One of the nice things about Mega Bars is they are easy to read with the tools we have available. Here are a few tips on reading the price action based on the rules and a couple advanced day trading techniques:
One, per the rules, you want to make sure you are with the trend, either by cycling, by going with the Price Band and/or by type 2 divergent patterns on the SmartMomentum tool (available through IndicatorSmart.com). When each of these conditions are true, it is better than if only one or the other are true. In the chart below, we see a solid trend where all of these conditions are true. This is our first criteria for analysis beyond context analysis where we make a determination about whether or not there is room for a move to expand into new territory (not covered in this article).
Next we want to take a look at the bars. There are several ways we can identify a trigger. One is by seeing and Early Entry encompassing bar. When this occurs. we will see a bar overtaking the range of an opposing bar in the direction of the trend. That might look like this:
Note the bar marked with the arrow has overtaken the bar before it which was against the trend or, up in this case, while the market was trending down.
The next case is where we get a Mega Bar that is high volume and that is also following an opposing bar. These cases are marked in the chart below with red bands behind the bar. Note the volume was all above average on these bars and each was a sell with trend:
Note also in some of these cases there were Type 2 Divergent patterns on the Smart Momentum tool as described above. In this chart we have 3 trend indicators indicating showing a sell condition at various points along with various types of entries. By putting these together in various combinations, we are able to get into low risk entries with the trend. More could be said, and refinements will be discussed in the Oil Trading Room.
I promised to show an advanced technique at the beginning of the article. Note in the chart above that various bars are hammer type bars (where there is a tail against the trend and the bar closes on its low). When you get this type of bar in a strong trend (for example 3 trend indicators show are down and it is still early on in a move), you can elect to sell with trend on a hammer bar that is high volume. I usually would prefer to already be in, but if you are missing out, it can often be worth it to take the risk. Further, I prefer to do this closer to a swing high (for a sell) that to be say, on the 5th or 6th consecutive down bar already before the entry. So, I will typically do it within a couple few bars of the swing high when using this technique to short. When using this technique, you are usually risking from 10-16 ticks which is substantially more on average than the Early Entry or the High Volume entry technique
In the chart below, I have marked out some of these bars for you to see:
OK, let's review a bit... We have 3 different trend indications. Can you name them? You will really want to get this concept under your belt so you can see it at a glance!
In this article, we have covered three different entry techniques. Can you name them? Can you identify them when they are occurring in real time? Better yet, can you anticipate them?
Don't worry, there will be plenty of practice in the Oil Trading Room. And we look forward to those who have learned them to provide leadership for those who have not.
That's all for now!