3D Trade Execution – Technical Analysis from August 18, 2011 at Forex Ratings
Short-term traders often focus on large elements of price action and miss important signals that are within the intraday movement. This time frame error forces them to wait outside the market until major swing points are reached to enter the game from these wider time frames. Instead of waiting, traders can locate good setups by spotting reversals and breakout patterns within very short periods of market cyclical movement.
Chart analysis works best when multiple timeframes are combined to identify important swing and breakout points. Once the short-term trader identifies support and resistance on a broader scale, profits can be made by predicting how the market will behave in the next few minutes or hours.
Trading a small cycle model after a strong rally.
When Intuit Market Slowly Came Out out of 9 month bases in mid-October, few realized that this movement turned into a rapid tripling of prices. Typically, short-term traders recognize dynamic rallies very late in the development process. Most then engage using impulse strategies to chase big traffic. But at this stage of the broader price cycle, the risk is very high. As the market moves in a parabola, traders are caught in sharp downturns that empty their pockets as quickly as they fill.
Experienced technical analysts use major reversals, such as the “Intuit” at 60, to signal the start of predictable swing trading conditions. A downtrend engenders fear and provides the perfect conditions for a well-defined pattern and resistance-support formation. But don’t be tempted to jump into ill-defined entrances. Be patient and wait for good opportunities to form.
While a good sell is seen in a downtrend, we will be focusing on entering long positions with an uptrend. A large crowd always misses the opportunity on strong rallies and sees any pullback as a good entry. Our first task will be to wait for the base model and then join it. This can happen in a few minutes, but it usually takes a few days to form on normal 15 minutes or 60 minutes graphics.
The appearance of a symmetrical triangle quickly identifies a possible bottom and a clear breakout point. Notice how our bottom support line actually breaks the Nov 30 low. Markets rarely offer perfect conditions on very short-term patterns. Traders must be skilled enough to draw effective trend lines based on limited and conflicting information. If we did our building well, gap in the morning 2nd December will immediately be recognized as a breakout of this triangle and completion of the bottom reversal pattern.
The market does not give money away easily. Traders who buy Intuit in the morning gap are facing a significant pre-noon reversal. Notice the usual reversal 3rd bar just 10 minutes after the market opened. This sets the stage for traders to apply a simple range breakout strategy. 1st hour and look for an entry just above the reversal high.
The model also offers traders a safe entry as in the first test of the morning gap. and on testing the double bottom later this morning. However, those who entered at bottom support then risk significant gains if they want to hold positions to new highs. Get out of this classic swing trade just before the top of the first hour’s range and consider setting up a new breakout trade with its own merits.
The safest breakout entry is located just minutes before moving above morning highs. But how does a trader know when to buy? The trained eye recognizes the small cup action of the high bar just prior to the breakout. The morning pattern reveals its secret here, leaving the nimble trader 2-3 minutes, to enter the market calmly. Also notice the small ascending triangle just above the breakout point. Breakthroughs usually pause for 4-6 bars before an impulse dash in a high candle.
The next morning opens with a good opportunity for traders. It takes very strong demand to break the uptrend of the price channel. For this reason, channel breakouts often generate very high price bars immediately after the initial signal. Notice the momentum after the breakout in the first 30 minutes of trading. This leaves a very small window for the trader to enter the market safely.
The cycles of the Intuit model are swapped on charts of different time formats. If you get lazy and only focus on a single market segment, your level II screen may highlight a breakthrough, but you will not understand the source or reason for it. Without the right information, the odds are more likely that you will jump into the market at the wrong time and buy at the top or sell at the bottom.
Experienced traders know when to stand aside. As Intuit approaches 60, long positions become very dangerous. But after a strong impulse opening move, shouldn’t we expect another long push after a short pullback? At this point, our strategy relies on the broader pattern cycle to provide our guidance. In retrospect, we realize that price has returned to the beginning of the original reversal and is right at a potential double top. Experienced traders never buy a double top.
But we also shouldn’t go short at this level as the uptrend remains intact. Our best tactic will be to pause and let the market tell us what happens next. Through the session, Intuit is generating a narrow consolidation flag. Here at the end of the week, wide 60 minute the graph resembles the classic “cup and handle” model.
Should we buy or sell now? Let’s wait for Monday and see what the market tells us to do.