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Price Action Observations
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Price Action Observations

  #1 (permalink)
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Price Action Observations

This post is going to be used as a way to keep some observations regarding to the price action, specifically is going to answer some questions done by DbPhoenix and are stated below:


How much can price break a line and still stage a successful continuation? At what point do the probabilities shift from continuation to reversal?


What are the characteristics of your winners and your losers? What makes a trade a winning trade and a losing trade a losing one? Look at the context, the depth of the retracement, the relationship of the retracement to the line it just broke. Look at the length of the bars in the retracement.


What is the optimal distance for your stop? Under what conditions is a tight stop possible? Are wide stops being used as a rationale for less-than-optimal entries? (Regardless of what the guru wannabees preach, correct entries are essential; the correct entry will put you in profit immediately.)


What do the numbers tell you about the desirability of using a wide stop and hoping for the best as opposed to using a tight one and re-entering after a failure? How many times are you allowing a trade to fail before you stop trying?

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  #3 (permalink)
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Here are the observations regarding to the relationship between the break of a trend line and the Price Action, in order to deterrminate the distance that the price traveled after a Break in order to define a posible change in trend or continuation, also in some cases is defined the relationship between the Swing Higs and Swing Lows and the behavior of the price.

Is important to mention that this work is based on the work done by Godzila in his thread

I could not upload a Power Point presentation, therefore it will be compress on a RAR file, however the images will be uploaded but the quiality of the images maybe is low

Attached Files
Register to download File Type: rar Relation Break Out.rar (3.38 MB, 53 views)
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The images attached

Attached Thumbnails
Price Action Observations-diapositiva2.png   Price Action Observations-diapositiva3.png   Price Action Observations-diapositiva4.png   Price Action Observations-diapositiva5.png   Price Action Observations-diapositiva6.png   Price Action Observations-diapositiva11.png   Price Action Observations-diapositiva7.png   Price Action Observations-diapositiva8.png   Price Action Observations-diapositiva9.png   Price Action Observations-diapositiva10.png  

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This sort of thing is ongoing; it's never really finished because it will change to at least a slight degree from year to year and quarter to quarter and month to month. Maybe even week to week. But not by much. Because people don't change that much. But one has to do it if one is going to take advantage of the self-correcting and self-adapting nature of trading price.

I have a suggestion that is related to what I suggested in my own thread regarding hindsight replay. Collect a few trending days and a few ranging days. Replay them in real time, i.e., not accelerated. Pay particular attention to how price behaves on a trending day vs a ranging day, e.g., the pace, the activity, the rest stops, the recoils, the stalls, the hesitations, the bursts. You'll be far better able to detect these behaviors during a trading session if they are familiar territory. Behavior is more predictable than people realize. Advertisers and marketers can tell you all about it.

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Ok db I will follow your advice and I will be uploading some notes.

But first I want to post some preliminary conclusions regarding to the breaks of the trend line, specifically giving an answer to next question:

How much can price break a line and still stage a successful continuation? At what point do the probabilities shift from continuation to reversal?


Preliminary observations

• The 66% of the times when the price broke the trend line by 3 pts happened a change in the direction of the trend

• if the price breaks the Trend line by 2,75 or less is most likely that the trend continues with its movement it happened the 82% of the times

• The 70% of the times the deep of the retracement after the break of the trend line was 5 pts or less.

• Taking as reference the Swing Lows and Swing Highs during a trend, when the price break above or below the Swing point by 2.5 pts or less it result in a continuation of the previous trend the 84% of the times.

• Taking as reference the Swing Lows and Swing Highs during a trend, when the price break above or below the Swing point by 2.75 pts or more it result in a change in the direction of the previous movement the 57% of the times

• Other observation is that sometimes the RET is triggered and confirmed creating a trend, notwithstanding the price spike the Demand/Supply line and the spike goes above the high or Low of the movement that create the trend, therefore the trade is stopped out, however the price continues with the previous movement but the trade is no longer there; regarding to this I saw that when this situation comes out the price goes above at least for what I saw at a maximum level of 2.25 points above or below the danger point, however most of these scenarios, specifically the 75% were only of 0.5 pts

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This is good stuff, though I'm having trouble with your last observation. Charts would help. Or some other illustration.

