Tag Archives: Support & Resistance

Using Pre-Session Data to Confirm Levels

 

The following text and image were shared recently through both the YTC facebook and twitter pages.

  • My first action on Monday mornings upon opening my charting platform…

 

My first action on Monday mornings upon opening my charting platform...

Actually, it's one of the first things I do every day.

This is the key part we're discussing today:

Using pre-session data to confirm levels

Let's stick with the same timeframe but move forward to the market open at 09:30am.

Using pre-session data to confirm levels

Sometimes analysis of pre-session data offers nothing at all to confirm the relevance of previous session levels.

Sometimes it will allow us to invalidate these levels, when we see price slice through them with absolutely no reaction at all.

And sometimes, like in this case, it helps to validate a level as being still "potentially" significant.

Friday's low will be on my mind as I commence trading today.

Let's see how the opening sequences played out on the trading timeframe.

Using pre-session data to confirm levels

Using pre-session data to confirm levels

(If you're not sure what I'm looking for, see here to find out how I trade!)

Using pre-session data to confirm levels

Using pre-session data to confirm levels

Sometimes analysis of pre-session data offers nothing at all to confirm the relevance of previous session levels.

Sometimes it will allow us to invalidate these levels, when we see price slice through them with absolutely no reaction at all.

And sometimes, like in this case, it helps to validate a level as being still "potentially" significant.

If you prefer to trade with RTH data (pit session data) in order to take advantage of opening gaps, that is absolutely fine.

But at least take a quick look at the ETH data (overnight). See where it has traded with respect to the prior day. Where did it find movement quite easy. And where did it find did it find support or resistance.

This might just provide important information that can help once the opening bell has rung and trading has commenced.

Happy trading,

Lance Beggs

 


 

Trading Failed Expectations

 

The following YTC Social Media post was just about a perfect example of the concept of trading failed expectations.

Obvious expectations - proven wrong

I received a question on the facebook post about trade entry. So let's look at the trade I took in this area – a test of Low-of-Day support.

Noting of course that there is one significant difference. I traded the 1 minute timeframe; not the 3 minute timeframe.

The 3 minute chart was used for the facebook and twitter post, simply because it beautifully demonstrated the concept that I was trying to highlight. It wasn't about my trade or my timeframes. It was about the general concept of looking for opportunity in places where "obvious expectations" are proven wrong.

The same idea applies on the 1 minute chart, of course. And it's the reason underlying my trade.

But this time… it's a WHOLE LOT MESSIER!

The good trades move quickly to the targets. But we don't always get good trades. And there's not much to learn from them. The messy trades though… much more common and much better for "lessons".

Here's the same test of Low-of-Day support in the one minute chart:

The same pattern on the 1 minute chart

The strong drive towards the support level appears as before, creating an expectation in the mind of many market participants for continuation lower. Personally, I expect that as well (YTC PAT Sixth Principle). And my plan is to wait for the break and assess the likelihood of either breakout failure or breakout pullback potential.

But when a move this strong stalls… and breaks back above the next TTF candle… well this is NOT what would be expected of a "strong" bearish market.

Let's wait and see what happens on a retest. If the retest continues with strength, I'm back with the original plan (watching for breakout failure or breakout pullback potential). But if the retest cannot continue lower… well I just love these setups. They can snap back higher quickly. So I'll be looking to enter LONG on a test of the support level, based upon the fact that the market has shown it can't go lower and the prior bearish strength was an illusion (liquidity vacuum perhaps!).

The market sets up that scenario nicely, as we see in the above image with the first failure to continue lower. Look for lower timeframe entry in the shaded region.

In this case though, there is no quick movement higher. And the market falls for a second attempt to break support.

This provides a second opportunity to get long, as the market is once again unable to continue lower. But it's quite a messy one with some chop at the turning point.

This is the reality of the markets. We all want trades that move quickly to their target. But that's not what we always get. You need to decide how you will deal with these "messy" setups. Some people prefer wider stops, to allow for chop and imperfect decision making at the entry zone, willing to accept the reduction in R:R potential. Others, like me, prefer to keep the stops tighter. But to be effective in that regard you need to be willing to scratch and re-enter. Don't let an initial failure prevent you from trading the second chance entry.

My entry is triggered on the lower timeframe charts (a combination of 15 second and YTC Scalper 2-Range). But for the sake of this article I'm going to show the 30 second chart, which displays all the information you need to see while also fitting nicely on the one image. So let's check it out.

