Entry Points - Higher Highs and Lower Lows

[Purple Brain]

At the risk of appearing even more asinine than I have thus far been able to conceal, does the breach of the most recent lowest low in a down trend or of a higher high in an up trend generally tend to offer a useful entry point?

And where a higher high is encountered in a down trend, does this signal a potential reversal should that level be subsequently breached to the upside. And obviously the opposite for an up trend where a lower low is subsequently breached to the down side.

With a definition of what constitutes a higher high or lower low left undefined I probably don’t deserve an answer of course, but from a subjective point of view they rather jump out at me. Maybe that’s an additional question for how one would technically define such things – if such things can be defined technically of course. I more than willing to believe an insightful subjective perspective may be one element that separates successful traders from those that are less so.

I appreciate us fledgling traders will ask blindingly stupid questions from time to time, or even all the time in my case, but I can’t shake the feeling that something that appears so obvious is obviously unlikely to be so or everyone would be using it to their advantage with no need for indicators of any kind with regard to entry points.

 

[malaguti]

At the risk of appearing even more asinine than I have thus far been able to conceal, does the breach of the most recent lowest low in a down trend or of a higher high in an up trend generally tend to offer a useful entry point?

And where a higher high is encountered in a down trend, does this signal a potential reversal should that level be subsequently breached to the upside. And obviously the opposite for an up trend where a lower low is subsequently breached to the down side.

With a definition of what constitutes a higher high or lower low left undefined I probably don’t deserve an answer of course, but from a subjective point of view they rather jump out at me. Maybe that’s an additional question for how one would technically define such things – if such things can be defined technically of course. I more than willing to believe an insightful subjective perspective may be one element that separates successful traders from those that are less so.

I appreciate us fledgling traders will ask blindingly stupid questions from time to time, or even all the time in my case, but I can’t shake the feeling that something that appears so obvious is obviously unlikely to be so or everyone would be using it to their advantage with no need for indicators of any kind with regard to entry points.

This is such a good question. what makes it so good is the fact that you are at least coming about this topic in the very best way possible, by defining what your trend criteria should be and HH/HL is in my opinion a classic and the only way it should be done yet is ignored all the time
anyway back to your questions
1) I wait for the break always. It has to close above this last high for me not just break past. Its a late entry and your risk is greater, but for me it has been the safest and most reliable. Having said that, i often find classic reversal patterns H&S for example that pop up quite often when looking at a lower time frame and I act on those always, where they are obvious when I think its time for a swing low to have taken place.
Where not obvious, I have my last high to act upon. I also add to my position on every new break of a high.

There is one other technique which I have used, and thats by using the past price action, shifted to the right (you could call it a displaced moving average) and then there's looking for a giveway signal..gap up showing strength, or just a large engufing candle could signal an earlier entry, a hiekin ashi would be a good one also. But nothing beats a break, and better still a continuation H&S
2)A break of a lower high (in a down trend) does not constitute a new uptrend, you first need to wait for a higher low, and then as soon as you get that break above you're good to go. Often you will get a break of a previous high, or low and then continues its previous direction
Hope this helps Purple, and feel free to PM me on anything around this topic

 

[wackypete2]

A simple 2 or 3 candle formation by itself will rarely signal a reliable, tradable reversal.
Try not to indulge in reversal trades. These can be account killers. If you are going to use higher highs/lower lows then wait until the pattern forms such that you will be entering in the same direction as the larger trend. What you are doing is looking for the end of a pullback.

Don't forget, if trading was easy everyone would be doing it on their yacht from somewhere in the Carribbean!

Peter

 

[Purple Brain]

HH/HL is in my opinion a classic and the only way it should be done yet is ignored all the time

I’m delighted there may be some basis for my enthusiasm in having spotted what seems to be a method that warrants further research.

1) I wait for the break always. It has to close above this last high for me not just break past. Its a late entry and your risk is greater, but for me it has been the safest and most reliable.

I understand the standard rationale in waiting for a close rather than simply a breach, but I have a couple of issues with that. First being that choice of trading timeframe is always going to be arbitrary. I trade 15 minute charts. You may trade 5 minute or 1 minute. Or hourly. My point being that waiting for a close in my particular timeframe should not really have that much significance as it’s simply a point in time where a new bar starts and has no inherent significance in and of itself. The second issue is that what I have noticed is that when a breach occurs, it often does so with considerable momentum – to wait an arbitrary amount of time until the current bar closes would result in the loss of a large part of the potential profits.

Having said that, i often find classic reversal patterns H&S for example that pop up quite often when looking at a lower time frame and I act on those always, where they are obvious when I think its time for a swing low to have taken place. Where not obvious, I have my last high to act upon.

I have absolutely no idea how to recognise the standard chart formations. Read just about every book going on the subject and can define the technical basis and even how to trade them, but I just can’t see them in real time.

I also add to my position on every new break of a high.

That’s interesting. I never considered adding to a position. Probably too nervous and just keen to shepherd my existing position to a close.

Where not obvious, I have my last high to act upon. There is one other technique which I have used, and thats by using the past price action, shifted to the right (you could call it a displaced moving average)

Ichimoku? I had it on my charts, but have starting clearing off stuff that I felt wasn’t actually adding clarity. I look at the ichimoku cloud and I think I see the price reacting to it, but a sufficiently large number of times it’s also inhibited from taking a trade that would have been OK. On balance, I didn’t feel comfortable with it or what it was adding, if anything, to my profitability.

2)A break of a lower high (in a down trend) does not constitute a new uptrend, you first need to wait for a higher low, and then as soon as you get that break above you're good to go. Often you will get a break of a previous high, or low and then continues its previous direction

That’s a useful piece of information, thanks.

Hope this helps Purple, and feel free to PM me on anything around this topic

It helps a great deal malaguti and I appreciate your time and effort in sharing your experience and knowledge.

 

[Purple Brain]

A simple 2 or 3 candle formation by itself will rarely signal a reliable, tradable reversal.
Try not to indulge in reversal trades. These can be account killers. If you are going to use higher highs/lower lows then wait until the pattern forms such that you will be entering in the same direction as the larger trend. What you are doing is looking for the end of a pullback.

Don't forget, if trading was easy everyone would be doing it on their yacht from somewhere in the Carribbean!

Peter

Thanks for the timely warning Peter. I am probably trying to be too greedy. Catching a reversal looks great in practice, but obviously carries more risk. It makes far more sense to stick with those trades that are going with the primary trend. I'll leave the daredevil stuff to others.

Thanks for the advice.

 

[Purple Brain]

Thanks to everyone who provided such useful advice.

I received some additional commentary on a private basis which I have just gone back and applied to the last week's worth of data across all the majors and I am stunned. With those additional caveats and all the brilliant advice offered on this thread, I am guessing I must have just picked a lucky week as using a technique this simple can't work so cleanly as it has - or would have done had I traded it - this past week.

I'm looking forward to see if can be profitably applied in real-time next week and hope the luck that appears to be attracted to simplicity continues to support my efforts.