A rule-based approach
Here’s another price chart this time using WTI to illustrate Tflow®. Tflow® is our method of forex trading which looks at price trend in a very simple way. This method can be used for multiple time frame analysis. It reveals price action like false breakouts which are perfect as trading triggers in a trend continuation strategy.
The real beauty of this method is that it is rule-based (see story ‘Price action trading can be easy with Tflow®‘) meaning and really simple so that anyone can recite the rules and apply accordingly.
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.
5. 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.
6. 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.
7. As long as the previous low is not violated, the trend remains up.
This daily chart of WTI shows oil in downtrend since July. Light blue boxes show monthly overlay while the smaller ones show weeks.
To recall, a downtrend is defined as a situation where prices move lower and visualised as a series of lower highs and lower lows.
From the chart we can see that:
- Price made a bearish expansion in July which marks the start of the downtrend.
- Price is in the fifth month of downtrend at the moment as it continues to fall below the low of previous months.
- Within those 5 months there are 21 weeks including this week.
- Each week can also be described as lower-high and lower-low except 4, 9, 12, 14 and 17.
- Weeks 12 and 14 made a weekly higher high than turned out to be false and should be classified as a bull trap.
- Weeks 4, 9 and 17 were ‘inside’ weeks that marked consolidation.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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