Retracements
I'm currently learning to use more price action than anything else in terms of my trading and have come a long way over the past few months.
A question i have concerns entering positions in high momentum moves - i never seem to know when to get in.
Generally i try waiting for a pullback but oftentimes i still dont get in, because i've waited too long for the consolidation to finish, and it just shoots off and i have this mindset of "oh it cant keep going parabolic like this" ... and i just continue to miss the action.
Last Dow session is an example, pic attached where there was quite a sharp move down, after missing the initial breakdown, when do i get on board ?
Do i just see the fact that they are all quite large red candles, and just get on ?
At times i've used various indicators but they can be conflicting and give false signals , so i'd love to get your ideas on how to get onto this momentum play.
Thanks
Hello there,
Even if you couldn't enter during breakdowns, you can always wait for pull backs. I see at least two trades on your chart one around 8760 and another one around 8600 where prices pulled back to your moving average or whatever(yellow line in the center). Of course you will have to have the patience to wait till prices retrace there. I see your time frame is a 5 minute chart? If I were you I would probably go for a slightly higher time frame particularly if I find myself falling behind. Of course you will have to manage your risk accordingly.
I will share with you something really nice and you might want to consider back testing it first for at least 60 to 100 trades(manually). One of the market Wizards Linda Raschke shares her patterns in her landmark book written in conjunction with Larry Connors titled Street Smarts. The pattern is called Holy Grail. Basically it's a very simple pattern entering on retracements and it works on any time frame. You plot a 20 period EMA on your chart and also plot a 14 period ADX(this goes below the chart) which must intially be 30 and rising(this identifies a strong trending market. Usually a price retracement will be accompanies b a turndown in ADX.
When the price reaches the 20 period EMA, but a buy stop(sells are reversed)above the high of the previous bar.
Once filled enter a protective sell stop at the newly formed swing low. Trail the stop as profits accrue and look to exit at the most recent swing high.
If stopped out reenter the trade by placing a buy stop at the original entry price.
After a successful trade the adx has to come back to 30 or above for you to consider the next trade.
A word of caution here - in any trend note the three pushes up or down because you don't want to take a retracement trade after a trend has matured and a trend reversal or congestion action is likely. You can always qualify new and old trends in your chosen time period by religiously plotting trend lines on at least three time frames(say a daily and a weekly to go with your intraday). One you are in if you think the trend might continue you might exit part of your position at the most recent swing high/low(for shorts) and tighten stops on the rest of your position.
For starters you may want to avoid counter trend trades when you are looking for retracements. Why scalp for afew ticks when you get better risk reward with Holy Grail.
You can always add Fib lines from the most recent swing high to low for a clue as to where the market might stop. Of course it helps if you can be prepared with trend lines both on your focus time frame and also be aware of the higher time frames.
Also, if you feel you are falling behind on entries you might want to draw a Keltner or Bollinger band on your chosen time frame and when prices move back inside the envelope you can become alert to the point where market moves closer to the EMA.
Hope this helps and if you have more questions, let me know.
Warm Regards
R_T
