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Support, Resistance & Chart patterns
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Author:  garyfritz [ Fri May 11, 2012 6:05 pm ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Good stuff, slipshod! Thanks for the clear explanation how you trade these things. Would you be willing to add another clear explanation of how you trade the BARRs?

Also, question on the C-fork example in http://www.stevehopwoodforex.com/phpBB3 ... 693#p12693:

Looks to me like the price broke through the trendline, pulled back, then went further -- and you drew the C-fork on the SECOND break. How did you know there was going to be a second one? Wouldn't you draw the C-fork on the FIRST break, then go long when the second break broke through the fork line? Or does price have to come back under the trendline before you count it as a break?
Author:  slipshod [ Sat May 12, 2012 1:43 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Hi Gary, thanks for your reply - I'll look at the C-fork question first. When I looked at the chart I could see what you meant, and it had me scratching my head as at the time I know I didn't move the fork. The picture in that example was something I drew quickly on a demo account, should have been more careful :)

Here's an M15 closeup of the fork in question:-
au-cfork2.png
As you can see, the fork was challenged but didn't break, so there was no long trade. A break of the fork needs to be a candle closing past it, and not reversing back on the next candle. In addition, you can see that the "challenge" was stopped at the same horizontal level as the trendline break that created the fork, so from that point of view you'd be thinking that the resistance was holding firm even if it had nudged through the fork a little.

Here's an example of a quite complex trend & how I managed it with C-forks. In reality I didn't go drawing different coloured lines all over my chart, but simply deleted the old trends when I created a new one, but I've shown it here so you can see the progression of changes as they happened. This was unusual for me, playing at a low TF, but I was wary of support kicking in hard close to parity & didn't want to take a hit from it.

Basically the C-forks kept me in the trade despite repeated challenges that threatened a reversal. In this case it was unfortunate that a fake break of the C-fork finally took me out before the last leg of the drop, but I'm yet to find an alternative to the C-fork that's even close to what it does, and its so simple to use.
Author:  slipshod [ Sat May 12, 2012 2:13 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Regarding BARRs, the theory is quite simple - once the latest and steepest line breaks, all the others are likely to go in turn. In practice it can be more tricky than that. Here's the original example I posted earlier...
au-barr1.png
Its when we look closer that we can see how it would have been difficult & frustrating to trade at first. The price did not want to let go of its former uptrend, and kept fighting each step of the way. The chart below explains what I mean...
au-barr2.png
Not all BARRs will be this difficult - sometimes they do just turn and reverse without hesitation, but generally I find that it struggles until the earliest trendline breaks. Like any pattern, you can't guarantee that it'll work 100% of the time either. Sometimes an earlier trendline will hold, and the reversal will fail as the original trend re-asserts itself. That's why I changed my position to long a few times during that chart.

Edit: I neglected to point out that in the initial stages, as it was fighting to hold the steeper trendlines, it also formed a strong double-top, which added to the strength of the reversal.
Author:  slipshod [ Sat May 12, 2012 3:30 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
While I'm on the topic of AU, here's a weekly analysis as its coming up to a key support line...
Author:  slipshod [ Sat May 12, 2012 11:35 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
I guess I should mention that trading this way is not easy. Most guides on how to trade forex that I've read say that you should almost be robotic - enter when your system gives you a signal to do so, exit when it says to, and otherwise sit tight & do nothing. In other words, trade like an EA.

The problem is that so few of us are robots. We think, we reason, and of course we feel. These are supposed to be the great weaknesses we must overcome if we're to trade successfully. The problem is that no matter the system, so few of us can be devoid of emotion and thought, we're just not made that way.

I believe that instead of trying to suppress who I am, I should employ what skills I have to their fullest. I enjoy visual analysis, I enjoy drawing lines, looking for patterns etc. I enjoy reasoning it out & planning. So why not use that in my trading, and in the process make it a fun & rewarding pastime rather than spending 8 hours a day pretending to be a machine?

Backtesting these patterns is easy, and in fact essential if you want to master the skill. If you want to learn, you need to work your way back through historical charts drawing patterns (wedges, BARRs, c-forks etc) where-ever you see them. If you're not sure you're doing it right, post an example & ask, I'm happy to help. Once you get the hang of it you'll be picking them out on charts everywhere & be astonished at how often they appear and how well they work. You can then look at what the price did at the reversal point and ask yourself where the best entry points were, how you could have identified them at the time, and what entries would have taken your stops.

Doing all this will give you two things - a skill for chart analysis that relies on no indicators other than the ones in your head, and confidence in the method. If you're confident you'll trust patterns when you see them develop in real time.

When you have that degree of trust, your emotions won't be dictating your trading as you'll be employing what you've learned. When a trade goes wrong and you take a loss, you can then analyse the pattern, the setup. Was it really at a good S/R zone? Was it oversold/bought? Was there a contrary pattern on a higher TF? Were you too early on the trade? Was there a pattern at all, or did you jump in on gut instinct?