If you're satisfied with what you have, the next step is to implement it via forwardtesting or simtrading. One thing to consider is where these breaks are occurring, not only in relation to how long the trend has gone on (does the break occur near the beginning or after a wave or two or three or somewhere inbetween?) but in relation to possible/probable targets. Today, for example, the target was the last daily high at 44. We got within 9pts of it. But in the meantime, the line was broken repeatedly. Breaks do not, however, imply reversals. Three times before 1040 the line was broken for springboards, where price went immediately sideways. If you know what these are and what they're for, they're less likely to rattle you.

There is also the matter of what you want out of it and how much. You'd have lost very little by exiting at 1100 or soon after or placing a stop below whatever range there may be at that time or below your DL if there isn't a range forming. You might lose a few points by not hanging around, but you'd collect 45 or so, so who cares?

There's always the possibility that it wouldn't have been a trend day at all. You never know. All you can do is follow your rules for entry and your rules for management. You'll know soon enough whether you're in a trend day or not, and, if you are, you can turn your attention away from your trade and focus on management.

If you're confident that we're going to take a shot at an upper extreme of one sort or another, you may want to be flexible and for example use a last swing low as your exit rather than a certain number of points after a break, depending on how far back the last swing low is. Or you can go ahead and take the money and prepare for re-entry, particularly if a springboard forms after you've exited. Some of this depends of course on how much you can accomplish in 90m.

I'm sure you've noticed by now that these moves are largely done by 1100 unless we are so far away from an extreme that price just keeps traveling. But these are rare. In this case, we had 10 more pts to go at 1100, but we already had 50, so how important is that last 10 (which you wouldn't have had unless you exited at just the right time)?

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Studies of loser trades

Studies of loser trades

In order to identify and classify precisely the data is defined “types” of loser trades under certain characteristics like the overall context, AMT, characteristics of the trend lines etc.

The classification is shown in the next points:


1. Valid Loser Trade - Taking into account the AMT levels and the dynamic of the trend lines SLA; therefore this type of trades came as a result of the normal process of trading

2. Loser trade- Long under the ONH or PDH – Short Above the ONL or the PDL

3. Valid Loser trade- Without a relevant Price level (No AMT) but with SLA

4. Loser Trade that came after using too tight trend lines ( the line was following the lows or the highs of the bars, therefore, there were no a swing point in order to anchor the trend line, hence sometimes this type of analysis focus one attention in the micro context without having into account the overall context)

5. Loser trade- Because the trade was triggered under circumstances that are not stated in the trading plan, such as a Double Bottom, Double Top or Reversal. In this kind of situation, sometimes the price only spike the Trend line and the trade is taken prematurely, obviously without the confirmation of the RET.

6. Trade taken after a spike and not a real break (the “Real break” must be defined objectively with numbers) of the trend line (this sentence should be consider in relation to the results obtained from the Winners trades analysis).


The next point will make an ilustration about it.


DbPhoenix View Post
I'm having trouble with your last observation. Charts would help. Or some other illustration.


7. Loser trade, because for the phenomena of the price the trade was discarded, notwithstanding the price did what was expected and the condition forecast in first place is maintained, therefore this type of trade could be frame under a “premature discard”

8. Loser Trade that was triggered after a strong break of a trend Line or an interest level of price such as PDL, PDH, ONH or ONL. (Regarding to the “strong” once again is a subjective term therefore this should be measure in pts)

9. Loser trade after the trend is going on, therefore is a trade that was located in a position of reentry, for this case the reentry show a disadvantage because after the trend is going on and several retracements have passed then the probability of succeed is lower.

10. Loser trade as consequence of emotions, because in some occasions after some loser trades in a row one could feel insecurity and fear.

11. Loser trade that is a reenter in the direction of the underlying trend, but the entry is given around a secondary trend line and not around the consolidated one, therefore the trade is taken watching only the most immediate context and not the overall context that has provided the day so far.

12. The entry is given because of the break of a secondary trend line not a Consolidated one, this point is different from the 11 because in this one, the trader expects the beginning of a movement therefore is not trying to reenter in the underlying trend.


Note: the images of each point are going to be attached in the next posts

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1. Valid Loser Trade - Taking into account the AMT levels and the dynamic of the trend lines SLA; therefore this type of trades came as a result of the normal process of trading

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Last edited by lajx; July 7th, 2015 at 05:26 PM.
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2. Loser trade- Long under the ONH or PDH – Short Above the ONL or the PDL

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