This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I was at the doctor’s office this morning, and missed most of the move in crude. I tried a few paper trades that were unsuccessful. At least it was with play money. For now I’m trying to only trade my real account with either extremely low risk entries, or what I consider a high probability setup. Even though I didn’t catch this move in real time, it is what I consider to be money in the bank. I’ve catalogued a few trade setups that I think meet the criteria. Here’s an example from today’s action.
Around the middle of last week, crude started to rally. It spent all of Friday’s session, and a good part of this morning’s session pulling back into a nice bull flag. Note the MACD divergence as price continued to drift lower. It bounced off of S1, broke the downtrend while giving a double top buy signal (PnF). That rally was worth a $1.50 without any meaningfull pullback.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
May 21st, 2007 at 6:13 pm
Wow, I wish they didn’t call them “double tops” because that name has pretty much the opposite meaning to me from the classic chart pattern realm. Oh, well! I like their pattern catalogue regardless. It has more entries in it than the pnf chapter in Murphy’s TA book.
May 21st, 2007 at 7:02 pm
Seems like another divergence on Wednesday that would have been profitable going into Thursday on that chart, right?
May 21st, 2007 at 11:40 pm
richard: yes, that divergence would have worked too, but half the move would have been over before i would have felt comfortable entering…i’ve been experimenting with different reversal periods, and totally missed it at the time
here’s a link to most of the stuff that is in dorsey’s book http://208.149.108.58/cgi-bin/foxweb.exe/fwuniv?email=&lesson=1&page=1&quick=N
May 22nd, 2007 at 10:26 pm
I skimmed through the material on the site you referenced. There’s a lot of stuff there! I am going to have to think about what the relative strength charts mean. Just because you can plot something pnf-style, doesn’t necessarily mean that the signals mean anything, you know? Can relative strength really “break out” or “have support”? Maybe it can. I’m not sure.
May 23rd, 2007 at 4:30 am
richard: i don’t relative strength since i focus on mainly one market…in my limited experience with this, i’m seeing that i need convergence of several factors for a good trade…the only reason i made the switch to PnF is the ease of seeing support, resistance, and patterns
i’m experimenting with creative entries, and not necessarily going with the patterns described unless it confirms something else…as an example, two Os would indicate support…if it breaks down then it would be a sell signal…however, my thinking is that if that occurs at an area where the support is confirmed by other factors, or if momentum is diverging, then buy that support before an actual buy signal is given the other way…that will equal a tight stop with better potential…then the sell signal is given to stop me out, and a buy signal in the opposite direction gives me more profit potential and confidence
for a few days i paper traded just the PnF signals, and suffered many whipsaws…with the wide stops, i see that i have to work on my entries and exits…i’m trying to be creative in the way i view it instead of taking the signals as prescribed by dorsey or the others
one PnF pattern that i like when it pops up is a triple top/bottom signal with rising/falling bottoms…that pattern seems more reliable than some of the others…however, my idea is that when that pattern seems to be developing, then buy into the last downdraft with a stop below the previous set of Os…if that pattern completes then i’m sitting on a nice profit…get ahead of the crowd…if a bid is truly there then it will work…if not, the stop is tight
i’ve only been doing this for a couple of weeks, so i’m sure my criteria will change…for now this is what i’m trying to accomplish, but still not quite sure how to get there
May 23rd, 2007 at 7:53 am
yeah, the basic “double top” break doesn’t seem reliable at all, unless it’s part of a bigger trend (like those “catapult” type patterns).