So the first post in this series was a primer. I don’t know how to imbed links but I am sure you can find it using the find feature on the site. That said this next post is devoted to doing your homework and weeding out levels so you focus only on “value” areas.
Basically a value area is a predetermined place to do business. If the market is not in your area of business there is no trade. Period, no exceptions. If we are testing it from above that value area is then support and buying triggers should be taken. If testing from below short triggers should be taken.
So first off I have a chart to share on important levels based off of the 60 minute. Focus on how its drawn, looking at the WICKS (see first post under candlesticks).
http://screencast.com/t/eW6aBhlcW8
Now I am going to add pivots and we’ll vet out some more levels. For pivots also see the first post. There is plenty of reading material on the subject.
R2 1371.75 R1 1360.25 Pivot 1352.5 S1 1341.5
http://screencast.com/t/4VkRDbfvmC6A
Already you should see where I am looking to buy and sell based on the pivots and zones I have marked off. If we gap up from the close and run up to the upper range/pivot, that’s a classic short set-up. From there what? Well we have the pivot that is acting as midpoint in our range, look to scale and if it prints a reversal, there is an opp to get long. Same is true if we gap down into support, looking to buy and midpoint is used in the same way but shorting rather than buying.
Or maybe the first trade is off the midpoint and into a respective zone. Or maybe we gap above or below the range in which case I can use the extreme and a test of it to get on board a potential trend day. Notice how none of those scenarios were about being bearish or bullish. Solely about “what the set-up” where are the points to be made.
That said our homework is not complete, but about half way there.
Check out where the weekly pivots come in: R1 1367 Pivot 1353 S1 1336
Looks like the R1 and pivot are lining up with our resistance zone and midpoint. Confluence!!
Next look at the daily chart and we see two levels where if they are broken I do NOT want to take a counter trend trade as there are no references:
http://screencast.com/t/k3lHR3yPrf
Now the only thing that is left is to wake up Monday morning and see where globex highs and lows came in. Odds are they will coincide with those levels we have picked out.
Another thing to watch for is, has globex respected any of those levels as in does price mess around each time it touches those areas or pivots? It adds further credence.
Lastly we then will mark off the opening 30 minute range. Very important, and again it is likely to fall in line with an area of confluence. The context of all these levels together will be the main focus of future posts. But no doubt for now you can already start connecting the dots or at the very least start seeing how to connect the dots.
We have essentially used the vast majority of the first post solely in our homework and what was a long list has boiled down to 3 important levels so far.
Possible reading list: Bigalow’s book on candlesticks, though I’d pay more attention to whats important about the candles and not necessarily the candle patterns themselves, as in what is this telling me about buyers and sellers, what levels are crucial for these candles. I also would recommend checking out Dan Gramza’s market studies, he is great at reading candlesticks. Then there are a few books on pivots by Ochoa and Persons.
Should keep you busy. Next post will be devoted to answering a few recurring questions about the last two posts. Then we’ll move on from there later in the week. So if you have questions post them in the comment section.
