This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I’ve been experimenting with different ways to use the PnF charts. With this particular setup (5/22), you have a gap down on the 5′ chart. A common strategy is to wait for the gap to fill, and then go short. As you can see from the 5′ view, it never filled. However, look at what happened on the PnF chart. It rallied exactly to the downtrend line (45 degree), and reversed.
Both charts are highlighted by ‘1′ to show the exact point of reference. As you can see from the regular candlestick setup, oil printed a bearish engulfing bar on heavy volume which would have alerted “smart” traders to a possible short entry. Since I’m not that smart, I like the simple way which was presented on the trusty PnF chart.
What I am finding particularly useful about the point and figure setups is the ability to limit my risk dramatically. I find myself straying from the textbook entries, and looking for what I call creative strategies. Open the left side of your brain, and see what happens.
Interesting idea. You wouldn’t get a sell signal from the O’s column until $66.50, and the stop would need to be $66.65, IMO. Unless you shorted into the strength. Is that what you would do?
short into the strength with a tight stop…i’m straying away from the normal buy and sell signals since the stops are so wide…i’m trying to limit my risk, and hopefully, increase my R:R
btw, the 45 trendline is the perfect place for the stop…somtimes it violates it, but i’m operating under the assumption that i’m not going to nail the trades with a great win percentage either way, so this puts the odds back in my favor
So your stop on this one would be $66.65, going short at the trendline at $66.60? Sorry for being a bit of a thickie, but I always want to clarify things…
Another point in the setup’s favor is that you had the swing low of the prior day at $66.60 that could offer potential resistance at your entry point today.
prospectus: exactly…use the candlesticks to confirm setups, and the PnF to provide a low risk entry…depending on my fill price, i try to keep my stops between 5 and 10 cents
btw, on stocks u can actually wait for the reversal, and position size accordingly…however, for futures – especially oil – it doesn’t take much to rack up losses…so i try to anticipate my entry using both types of charts