Guidance on Re-entry (to next t/f trend after a pullback) set-ups
1. Re-entry set-ups seek to identify the highest probability areas to re-enter a trend (identified per Overall Price Action Analysis) following a pullback. In seeking to re-enter a trend - the trend should exist on at least the time frame above that the set-up appears on, and preferably the time frame above that.
A pullback in a trend is created by sellers overwhelming buyers in an uptrend or buyers overwhelming sellers in a downtrend at a level at which they;
a. Think fair value has been reached and therefore take profit
b. Think the asset is over-valued and therefore sell/buy. Of course if sufficient number of market participants believe price to be overvalued/overvalued, the pullback could be deeper or even be the start of a new downtrend/uptrend.
2. Generally speaking price does re-test or attempt to re-test the area of the most recent highest highs in an uptrend/most recent lowest lows in a downtrend if only to make an equal or LH/ equal or HL lest the sellers/buyers resume their action re point b. above, and the trend begins to breakdown.
The key technical factors in determining where the optimum place to re-enter a trend is, ie: how far prices will pullback/retrace before the buyers/sellers causing the trend direction assume that better value exists and re-enter the market in the direction of the prevailing trend, are;
a. The technical phenomenon of Support becomes Resistance (SBR) and Resistance becomes Support (RBS) on the time frame into whose trend a re-entry is sought.
b. Whether a high probability repeatable technical indicator based set-up/pattern presents itself (on the time frame below) at a. above suggesting that buyers/sellers may view the pullback as a better value buying opportunity in an uptrend / selling opportunity in a downtrend
Dealing with a. above any breech of Support to the downside or Resistance to the upside creates a potential SBR/RBS area if re-tested following a pullback in trend from the downside/upside respectively.
Generally, the stronger a Support/Resistance area was before it was breeched - the stronger that area may be as potential SBR/RBS if re-tested from the opposite side.
Sometimes it is not possible to identify potential SBR/RBS from just intermediate or trend t/f previous price swing hi/lo zones like the chart example above. In these Instances consider the other factors such as fibs, previous bids/offers, or trend lines. Of course where two or more of these factors combine – this makes a previous Support or Resistance zone potentially stronger SBR/RBS zones, respectively.
3. The basis of these Re-entry to trend set-ups is Hidden Divergence which occurs when price has a made a LH in a downtrend or HL in an uptrend following a pullback, with the oscillators making a HH or a LL to price respectively, measured from the same place. The Bol Band patterns like the Reversal set-ups, are the essential second technical indicator component of the Re-entry set-ups/patterns.
These Hidden Divergence based indicator set-ups when developed at a pre- identified potential SBR/RBS area on the next higher time frame from that of the set-up, provide
high probability areas at which to enter the prevailing trend.
4. It is advisable that before acting upon a re-entry set-up, to ensure that the Macd histogram is above the axis (in case of an uptrend) / below the axis (in case of a downtrend) – on the next time frame up from the Re-entry set-up, and at least pointing up/down respectively on the t/f above that.
For example,
i. A trigger time frame Re-entry set-up can be acted upon following a pullback, when at least the intermediate time frame is trending (per Overall Price Action Analysis) at pre-identified potential SBR/RBS on the intermediate time frame. The intermediate and trend time frame Macd histograms are optimum when above axis (in case of uptrend) / below axis (in case of downtrend.)
ii. An intermediate time frame Re-entry set-up (co-existing with a trigger time frame Reversal set-up) can be acted upon following a pullback, when at least the trend time frame is trending (per Overall Price Action Analysis) at pre-identified potential SBR/RBS on the trend time frame. The trend and next higher time frame Macd histograms are optimum when above axis (in case of uptrend) / below axis (in case of downtrend.)
Any deviation from the optimum conditions of the Macd histogram on the next 2 time frames renders the set-up with a statistically lower probability of a successful outcome. The possible exception is that the Macd hsitogram must at least be pointing with trend on the longest of these time frames if not actually above axis (in case of an uptrend) / below the axis (in case of a downtrend.)