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Good Losses

 

This trade lost… and I'm completely ok with that.

I'll explain why below. But first, let's look at the trade.

Good losses - I'd take these trades every time

Looking at the left first (daily chart) we see that today's session (A) has broken below the prior day (B) and is closing in on yearly lows (C).

The chart on the right (60 min chart) allows us to see a little more detail.

Today (Friday) opened right at the prior day's low support. After a brief test higher it broke two levels of support (prior day's low plus an intra-day low from the 13th January). Price is now retesting the 1/13 support, now resistance.

Let's look at the trading timeframe chart…

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Structural Trades

 

One thing I love to do over the Christmas & New Year break is to schedule a couple of days for Market Replay learning. Last Sunday & Monday were scheduled for my replay sessions. The ability to speed up the market data in-between key decision making areas means that I can squeeze in half a dozen sessions over a two day period, rather than just one a day.

This is an opportunity for me to address areas of my trading that have underperformed during the previous year, and to experiment with slight tweaks to my trade execution and management style.

One area of underperformance I've identified is the fact that I'm leaving a lot of potential profit on the table whenever gifted a structural trade. My trade management style has drifted over the last couple of years towards having less patience with trades (quicker to close out). This works fine when the environment supports earlier exits. But for a structural trade that offers a much larger than usual potential return, it means I'm leaving a lot on the table if I can't or don't get back in on a subsequent entry.

When identifying a trade in a structural location, I will be aiming for more patience with my trade management.  This will involve slightly longer time-stop. And a wider trailing-stop. The key difference though is in mindset; the biggest challenge for me will be keeping my hands off the trade.

What do I mean by good structural locations?

Essentially, I call it a structural trade when the entry and targets are based upon key higher timeframe market structure features.

This would be areas such as the Prior Day's High or Low, or the current High of Day or Low of Day. Our aim would be to hold at least a partial position from one of these locations to another.

Let's look at an example from one of my replay sessions. These sessions were in the emini's rather than Crude Oil, so I was not completely familiar with the outcome (it's important to make replay as realistic as possible). The following charts will step us through the trade location, entry and management decisions for one of these trades. I like this one as it wasn't a smooth path to the target and involved an exit and subsequent re-entry.

Let's look at the trade:

Structural trades - concept

As mentioned, I call it a structural trade when the entry and targets are based upon key higher timeframe market structure features.

In this case entry in the vicinity of the current Low of Day, targeting the High of Day.

Let's look at the entry.

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Open in the Vicinity of Prior Day’s Low Support

 

Last Friday we looked at a couple of examples of Market Structure journal entries, one of which involved a weak emini Dow open in the vicinity of the prior day’s low. Let’s quickly review this example, and the lesson it offered.

If you want to review the whole sequence you can see it here: http://yourtradingcoach.com/trading-business/a-simple-step-to-becoming-a-better-trader/

But otherwise, let’s just look at one image which shows the important point – A market open in the vicinity of the prior day’s low offers exceptional R:R if testing the support level with weakness.

Weak test of prior day's low support 

It’s my hope that you did get time to read last week’s article.

And that you saw the value in placing that entry into your Market Structure journal, or at least some notes with regards to the lesson.

And if you trade the emini Dow, it’s my hope that this concept was fresh in your mind when Monday opened.

Because it happened again!  🙂

Let’s look at Monday’s YM charts…

Weak test of prior day's low support

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Longer Timeframe Trap

This example comes courtesy of some email Q&A, from a reader of theYTC Price Action Trader.

(Yes… the YTC Price Action Trader principles and strategy can be applied on longer timeframes than those I trade!)

Email:

Hi Lance,

Check out this really cool trap on usd/cad.

If you zoom out on dailies the situations is exactly the same as what I sent you about a week ago or so on usd/jpy…strong leg up and weaker pullback on higher tfs…then usd rallied up.

I was expecting same thing to happen on usd/cad and it did today..

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S/R is a Decision Area, not an Impenetrable Barrier!

It can help to think of Support or Resistance (S/R) simply as a decision area.

Too many traders seem to expect their S/R levels to form an impenetrable barrier guaranteed to hold and reverse price movement. Doing so will lead to much frustration and unnecessary losses.

The following image is an extract from email in which a trader is starting to look at S/R in the right way and examining the way price moves as it approaches the level. There are several ways I analyse price movement. The method he's discussing here is a subset of what I refer to as momentum analysis.

momentum analysis on approach to sr

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