Higher Highs

[Nelsy-Boy]

Could the community please share their insight on the following graph. If A is a new high and B is a lower high then what is C described as? Is it a new high because it is higher than B? If it is, why do you think the large red candle came into play the day after followed by an even larger green the day after that which is now a new high or is it?

[Caseynotes]

Hi @Nelsy-Boy,  you need to stand back a bit, you've got a higher high at A and then a higher low at the bottom of the red pin bar and price is then unable to make a new higher high because it has run into confirmed strong resistance.

The bears were waiting there all the while and that level is now the dominate chart feature, the trend has stalled until the battle over the resistance level is resolved. 

[Nelsy-Boy]

Thanks @Caseynotes I understand the HH and the resistance. I'm not totally clear on the HL though. Which low is that higher than and why is it significant when there has been three red candles prior to that point after the A and B candles? Really appreciate you spending time to answer this.

[Caseynotes]

No problem @Nelsy-Boy, trends should always exhibit a zig-zag succession of higher highs and higher lows (bull), if that pattern is broken the trend has at least stalled or may have collapsed all together. The pullbacks are caused by profit taking, the continuations are caused by re-entries, there has been no real bear participation up til now because the bears have all been sat here waiting for price at 3340, after all, why sell at a lower price when price is rising. This is why support and resistance is the king of indicators, they are obvious levels on a chart for like minded types to hang out and wait for price to come to them.

[Nelsy-Boy]

Thanks again @Caseynotes. That is clear. One more question please. Just how important is it to look at the low as the bottom of the wick of the candle rather than the close?

[Caseynotes]

@Nelsy-Boy,  good question. On the main time frames such as H1 and Daily owning the bar is important and the close will be fought over but on the less popular time frames say 30 min or 10 min the close is not so relevant.

The wicks however are always important because they show the precise level that bears (for example) stepped in and turned the market. This also begs the question 'did all their orders get filled or are there more sell orders sat waiting at that level?'

Your chart shows this well, every time price ran into 3340 sell orders overwhelmed the bulls, not just once or twice but over and over again. 

From here it becomes a battle of attrition, who has the resources to win, we can't know so have to wait for a victory and then follow the winner up or down on to the next level. Stay out of the battles at the levels and look to catch a ride between them.

 

[Kodiak]

Pivots can also be used 

In metatrader fractals are a high with 2 lower bars on each side (opposite for low)

In prorealtime you can use this indicator

/////////// FRACTALS DE BILL WILLIAMS
//Varible = cp  - par défaut =2

cp = 1

if high[cp] >= highest[2*cp+1](high) then
LH = 1
else
LH=0
endif

if low[cp] <= lowest[2*cp+1](low)  then
LL= -1
else
LL=0
endif

if LH=1 then
hil = high[cp]
 
endif

if LL  = -1 then
LOL=low[cp]
 
endif

return hil, LOL

 

 

(If you use cp = 1 then you have a top with 1 lower bar on each side)

[Kodiak]

A picture 

 

[Nelsy-Boy]

Thank you @TrendFollower. I was hoping you would add to this thread. Would you or @Caseynotes or like minded people within the community please share your insight into a period on the gold daily chart. I am interested to know about what a higher low looks like. So starting from point A, is point B considered a higher low and the same for C and D.   E is lower than D and level with C so how would you describe that. Lastly, as point F closed higher than the last higher high at X. Having bought at Y, would you have added to your position, and if so at which point?

By the way, I appreciate your input @Kodiak but that is well beyond me at this stage in my trading life-line.

[Caseynotes]

@Nelsy-Boy,  if you zoom out you can see the general pattern much clearer and be less bar specific.

The first higher high (labelled) puts you on alert, a short pullback to give the higher low (labelled) would have been the long entry for some while price going on to pass the first higher high would be the entry for many.

More recent we had a lower low followed by a lower high yesterday which gave an entry point for shorts today but the red line (1276) is strong support as well as the lower low and will take determination to break in order to establish a new downtrend.

[Nelsy-Boy]

Thanks @Caseynotes I hope my next question is my last, I'm sure you do too!! The recent lower high is only confirmed as a lower high because of the rather large red candle today. If that is correct, then would we only go short on this confirmation candle. And, if we do, why would we think that because todays red candle has not passed the close of the red candle on Monday, that it would indeed continue down to at least the more prominent support line?