5. The optimum chart conditions (per Overall Price Action Analysis) for a Re-entry set-up are when the set-up falls at LH (in a downtrend) / HL (in an uptrend) on the time frame it appears on, and on the time frame above, into whose trend the re-entry is sought.
The table below shows in descending order of the probability over any extended sample, the point at which a Re-entry set-up has the geatest statistical chance of achieving a with trend follow thru to a HH or LL in an up/down trend, respectively, and therefore a successful outcome.
6. Generally, if the intraday trend is strong and particularly if it is co-existent with the overall price action trend on the longer time frames above your trend time frame then the With trend direction should generally always be favoured. A market will mostly go further than seems possible.
7. The minimum requirement in establishing a trend may be present/developing is either;
a. The break of a range/price consolidation area;
or
b. Using an uptrend example; the last HH and HL of the trend is breeched to the downside, possibly after a LH.
8. In order to help memorise the Re-entry set-ups it may be useful to use the following summary;
Re-entry type 1……. 10/20Bol flip…hidden divergence in Osma & Macd.
Re-entry type 2……. 10/20Bol flip…hidden divergence in Macd/regular same peak/valley divergence in Osma (from initial hidden reading)
Re-entry type 3 ……. No Bols just clear hidden divergence @ extreme levels in Osma & Macd.
Re-entry type 4 ……. 10Bol and clear hidden divergence in Osma & Macd.
Guidance on when to exercise caution in seeking to Re-enter a trend.
There really are only a few conditions under which the success of a re-entry set-up may be threatened. They are;
a. If a trend does not exist on at least the next higher time frame up from the one on which the re-entry set-up presents itself on.
b. If the Macd histograms on the next two higher time frames from the re-entry set-up are not as advised in this document.
c. If potential SBR/RBS cannot be pre-identified at which to act at a re-entry set-up.
d. If technical conditions exist that threaten the chances of a successful re-entry to a trend after a pullback either because the trend may be showing technical signs of exhaustion, or a deeper pullback may occur. These exceptions are detailed further below:
i. When the optimum Overall Price Action Analysis trend conditions do not exist on at least the intermediate, and preferably the trend time frames This occurrence leaves the indicator based Re-entry set-ups with a lower probability of success.
ii. When a trigger Re-entry set-up presents itself at an intermediate potential SBR/RBS zone but that set-up is opposed by a clear intermediate and trend time frame Reversal set-up (s) that gave rise to the pullback, ….this may threaten the chances of success of this trigger t/f Re-entry set-up achieving a with trend follow through to new lows/highs, …….the opposing intermediate and trend time frames Reversal set-ups indicating that a deeper pullback may be more probable.
Any subsequent with trend trading opportunity following such a deeper pullback may present itself as a trigger time frame Reversal set-up with an intermediate time frame Re-entry set-up at an area of potential SBR/RBS identified on the trend time frame.
iii. Similarly if an intermediate Re-entry set-up co-existing as a trigger time frame Reversal set-up, is opposed by clear trend time frame + Reversal set-ups...it may indicate an even deeper pullback/reversal in trend is probable. In this situation it is often better to await a trigger and intermediate time frame Reversal set-up coexisting with a trend time frame Re-entry set-up at a potential SBR/RBS zone that is most likely to exist on the next higher time frame up from that of the trend time frame.
The rule of thumb is be wary of a trigger time frame Re-entry set-up against a clear intermediate and trend time frame Reversal set-up (that indicated the pullback.) Similarly be wary of an intermediate Re-entry set-up (co-existing as a trigger 1min Reversal) against a trend time frame + Reversal set-up that perhaps indicated the deeper pull back.
The old adage A trend is your friend till the end when it bends, applies.
e. Be wary of acting upon/expecting a with trend follow through from a Re-entry set-up that follows an obvious HL in a downtrend or LH in an uptrend on the next higher time frame into whose trend the re-entry set-up indicates a with trend trading opportunity.
Such a HL in a downtrend / LH in an uptrend can be an early warning of a trend change/consolidation/deeper pullback.
