Thursday, January 5, 2012

A Higher Low after Bullish reversal is the best swing entry

A HL after a bullish reversal or a LH after a bearish reversal present the best swing entry of any move. This is because they represent the 1st pullback (1PB) of the new trend.

When a day opens with an obvious trend attempt (b3) off an obvious opening TR (b1,2) and immediately gives a reversal signal (b4) it is a possible 1Rev. Ideally, the reversal bar needs to be as large as the prior bar and dip more than 1t below it. b4 therefore was a rather weak bar. However, 1Revs often are weak signals.

The second signal at b7,8 dipped lower than b4 and therefore was not a good swing candidate. The fL2 at b17,18 therefore was the first HL and could be held for a swing.

Note that even at the 1Rev a TL break (b7-b12 broke TL b1,6) is desirable for a swing entry (Its an absolute essential for other reversals).


  1. Cadaver,

    You once said stops can only be tightened, but it seems that you moved your stop to below bar 7 to get 4 points profit. Your typical stop is usually 1.25, this stop would be 2.5. Isn't it too risky?

  2. mappycarol, thats correct.

    However, the very strong bar b5 convinced me that there would be at least another attempt up and the second attempt is likely to go much further than the first.

  3. Hello Cadaver,
    Is the fl2 counted from bar 14 with the move down to bar 15 lo L1 and the move from bar 16 hi to bar 17 lo an L2-an L2 Variant?
    Thx in advance

  4. I am a fan of the trade early trading style. For that reason I'm interested in the first few bars of the day.
    I did visual inspection of 276 5minute charts of the ES (December 9, 2010 through 1/6/2012 to see what happens if one trades a breakout of the first bar (b1).

    I divided the trades into those with ≥ 2 point gap and those < 2 point gap—an arbitrary number. I did not track the direction of the gap. If b1 was a doji, it was not included; there were 8. Not sure this table will display well but it is a 4x6 matrix.
    Loss ≥1 and < 2 pts. ≥ 2 and < 3 pts. ≥3 pts. Total
    Gap 46 30 28 91 195
    No Gap 24 25 7 17 73
    b1 = doji - - - - 8
    Total 70 55 35 108 276

    A few stat’s:
    If the day opens with a gap—
    148/195 are profitable for at least 1.0 point. (79%)
    91/195 are profitable for at least 3 points. (47%)
    If the day opens without a gap—
    49/73 are profitable for at least 1.0 point. (67%)
    17/73 are profitable for at least 3 points. (23%)

    Overall, ignoring gaps—
    197/268 are profitable for at least 1.0 point. (73%)

    I have not yet dealt with the stop loss question simply assuming the normal PA approach of exiting a losing trade at the H/L ± 1 tick of b1.

    One could use Cad’s approach of scalping the first portion of the trade and then letting the remainder swing with a breakeven stop loss and one’s choice of trailing stop.

    Comments are welcome.

    BTW-I noticed on many of the failed trades b2 gave a nice fBO signal. I didn't explicitly count them however.

  5. Chrisp, thats correct.

    JinJin, your observations are very useful. Thank you for sharing your work.