When it comes to trading, easy to apply and unambiguous to read is the best when you want a technique that is easy to repeat consistently with minimum judgement and experience required. In fact something clear that we can train a child to spot. We show you how with this WTI chart.
Month-month and week-week boxes tell a story
WTI down trend so easy to spot
WTI screams down trend since July 2014 following the first bearish expansion.
From July 2014, the daily time frame shows:
- WTI is in 7th month of lower high, lower low month-month.
- WTI is in 29th week of lower high, lower low week-week.
- Weeks 4, 9, 17, 21 and 26 are ‘inside’ weeks that tell us price is consolidating.
- If there was any doubt at all, one should only be confused by weeks 12 and 14 which print higher weekly action which we have always asked traders to be careful of being herded into a trap (best explained by this post).
A rule-based approach to price action trading
Here’s a primer for those who have not encountered our brand of price action trading.
Don’t catch a falling knife especially one that is oily and slippery
1. The start of a new trend is marked by price expansion in the opposite direction; previous lows (for bearish reversal) or previous highs (for bullish reversal) are penetrated.
2. Downtrend is a series of lower highs and lower lows (marked by red line). In this daily chart, understanding highs and lows using monthly levels make it easy even for beginners.
3. Danger lurks when price makes false non-committal breaks. These give a semblance of reversal but could be wash N rinse movement.
4. There are instances when a period such as this inside month where price does not move out of both North and South boundaries. Instantly traders may recognise a consolidation pattern. Trading should switch to a range trading approach. If in doubt, trend riders should stick to previous trend i.e. down.
5. When a genuine reversal happens, it is marked by price expansion again. In this bullish reversal, price breaks the previous month high. Decisive breaks are often clear to recognise and not ambiguous.
6. As long as the previous low is not violated, the trend remains up.
As a final reminder, please don’t catch a falling knife because it is a no-no behaviour that must not come from traders. Even if it appears cheap, it can sometimes go really into an unthinkable level.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
Come find Tiong Hum on Google+