that pattern is a top, then a bottom, then a top, and then very, very large downward move that would trigger a long limit order and immediately stop it out?
Bigger fractals, more strength, a one second level has far less resistance or support than a Daily, unless the one second corresponds to the daily.
Ok, so bear with me here. Common sense is telling me something, which is weird because I have no common sense.
We only look to take high probability trades. Basically, we want to sit on our hands until the money is just laying there waiting for us to pick it up. In addition, we won't know the money is there until after someone picks it up - we can only make an educated guess as to when it's there.
Yes, you have to be careful, especially in this market, only the best of the best setups. Perhaps with better momentum, volume etc. you could fudge a little, but at this point you cannot afford to be cavalier in your entries TPs, and Stops, perhaps making assumptions on prior experience during a more symmetrical market
Also, the more fractals that coincide with each other, the more likely it is for price to move in that direction. What my mind is telling me is that I need to wait until price is lined up on the daily, 4-hour chart, 1-hour chart, and 15-minute chart then enter a position. For example, if price is currently pushing up on the daily chart, consolidating on the 4 hour chart, pushing down on the hourly chart and pushing up on the 15 minute chart I need to sit on my hands because the market is all over the place. On the other hand, if price is pushing up on all charts, then that would be a strong sign to get into the market using an entry technique on the 15 minute chart and setting stops and targets on the 1 hour chart.
No not really, you will see the smaller fractals fluctuate more, in amplitude and frequency compared to Price/Time on a longer fractal, but it will allow you to enter on pull backs that might not be as evident on a four hor or even 1 hour. Of course this is where screen time and learning only one or two pairs to start with, comes into play. Lets say you have a clean 12 ppd, 4 hr uptrend, all the close and opens line up well from one candle to another, with no large wicks or tails, so you have a well established trend, if you are swinging, you may want to wait until you see a retrace in the hourly, and then buy in the trough, this makes any hold through a "drawdown", or chop far less painful, as price may swing up and down for a while before it finally breaks back up, so maybe instead of having a 20 pip swing you only get a 12 pip swing, These are not real numbers, just examples. Now you can use 15min for entries, but remember, the smaller the fractal, the less time it should take to be profitable, and the less profit you will take.
So my job as a trader is to find these high-quality setups, wait for an entry signal to be triggered, then get in the market and use my risk modeling to protect my capital invested in the trade by setting logical stops and targets. If that is all true, then my toolbox needs to contain the setups that I want to trade, the entry techniques that I want to use, and the rules by which I manage my trades because it's hard to be consistent without rules.
Would I be correct in saying that price action is the language by which the market tells us what is going on? I know that price action patterns can be predictive, but really, all the concepts that I have learned so far (support, resistance, ranges, trends) are basically telling us what has happened and what is happening with the price. Patterns exist because traders want consistent signals for how to enter the market when the pattern and price action agree on a possible direction and really, a trend is just another pattern, right?
Basically, the only difference I would add is that traders remember price levels, and no one wants to be the first to buy or sell, so you have a level that is caused by no one wanting to be the first to break it with size, so little by little it gets tested by small size, until it breaks and then size comes in to push it over the top. It is not so much what traders want, it is just a matter of common human Psychology
My brain is racing a mile a minute and I am finding it hard to focus. I feel like I am on the verge of making a bunch of this crystal clear for myself so please bear with me here.
A single trade consists of several units: the set-up, the trigger, and the market context. The set-up is what alerts us to a potential opportunity, such as price action reaching the top of a range. The trigger is the entry signal that tells us when to enter. For example, if I see a bearish engulfing candle at the top of the range, I then have a valid set-up and a trigger. I enter the trade, and then I use the market context (including risk modeling) to set (or not set) a stop loss and one or more profit targets. After that, I watch for either a stop or target to get hit or some other exit signal that I predefined for myself.
Actually market context should be the first consideration, you should be able to describe the market in about four words or less, and then continue on with the rest. The reason why is that the market context may define your TP and Stop.
A trading system simply specifies the set-up, the trigger, and the rules for managing the trades in that system. For example, in the three ducks system, the set-up is when price is on the same side of the 60-day moving average on the daily, 4 hour, and 5-minute charts. The trigger is when price rises above the most recent high (drops below the most recent low). Rules for managing the trade are not specified as its a discretionary system.
Again, TP, and Stop, regulated by Market Context.
Which particular system (or to say, a combination of set-up, triggers, and rules) isn't overly critical. The only thing that matters is if the trader is able to consistently execute it and it is a positive expectancy (whether in win rate or risk profile). For example, a system that has a 40% win rate but requires a 2:1 risk reward ratio still has a positive expectancy.
Or 90% at 1:1.6
So at this stage of my development, I should be focusing on using demo accounts to practice various set-up and entry techniques to find what feels natural for me. I should also be testing different risk profiles to see what I am most comfortable with and then put together a trading plan that plays to the strengths I discovered while practicing in the demo accounts.