Hi guys,
I want to show you something different today. I posted several days back about the Don Jones web class video at IOAMT. I posted a link if you somehow missed it. I have been following this strategy and have taken several trades - based on it.
It is not my goal to teach you his strategy in my blog. Watch the video for that. But, it is my goal to assist you in understanding how to put this simple strategy to use. Drawing reference lines like I do help me see areas of temporary balance. It gets me waiting on break outs from these clusters.
I don't take all of these opportunities. I posted this trade because it had evidence that a break out to the down side might be a very nice opportunity. I had been long just prior to the break out of the prior high in G period - hoping for a big pay day. Well, I got the break out - but not the big pay day. This failure to attract buyers had me leaning (for the short term) to the short side. We formed a balance area within G,H and I periods with each period forming a lower high.
The break down in J period was (to me) an extremely high probability trade.
How you take these is up to you. I usually want to see a 2 or 3 tick break out from the cluster area before entering (to lessen fake outs). I do not give these trades a lot of room. If they come back into the cluster area (the pause area) I will usually exit for a few tick loss if I have to. The bigger/longer the balance area forms, the more likely the market will pop (once they move out).
You may have to take a few scratch trades (for minor losses) before the true break out. If the market breaks out in one direction, fails after 1 or 2 ticks and re-enters the P-A area this is fine. If it then breaks in the other direction, great. That may be the direction the market wants to go. It's another possible trade opportunity.
Only ask me questions after you have watched the video one or two times. I will be glad to try and answer them. If you come up with an alternate effective way to trade these, let me know. Remember, I am not an expert on this strategy. I have just been looking at this for a week or so - so I am just learning also.
I hope it helps.
MG
i was watching this today myself. i took a simulated trade on the first breakout in your I period, to the downside. I got stopped out when I failed to go more than 2 ticks down, and re-entered the congestion. Of course, J then took it all the way. What I've taken from this is that entry on the breakout, with a stop on the other end of the congestion seems safest, as my stop was clearly too tight. Did you enter on the I breakout, or wait for the full third TPO bracket (I) to complete, and enter on J? Which method do you prefer for entry, and for stops?
ReplyDeleteSomehow, I managed to miss the end of your post before I posted my comment. In any case, I wonder how common it is for a breakout to falsely breakout and then breakout in the opposite side of the congestion. If it doesn't happen often, one might consider adding to the position if the trade re-enters the cluster, rather than stopping out.
ReplyDeleteGreat, great post MG. I'll share my thoughts with you on these trades.
ReplyDeleteThis is an exceptional (and rare) example as the breakdown was tied to a news item precisely at the beginning of a new TPO (fed minutes at 1PM CST). If you took it, excellent work.
In my limited experience, I really dislike these trades for the exact trade management rules you listed above.
Like you stated, you need to wait for 2 or 3 ticks to enter to 'confirm' the breakout. But you also need to give it 2 or 3 ticks back into the range before stopping yourself out. So at best you take a 4 tick scratch loss + 1 tick for the commissions.
Now the next time down you kind of need to see it take out the prior low tick before entering, so you are effectively 5 or 6 ticks outside of the pause area at this point. Add that to your prior scratch and your break even on the play is now 11 ticks outside of the pause area.
That means the first 3 pts outside of the pause area don't net you a profit. Add to that for each scratch you might have needed to take.
I hope that made sense. I used to try to trade this way and it frustrated the heck out of me. If you like this type of trade I suggest you look to trade it Billy style, wait for a retrace after the breakout.
The trade above gives you an excellent entry that way. Viewed on the 1 minute chart, we breakout down to 819.25 but then bounce back up to 821 offering you a great entry on the trade.
Sure sometimes it leaves you behind, but you also don't end up with ulcers...lol
Just my thoughts. Would love to hear feedback from you and any others.
Hey there Steckley,
ReplyDeleteI usually wait for 3 ticks break out beyond the alert zone to enter. I period breakout went only 2 ticks. So, a no-go for me.
I have taken these trades early - before the third period ends. It depends on how good the trade looks to me. I haven't fully defined my rules on this trade yet.
As for stop size, that's a real personal matter. I don't like to give this trade a wide stop. I want this trade to pop. I will allow a 4 or 5 ticks into the zone. I don't want to give it much as I can always re-enter if it breaks out again. This is where watching the reversal footprint can give us an idea of buying and selling on a return into the zone like we saw here. If you take a look at the 6 Reversal chart during this incursion back into the zone, there wasn't particularly strong buying. Then, it makes sense to hold longer. I like do use a hard stop, but I think it is better to keep it out of the and let the footprint guide my action.
I did talk to Don Jones on this matter and he also prefers not to play the break out until he gives it a few ticks to better confirm that it is not a fake out.
Please keep me informed on your progress and thoughts on this trade. It does seems promising.
MG
Brian,
ReplyDeleteI know that Billy might cringe at some of my entries. But, I only take ones that I consider high probability. This is not the way I usually trade. I usually wait for retracements. But, with the P-A trade, I have been experimenting with taking breakouts and have not gotten hurt (so far). I watch the footprints and other market signs very closely. I am very selective.
I have even taken two break outs at or near the high of the day, but only when I had reason to believe a breakout would occur. I felt that even if a breakout was just a probe for stops above the high, I could at least grab a few points.
I took one of these trades on Thursday's breakout. I had a legitimate P-A breaking out (in K period)of a 3 period cluster (H, I, J). I had noticed that the AVAP (Average Volume at Price) had gone up steeply in J period along with healthy increase in Volume. It was getting later in the day (and also, the end of the short week) and I was expecting a large move - either to the upside or downside. Also, the move (on this trade)began at the developing Value Area Low, which I saw as a rejection of a break out to the downside and then was followed by a retracement to the dPOC and a bounce from there, at the close of J period.
We got the break to the upside. I expected a big move following the low volume nonsense we had to deal with for most of the day and I wanted to be a part of it. Waiting for a retracement makes total sense. It's the way that I usually trade. I just didn't do it here. Maybe I will change my entry in the future if I get hurt enough, but so far this strategy has worked for me.
There are lots of ways to play these things and I am still experimenting and learning.
Hope it helps,
MG
The Don Jones video on this subject has also introduced me to the range overlays for 5,10,15 and 20 days back, and I have been studying them a lot lately. Question for you: If less than 3 TPOs in an intra-day timeframe represents market movement (as opposed to a pause), how many TPOs represent a pause in the longer overlays? Does Don have a set number, as with this pause alert?
ReplyDeleteMG,
ReplyDeleteJust saw your reply above. Glad to hear it is working for you so far. Keep us updated on your blog as to your progress with this strategy going forward.
The P-A system is still on my radar but for now I am focusing on my bread and butter trades fading key levels.
Great trade on that Thursday breakout to the upside!
Steckley,
ReplyDeleteSorry. I somehow missed your comment. I suggest you call or email Don and ask him that directly. He seems very open to receiving calls and emails and answering questions.
The email on his site is incorrect however. Here is his correct one:ciscofutures@hotmail.com
MG