1-2-3-Formations and Ross Hooks

[frugi]

Loads of people trade off 5 min charts and I imagine that the pros, knowing this, will try and trick them at obvious points on the 5 min that won't necessarily appear on, say, a 4 or 6 min chart. Though of course the 4 and 5 meet every 20 mins! I may be wrong about this of course.

That said, the main reason I use 4 mins is because I am comfortable with the speed and number of potential setups generated per day. 3 is a bit fast and 5 a bit boring as you say.

Also the average bar length is slightly shorter than a 5 min bar and I have found this slight difference suits my system. Using 5 min, the bars are often a tad too long to take an entry (cause the stop is too far away for comfort) while using <4 min I am stopped out too often because there isn't enough wiggle room and I generate too much heat in costs.

Stops, targets, frequency of trades, comfort, money management, percentage winning trades etc. seem to gel nicely on the 4 min, but I have not researched this thoroughly enough as yet. Just got to suss market depth and T&S now! Grrrraft.

 

[Salty Gibbon]

Trendie

Coping with boredom is one of my biggest issues and yes, screen watching can be excruciatingly boring.

I only do a handful of trades in any one day ( average 5 ) and if the first couple of trades are good, then I relax and take it a little easier and take loads of breaks during the day.

I play my favourite music whilst screen watching and do my level best to stay focussed and see the charts for what they are.

However there are occasions when I get irritable and frustrated and do the occasional " boredom" trade. This used to be a big problem for me but I have got this largely under control now.

I have also just purchased the TradingMind CD by Norman Hallett ( marketed by Snake Bernstein ) - it has not yet arrived but it is supposed to be very good for conditioning your brain and mindset to the trading environmment.

Will let you know if it is any good after I receive it and have used it for a while - if I live that long..

 

[Salty Gibbon]

Frugi

I am going to give the 4 minute bars a whirl.

As you say, 3 minutes can be a little quick and 5 minutes too slow.

4 minutes is also enough to boil a kettle, adequately soak the tea bag, add milk ( skimmed ), no sugar and get ready for the next bar.

 

[frugi]

Trendie I usually have a choice of around 6 setups a day of which I will take maybe 3 or 4. Sometimes there are as many as 8 or as few as 2. That's just using the 123 TTE and the 123BO >> RH >> TTE. I also use a simple Grail setup on a trend day (pullbacks to 25 EMA / 4 min) which may add another 1 or 2.

The great joy of these methods is that they are objective. You cannot see a pattern that isn't there because it either is or it isn't. The rules for 1-2-3s and Ross Hooks are strict and cannot be broken. That said, they often appear in places where it would be unwise to take an entry and this is where subjective discretion comes in, i..e you have to put the pattern in context. For instance on a strong trend up day I would not take a Ross Hook short on the first pullback to the 25 EMA because that is where bounces occur more often than not. Actually there was an example of this today ...

 

[trendie]

thanks Salty and Frugi.

Interesting idea of using 4-min bars. Puts you just ahead of the 5-min bar herd !!
(I wonder if 50-min bars give the edge over the 60-min bar users.)

Thanks for your replies.

 

[Salty Gibbon]

Frugi

I don't really have favourite set-ups but I do now have a large number of set-ups that I am able to trade.

I don't consider all of these on any particular day because you can really bamboozle yourself if you are looking for too many things. So, on any particular day I am just looking for a small number of set-ups - maybe 3 or 4 at most.

I have developed some set-ups by myself and for obvious reasons I would rather not share them. I regard them as my babies - they sometimes behave well but can be a bit naughty at times.

As for "standard" text book set-ups I do like the Joe Ross stuff - 123s, Ross Hooks and TTEs. As you say, it is all fairly easy to spot and trade..

I do also go for moderate opening gaps and look for continuations and / or reversals through the opening price.

I'm quite partial to trading reversals.

 

[frugi]

Thanks Salty. No worries about not sharing your personals. I have a similar baby that I'm reluctant to divulge too as it took me a while to bring the little brat up properly and it still has the odd hissy fit.

Two more 123 TTEs already today. A veritable cornucopia of them lately (just watch the next 10 fail after I complacently increase size. No! Step away from the size slider, boy!)

There are some possible RH pullback entries in there too but I've not marked them.

 

[One Eyed Shark]

Frugi

It is a good position to be in when the patterns are jumping out at you and are able to filter the good trades from the bad.

I think I am a bit too northern to understand "veritable cornocopia"



Also have adopted your chart colours on Sierra, they just add that little bit of calm to a hectic enviroment

 

[soccer_daemon]

Any potential 123 or rh trade here ?

Gurus
I am new to 123/RH stuff and I have been reading the entire thread from very
st post and its's a really great learning journey for me.

Here I have attached a heavily edited historical chart for an instrument which I
have blanked out both dates and price, thought some of you may recognise it.
Now my aim here isn't to challenge anyone here bt quite on the contrary I am
trying to pick your brain in helping me detemrine if there is a potential trade
opportunity here at all.

I am looking at the price action to the right hand side of the chart and seeing
that the market has trended down quite a fair bit at the low, I started marking it
as 1 after the next day closes with HLHH.. Price continues to move up until
another correction happens where by I mark the point 2 and similarly for point 3
after a correction (past point 3 high) in the last bar in the chart.

