I will now lay down the foundations for sensible trades you can take on an intraday basis. These set ups are just as valid in the MINOR DEGREE, MEDIUM DEGREE or MAJOR DEGREE. My policy is the KISS policy – Keep It Simple Simon. For these entries to give you the best possibility of success the market needs to be agreeing with your perception of its direction.
The market needs to be displaying signs of an upward trend in progress. If you have confirmed that the 60 minute trend is up, you should always take these trades as they will work better than 50% of the time and some of them will become runners for good profits. In the case of the old resistance = new support BUY, you should take the insurance of reversing short should the market continue to break down. However, do remember that if the 1:1 is still intact, you may end up in an overlapping market situation. This means you will have to remain on your toes to manage your trade until the outcome of the 1:1 becomes known.
The Double Top Breakout
This is a simple set up if you can see the trend is overwhelmingly up. When market gets into this position, they will have the other side (sellers) doubting themselves and they (the sellers) will be forced to move their stops into just above the double top to protect their asses.
You don’t need to be a Rhodes Scholar to work this out.
The market is progressively moving upwards in stop start fashion with sellers trying to pick a top for the day. But the buying pressure becomes obvious as the hours pass by. The sellers are trapped and they have no other course of action but to reverse long should the market break the double top.
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If the top breaks it will attract a heap of volume and push the market into another area where it will need to find a new equilibrium. So long as there is not a higher degree RESISTANCE just above or in the vicinity of the breakout level, there is every chance the breakout will run and give you the opportunity to book a nice profit.
Take advantage when the market offers you this as you only have 6 hours in a day to make your money.
The first sign of a reversal in a down trend is when the market bounces back up through the last break down level and overbalances the previous 1:1 correction in the downtrend. The second sign is when the price breaks back above lower highs from the progression down. Basically these three things are telling you that the selling has been exhausted and any smart seller will capitulate.
If our 5 minute TWS (Slow trend wave) has rolled to the upside after a significant time on the downside, the buy becomes very attractive as the short sellers have to take profits and run for cover. There maybe times when you can pick the exact low using geometry but the price action always needs to confirm the actions of the buyers and sellers.
Reversals can be fast or they can take time depending on how oversold the market has been at the time. Another way you will know if you have a strong low in place is if you have a volume spike prior to the low and a reversal bar on your chart.
One other thing that sometimes helps is if the price action for the day is somewhere near the extremes of the average daily range. If it is then the reversal has plenty of room to move back up. Nevertheless you always have to consider that a reversal of trend may be reacting to the previous days down trend and will occur early in the new trading day. If this is the case then the break back in trend needs to come back above the opening price.
Extreme Point Reversals back in the direction of the Major Trend
A number of conditions need to exist so that you can be sure the smart money traders will be with you if you want to buy a low right at the reversal point.
- The market must be indicating OVERSOLD to traders.
- It could be arriving at a 50, 61.8 or double bottom on a double drive 1:1.
- It could be coming back to match a 1:1 of medium degree on a double drive 1:1.
- An old support pivot from way back could be close to your terminal point where you intend to buy.
- It could be reaching a level with obvious multiple geometry retrace ratios present and maybe even a prior swing low or high.
Nevertheless whenever you attempt a trade at an extreme point for a reversal, you must take the insurance and have an order to reverse should you be wrong.
There are probably many more situations than those described above that you can begin to recognize but these will come with plenty of experience. If you want to trade this way and pick extremes in price for a reversal, just remember to go through your checklist beforehand. I know you can do it but the stress involved is as extreme as the buy point. It takes a while to accustom yourself to the stress you will be subjecting yourself to in this business. It also takes time to understand why these things will work. If you can handle it you will know what I mean.
Double Top Breakout RETEST
Double tops are an attractive place to sell for most traders. Sellers will also place exit stops above a double top and the initial breakout may not advance very far. More often than not if the breakout stalls, the price will return to the breakout level, where it attracts new buyers who now see the breakout level as the NEW SUPPORT.
Breakouts from most minor degree technical levels such as double tops, double bottoms, a 50 retrace or a 61.8 level; often come back and retest the breakout level before they move on.
Breakouts: If the market hits resistance and does not correct more than the prior 1:1 in the sequence there is every chance it will break through on the next attempt.
This is a strict rule for you to follow: If the market will not correct more points than a previous correction in any price sequence, it implies underlying strength and the trend remains in force until it does.