20 EMA and Patterns

It is not a question of "IF THIS SETUP OR ANY OTHER WILL WORK", it is whether or not after having carried out the required research , testing, establishing entry/exit rules, that the trader sets about acquiring the skill, discipline, patience etc TO MAKE IT WORK

Brutusdog pointed out the inverted hammer 3 bars back, yes that is a valid setup, this time the trade is stopped out, then we have another immediate setup, again this is a valid setup, now as BF points out, is the trader still wringing his hands, moaning, banging his head against the desk, kicking the wife or the dog whichever happens to be in the vicinity over the loss on the last trade or has trained himself after having proved to him/herself the consistency in profitability of that particular setup over time, to be mentally prepared and available for the next trade.

As to the placement of stops, again this is getting into tactics as BF stated, there are just so many variations, the logical stop is normally over the previous swing high or low, but for some this could be too wide.

It is not a question of "IF THIS SETUP OR ANY OTHER WILL WORK", it is whether or not after having carried out the required research , testing, establishing entry/exit rules, that the trader sets about acquiring the skill, discipline, patience etc TO MAKE IT WORK

 

Brutusdog pointed out the inverted hammer 3 bars back, yes that is a valid setup, this time the trade is stopped out, then we have another immediate setup, again this is a valid setup, now as BF points out, is the trader still wringing his hands, moaning, banging his head against the desk, kicking the wife or the dog whichever happens to be in the vicinity over the loss on the last trade or has trained himself after having proved to him/herself the consistency in profitability of that particular setup over time, to be mentally prepared and available for the next trade.

 

As to the placement of stops, again this is getting into tactics as BF stated, there are just so many variations, the logical stop is normally over the previous swing high or low, but for some this could be too wide.

great post bb exactly what i was getting at.

Rare - but both setups (i.e hammer on the 1st , on the 2nd, a downbar, insidebars, upbar which when blended together constitute a hammer) in the first couple of hours on Dax,

Both longs have support to the left, plus if one wants to add other tools such as ADX etc , fine, ADX here was over 30. There was even further confirmation from the volume.

So the initial stage is to research the 2 setups first, then later on after gaining some experience in recognizing these in realtime, and evaluating the risk/reward etc, one can then proceed to bring in other additional tools such as support/resistance, trend, oscillators, volume etc, one step at a time.to fine tune the entry/exit

To drive home the concept of blending, same setups but on a lower time frame.

Now the 1st setup which was with a hammer exhibits itself as a 3-4bar turn, i.e. downbar with increased range, insidebars, followed by a up reversal bar on increased range.

So the 2 setups which were mentioned to experiment with are effectively 2 sides of the same coin, depending on the timeframe.

Think what has been demonstrated so far is that recognition of simple setups are sufficient for successful trading on any market provided the trader has injected effort into proving it for him/herself.

BF you are right, Patience is the Key, e.g on ES, it took over 40min with price meandering between 1206 and 1210 before the push up and many would have be tempted to get out by then.

Infact part of the tactics can involve time, e.g if the trade does not go in the anticipated direction within say 15/20min, get out and stand aside, don't want to get into Wyckoff here, but his methodology would involve looking for further evidence of support of the same entry via price/vol , and if it manifests then go back in , again all this has to be tested out and then adhered to. As outlined in your previous post, there are just so many variations on trade management.

Saw a good opportunity to try this technique this morning in NQ 5 min chart.

Sim trade with a good result.

Green line is SMA20, pink line EMA20.

Any comments?

Thanks.

Thanks for the comments.

I've only recently begun focusing on exits. In this case because the trade was a test, I left it on to see if I could catch a move to make target on a single trade. Closed it because the order flow indicated it was stalling on the premarket resistance. Turned out perfectly for $260.

But the trade wasn't easy. Initially it went against me about -2 pts and then on the first pullback it came back down to about +2 pts.

BTW, I'm mostly trying to apply it to a 1 min chart, but early indications show the 5 min chart to be more reliable.

Here's another couple of tests: sim trade on NQ 5 min chart this morning.

Both were a little ambiguous.

In the first (candle 1) the market was mostly sideways, not a clear up-trend.

In the second, candle 2 was not a classic hammer, plus the EMA20 had been severely broken; the tail of the hammer was on SMA40 (red line).

Was this a case of (fulfilled) wishful thinking? Would candle 3 have been a better entry signal?

BTW, both trades netted a little more than 10 pts.

Any comments would be appreciated..

Once again on the Dax and Eurostoxx, immense patience is required as moving prices generate emotions and leave us with a feeling of having missed a great move had we taken the trade without the setup, but that is in hindsight;)

Same setup on ESmini, Entry could be the easy part, exit and trade management is the most difficult and crucial part.

1. A trader with a single contract moving the stop loss over every downbar would be stopped out on the 3rd bar.

2. Another's tactics may involve moving it over every swing high

3. Another exit point would be the support at the second arrow

4. some may choose the break of the first trend line, another trader may opt out for the break of the second trend line (Red)

5. A Trader with multiple contracts could take half on the 1st exit and adopt any one of the above for the rest.

Hi,

this is my first post on the Forum after I spent few months trying to get the more I could from TL. First of all I want thank all of you that are joining their knowledge with person as me (that by now can give almost nothing back).

I want to share now my view of the use of candlestick in day-trading and how I have used the knowledge I got from this thread/corner.

As I was doing in swing trading I have mainly focused on 2 entry signals the Hammer (as often mentioned here in the previous reply) and the bullish/bearish engulfing. I want to focus more now on the second one as it is the one I am using more and we had two interesting opportunities yesterday on the ES on 5 min charts.

For example in an up-trend I am basically looking for for a bullish engulfing that 'develop' under the EMA20 but with close above it . As also stated by Nison, the more the volume on the second bar the better.

The 5 min chart shows 2 possible entries (I personally got only the first one as I was leaving the office when the second one appears).

What I find also very interesting, and this is something that happens quite often, is that a bullish engulfing as shown above in the 5 min charts is also an hammer that retrace under the EMA20 in the 15 min chart (it basically depends from the candle before the engulfing). From my point of view this makes the pattern even more powerful. In our case this was especially true on the first entry and for example I think it was the same in the post from BF of "09-30-2008, 11:11 PM" for the entry at around 11:30.

As always stated here there are many times when the pattern can fail.For example in the 5 min I can see a failed one at around 11:30, even if in that case I don't know if I would get it or not as a lower high developed few bars before and EMA20 was quite flat (I only take the pattern in clear a trend market).

To make my post o a bit more consistent (and open to everybody critics) these are the "basic" rules I follow for the pattern:

- When the engulfing appear I "generally" entry on the bar after a tick above the close of the second bar and place the stop loss one tick below/above the close of the second bar.

- I normally set the target based on market profile or S/R analysis

- I move the stop to B/E normally when the price touch the latest swing before the engulfing.

As always said here these are generic rules that I try to follow to have a consistent plan but that can be changed based on live osservation of the market.

Sorry for my long post...but as this was the first one I had lots to say...:-)...

Still many thanks to all ...and a bit more to BF for all the great job done here in the candlestick corner and everywhere in the forum...