As you can see the last bar has indeed break above point 2 high slighly and
closes back below it.

If I were to enter a 123 trade, I would either trade a b/o above point 2 or find a
TTE trade for re-test of point 2 high. In this case point 2 and 3 are bars next
to each other (in hindsight of course). However, in real-time if you were to trade
this in the conservative method, would you enter a TTE trade at break above
point 3 (defined in hindsight again with presence of last bar in chart) and a taget
of point 2 high just to if this turns out to be a false trend change, we are not
risking too much ?

While I cannot tell you exact points there are between point 3 high and point 2
high, what I may do though is to set my stop loss at point 3 low, which blows
away the risk-reward ratio (RRR) by more than 4:1 on visual inspection. In
which case regardless of what probabability of the TTE trade, would you still
enter a trade in the direction of re-testing point 2 high ?

Since this is historical chart, I know how the market unfolds but as I say, this is
the reality we are dealing with in real-time and I will base my decision quite
heavily on RRR, not to say that whether it's the right decision or not.

In this instance I will not enter it due to the RRR. For more adventurous trader,
you may decide to trade it. If so, I appreciate if you could share your rationale
behind the decision

For others who decide NOT to trade this but not due to RRR, I would also
appreciate your reasoning agains the trade.

I fully understand and appreciate the fact that if asking for above reasoning
may mean that you may be disclosing your trading secrets, then just ignore this
post as I am asking the question purely on a educational basis and nothing
more nothing less. This is not a real-time trade as in current time.

Thanks
SD

 

[Jyde]

'ere you go....

 

[frugi]

Thanks for posting the chart s-d/ Jyde.

Ignoring the lack of volume, price and context information, I would be unlikely to take a TTE on the penetration of the potential #3 (then confirmed as a #3 by next bar making HH and HL) bar high here as the bar is too long in relation to the others for a tight stop, especially given that its top is so close to the #2 point where there is likely initially be resistance, a view perhaps reinforced by the bearish #2 candle.

The breakout above the #2 point is also weak, barely noticeable in fact, so I would not call the BO bar a Ross Hook ((though it technically would be) if the next bar made a LH. However if the next bar broke out more strongly then I would be looking for it to be a potential RH, possibly then entering on the penetration of the high of up to 3 pullback bars.

This is my personal scalping style. I like a reliable small profit as opposed to unreliable large one so do not take my interpretation as anything approaching fact, by any means!

 

[SvenFoster]

'ere you go....

I would close my short from the middle part of the screen . ...i wish

 

[Salty Gibbon]

I think I am a bit too northern to understand "veritable cornocopia"

Something to do with those nasty things that grow on your feet I think.

 

[ardhill]

Concerning the possible trade...

I too would be a little concerned, like Frugi, that the next bar may not surge upward as you would want. It looks to me like a lot of momentum has already been used in that last bar, of course I could be wrong, but as someone once said (I think it may have been one of the Pristine boys)
"A lost opportunity is better than lost money"

If I was interested in trading this, I would probably wait to see how well the breakout of #2 is. If it is good and you get your pullback, I would maybe go for the Ross Hook.

Of course, if there is a lot of space between the high of the last bar and the high of #2 ( I can't tell as there is no price axis), then you might want to have a go and ensure you keep your stop tight and scalp a few cents as soon as you get them with 1 part of your position ( I like to trade in 3 parts).

But those are just my thoughts and not advice.

 

[DTK]

Missing something...

This is a cut and paste from p. 49 of Joe Ross' Law of Charts.
Can someone tell me why number "2" gets marked where it is although there is no lower high within 3 bars after it?

Thanks.

 

[neil]

pound/dollar

Take a look at the GBP/usd ON THE 15 MIN CHART - Nice breakout of channel upwards after nice drop from triangle previously.

 

[One Eyed Shark]

DTK

Agree with your confusion, I had the same issue and I will give you my conclusion.

It is possible for a #2 and a #3 to occur on the same bar, in this instance the pattern becomes valid when you have a higher low and a higher high from the #3 point which in essence is a breakout of #2, the correction from #2 before #3 is not required.

In the chart you posted there is no lower high and since the subsequent bar is taken as #3 you can only assume JR uses the same rule.

 

[Yantraman]

Great thread - read it from start to finish

Two 123's I spotted today. Welcome your comments.

Lets see how it goes!!

 

[frugi]

A nice 1-2-3 TTE on the Dow. Stop below potential #3 point then trailed to low of previous bar -1 tick on each bar close once initial target met. Missed the top of the move but am chuffed with this all the same.

Might be a similar top later if I'm lucky.

 

[pogle]

A nice 1-2-3 TTE on the Dow. Stop below potential #3 point then trailed to low of previous bar -1 tick on each bar close once initial target met. Missed the top of the move but am chuffed with this all the same.

Might be a similar top later if I'm lucky.

Frugi,

Just a couple of questions if I may.

Why wasn't the 15:34 bar considered to be the #3 point? (I'm assuming here that the 15:42 bar broke the H of the 15:38 bar triggering an entry before retreating below the 15:34 bar).

I understand your trailing stop exit strategy, but can't see why you weren't stopped out during the 16:54 bar when it broke the low of the previous bar.

Good to see you posting some of these examples again, you've significantly influenced, for the better, my thinking on trading 1-2-3's recently.

pogle