The most dangerous price action bar pattern is barb wire (BW) but the most dangerous larger price action pattern is a wide slightly sloping channel.
BW is fairly easy to recognize and avoid, for example, not many traders would short b40. A narrow channel such as b60-71 is also simple to trade: You can just buy near the low of the channel. However a wide slightly sloping channel such as b7-b43 tricks traders into thinking that a reversal is just around the corner and will force them to buy every new low. Typically, the counter-trend signals (b9,16,28,34,43) look far better than the with-trend signal bars (b6,13,24,31,40) trapping traders on the wrong side every time.
There is no easy way to trade such a channel. The simplest trend trading requirement of buying only higher lows and selling only lower highs would have protected you from every poor signal except b8. The first higher low at b43 actually did work if you used a price action or money stop of 2 points.
A patient with-trend trader would only take a long trade at b60 after the channel trend line was broken at b50 or so.
Cad, thank you for posting your review of Friday's price actions. I had a tough time trading the BW myself and was wondering how does a pro like you would trade it. Now I feel much better. Have a good weekend.
ReplyDeleteRay
Hi Cadaver,
ReplyDeleteI would go long above b8, but after b9 extend below b8 a canceled my order. Is this ok or should I keep my order?
Thank you very much for your reply.
Its perfectly OK. The only reason I did not cancel my order was because it was a possible 1PB setup, which often will work.
DeleteCadaver, i ended up trading friday really poorly. I went long at bar 5, thought it was a 1pb. Next trade i went long at bar 9 as the 1pb and then reversed my order short at bar 10. After three losing trades i called it a day, even though i should have stopped at 2. First losing day in over a week.
ReplyDeleteI don't think at bar 10 i could have told the market was in BW. What do you think i am doing wrong by that series of trades.
1PB should be deep or overlapping b1. A 1PB setup should not force you to buy the HOD. b9 long is an OK entry. b10 is a poor signal bar due to overlap and being mid-range.
Delete1st losing day in a week is very good performance for a new trader and today was the hardest kind of PA.
Sorry another question is have you adjusted or plan to change your profit targets because your third contract seems to have disappeared and the 4 point profit targets is being hit very few times in the last week or two.
ReplyDeleteYou've been trading the ES longer than me, how do adjust the profit targets as volatility continues to decreases after what was a very volatile second half of 2011.
Thanks
Those are not contracts, those are exits. If I exit all my contracts at +2, it only shows +2.
DeleteCad,
ReplyDeleteb34 ticked 1t below the opening bar, is it a fBO and can we go long above it?
Yes, a multi-leg fbo of an extreme of today or prior day is a legitimate fBO. However, the sig bar needs to be strong (no ol) or you are better off waiting for HL or second entry
DeleteLet SB quality aside, if one does look at the slope of the EMA b6,13,24,40 were all with trend L2s. Right?
ReplyDeleteCorrect
Delete