[Caseynotes]

1 hour ago, Nelsy-Boy said:

Thanks @Caseynotes I hope my next question is my last, I'm sure you do too!! The recent lower high is only confirmed as a lower high because of the rather large red candle today. If that is correct, then would we only go short on this confirmation candle. And, if we do, why would we think that because todays red candle has not passed the close of the red candle on Monday, that it would indeed continue down to at least the more prominent support line?

@Nelsy-Boy, ask as many questions as you like. Speculative traders are not going to wait for confirmation. They will be looking at the lower time frame charts and have been thinking shorts since the end of Feb, and chancing their arm at every resistance level they can find. And why not, with a stop loss just above they are not going to lose much if they're wrong but when they are right the reward is big.

As soon as today's daily candle engulfed yesterdays and captured 1300 the next target must be the weekly support level at 1276, else why bother?

Different traders different game. Here is the H1 chart and see it tells a very different story to the daily.

 

[Caseynotes]

Yes @Nelsy-Boy & @TrendFollower,  patterns and setups are best spotted from a distance but you need to zoom in for the kill.

[Nelsy-Boy]

@Caseynotes and @TrendFollower Really appreciate your input on this thread so thank you. I am only trading using the daily charts on FX and some indices and more recently commodities. Due to margin constraints, I am only sticking to those markets valued less than 10,000 and on those, the lowest size per point possible. That rules out Orange Juice and Lumber but they are loaded on the demo. I'm still finding my way but feel most comfortable dealing just on SMA's. Cross overs or price crossing over. Ichimoku helps and sometimes the  Momentum indicator, but I have found that I can be put off by too much information. Therefore trying to just peel it back to HH HL support and resistance and of course only trading with the trend. When I am looking at the daily chart towards the end of the day, I have not found it useful to drill down to pinpoint entry. I only deal based on the TA of the daily chart. I would be extremely interested though, in how an Oscillator can help with your entry point @TrendFollower if of course you don't mind sharing that. Obviously, if that's too much information to share I completely understand.

[Nelsy-Boy]

Thanks @TrendFollower. Not sure if the Momentum indicator is classed as an oscillator but I have found it useful when the line crosses the mid point line in terms of a trend reversal. I have also found divergence quite an interesting benefit but at the same time, it has stopped me from entering trades only to find that the divergence was false and the market was just consolidating prior to the next leg up. Do you bother to pay attention to divergence when trendfollowing?

[Caseynotes]

@Nelsy-Boy,  anything that goes up and down between set values is an oscillator and you are right to be wary of divergence but if thought about the right way can be very informative. 2 examples, the worst of and the best of a divergence signal.

1/ After a large spike an oscillator will always fall away signalling divergence though price is still rising simply because the momentum generated by the spike cannot be sustained in the subsequent price action so the divergence signal should be ignored.

2/ When price is at a double top and has then broken up through the previous high but momentum has fallen away signalling divergence and is supported by decreased volume the divergence signal may well be true and the break may well be a fake. 

[Nelsy-Boy]

@Caseynotes and @TrendFollower many thanks for your insight. Much appreciated.

[Caseynotes]

@Nelsy-Boy,  was looking at the Gold forecast from Trading Central this morning which is in line with my own mentioned in this thread last week only to see gold bolt off in the opposite direction as this was being published lol.

Does raise the point that if you are trading on a daily chart that though you would not have got the entry confirmation you mentioned last week you do need big stops and from here a first target for a short would be less than 1:1.

I was also wondering (anyone) if IG email these out twice a day? I signed up with another broker to receive them some 8 years ago and though IG does have Trading Central I don't ever recall IG advertising the service.

[Nelsy-Boy]

@Caseynotes You are right about the extent of the stop required when trading daily charts. Deal ratio is one of the main things I have really tried to improve but it isn't easy.

[Caseynotes]

Perfect example of supply and demand in action on the gold chart at 1310, see comparative chart above in this thread. The confirmation is the strong kick away from the level, if the price action was uncertain about the level it would suggest it was not being used as a supply level.