And that's the real hard part, at least for me. These patterns can take a while to develop, and all the while the market is moving & doing stuff. Its so easy to listen to that little voice that says there's money to be made, enter a trade! And that voice is what you must learn to shut out. If these patterns work & we can trust them, it makes sense therefore that we don't trade at all _unless_ a pattern & S/R setup is there & ready for an entry. We want high probability trades, and nothing else. If you enter without a setup you're guessing & you're gambling, and you'll pay the price.

That's gone longer than I intended. I apologise for rambling, and hope its of help to someone. Pls tell me, why did I ever think I could make an EA of this?
Author:  slipshod [ Sun May 13, 2012 3:28 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
I've been meaning to post this as well, a trade I took on Friday's USDCAD. Here's the daily picture first:-
20120513-ucd1.png
Ok, so are there chart patterns on lower TF's? I found that the H1 showed them best:-
20120513-uch1.png
Risk/reward was heavily in favour of a short, so that's the trade I took. Notice how the price bounced back late in the session, but stopped right at the C-fork line. Not sure what to make of this - will it continue on up to challenge the top again, or is it just a touch on that line & it'll drop next week?
Author:  slipshod [ Sun May 13, 2012 8:35 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Back on the Bump & Run Reversal, I've always analysed and traded it as described at stockcharts.com (http://stockcharts.com/school/doku.php? ... n_reversal), but on re-reading Bulkowski's book I've found that he measures it quite differently - and as he discovered the pattern I guess his words have weight. Instead of looking for accelerating trendlines, he places additional trendlines parallel to the starting one as the price runs during the "bump" phase. I've done this with AU below:-
au-barr3.png
When the bump starts to peter out, it usually looks rounded or flat-topped, as indeed AU did here. At that point you could look for sell points either when it fails to hold the uppermost trendline (the same point I entered short in the previous example) or on lower trendlines - red circled in the chart above. Either way of measuring BARRs is fine I guess, but its good to be aware of different methods.

Below is another example - also AU, showing the BARR leading into its sharp reversal in October last year:-
au-barr4.png
I've drawn lines for both methods here - in yellow the Bulkowski parallel lines, and in orange the accelerating trendlines. Using the parallel lines you wouldn't have been 100% sure where to enter, and would probably wait until the price blew past the 2nd-bottom line (blue circle). With the accelerating trendlines method, an entry was justified a bit earlier (green circle).
Author:  slipshod [ Tue May 15, 2012 2:42 pm ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Well folks, I'm happy to keep posting stuff here if anyone's interested. Examples, current setups, rundowns of the highs & lows of my trading day/week ... whatever would be helpful.

If no-one wants anything more, that's ok - its actually helped me a lot typing all this up & putting the charts together as until now I hadn't documented exactly how I've grown to trade.
Author:  slipshod [ Thu May 17, 2012 8:52 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Can't help myself, have to post another setup :) Right now USDCAD looks incredibly similar to the chart of EU I posted earlier prior to its big falls - multiple bearish wolfe waves.

The charts can tell the story ... here's the daily first:-
20120517-ucd1.png
Then the H1:-
20120517-uch1.png
And lastly, the M30:-
20120517-ucm30.png
Disclaimer: I am short USDCAD.

Edit: By saying I'm short, doesn't mean I've committed to a full position. I've scaled in one of my four entries, and if it runs against me its therefore a small loss. If it turns in my favour and I see the bears taking over (hasn't happened yet!), I scale in the remaining orders.

Edit #2: This shows the inherent difficulty and danger in reversal trading. You can see a great setup, enter when you think its turning, only to have it kick on in the direction of the existing trend & look like nothing is ever going to stop it (and taking your stop in the process). At the point the reversal trader has no option but to stick to his/her method and wait. Unfortunately, doing so means that they're missing a nice move in the other direction, that indeed might not reverse at all.

That's what I was thinking of most when I originally described this method as being difficult to trade. It requires a lot of confidence in the high probability of the patterns working. It requires a lot of patience, and the ability to wear losses while your gut's telling you that you could have just traded the other direction and made money. Especially it requires you not to give up and walk away, because the moment you do it _will_ reverse, and do so in a big way, and you won't be on board.

Edit #3: Here's an example of what I was referring to above. This is a short reversal trade I walked away from, thinking that it was just too bullish & wouldn't reverse regardless of the pattern - influenced to think this way by several losses I'd taken shorting where I thought I'd identified the reversal point & been wrong. Btw you can see from the multiple earlier wedge reversals that this is a pattern GU likes to create & respect regularly.
Author:  Fx93 [ Sun May 27, 2012 1:04 am ]
Post subject:  Re: Support, Resistance, Chart patterns and an oscillator
Hi slipshod, I'm wondering what the settings on your stochastic rainbow indicator mean, as I was fidgeting with them but am not sure?

Stoch period?
K period?

Thanks.

P.S. You also mention synthetic bars, which I am not familiar with. I do however trade with range bars and am wondering how they differ? Also, do you mind me posting a few divergent setups using your stoch rainbow that might work?
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