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Price-action lines are simple setups that work surprisingly well on a five-minute
E-mini candlestick chart. With patience, practice and a flexible mindset, they
can be a versatile tool for the discretionary day-trader.
Taking action
in the E-mini
BY AL BROOKS
40
BULL OR BEAR?
First, a bull or bear leg is identified
with a trendline. For a bull leg, the
trendline is drawn by connecting two
significant lows with a straight line.
This line is then usually extended up
and to the right. For a bear leg, the
trendline is drawn by connecting two
significant highs.
Note that the trendline can be horizontal when drawn across the lows of a
double bottom in a bull flag, for example.
The objective is to observe how
the price acts on subsequent tests
(touches, penetrations or approaches) of the trendline. In the case of a
support line, if it bounces off the
line, this is often a buy signal. If
instead it collapses in a big range bar
through the trendline and the bar
closes near its low, the bull swing
might be over.
However, this is generally
unknown until more price action
unfolds. It is possible that the
market is creating a trend with a
wider channel and a flatter slope.
Such a scenario would require a
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
GETTING STARTED
The first chart below shows how a bull channel sets up a quick bear trade that ends after
price bounces off the regression line drawn earlier in the chart and extended to the right.
The second chart shows how a bullish trendline drawn almost immediately following the
reversal and a trend channel line contain the price action for several more bars.
HOY
1
4
5
2
10
8
12
11:30
12:00
12:30
11
ii
13:00 Apr
7:00
7:30
9:00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
4
12:30
10
ii
MM
12:00
8:30
MM
11:30
8:00
Exit long
11:00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
6:55 short
6 7 16t
Exit short
9
13:00 Apr
7:00
7:55 long
15t
7:30
8:00
8:30
9:00
Source: Tradestation
Less frequently, a regression channel line will be the most useful line
for monitoring price action. Its helpful during times when market action
makes it appear that trendlines will
be too steep for the market to ever
reach them.
First, two points are needed. The
first point is the first bar of the new
swing. The second bar is the bar at
end of the first leg of the new swing;
however, this bar will change as the
trend proceeds and the line will be
redrawn. Typically, you will have the
option to use several different prices,
such as the open, high, low or close,
to calculate the regression. A good
choice is the midpoint of each bar.
After these lines are calculated and
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
41
SIDEWAYS HURTS
The first chart shows a short trade that ended up scratched. Although the bounce
off the trendline appear significant, the market languished afterward. Again in the
second chart, it appeared there was an opportunity for a short trade but the market
still dragged sideways.
HOY
8:45 short
0t
3 5 7
MM
10
8
4 6
Exit breakeven
12:30
13:00 Apr
7:00
7:30
8:00
1
13:00 Apr
7:00
7:30
8:00
9:00
9:30
10:00
9:55 short
0t
Exit breakeven
9
11
5 6
2
8:30
8
10
9:00
9:30
10:00
10:30
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
11:00
Source: Tradestation
42
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
BACK IN ACTION
We are tipped off to a sell when price closes down while bouncing off one down
trendline one bar after approaching another. The second chart shows how new
trendline and trend channel lines drawn along the new up swing provide the support to
for a new long trade.
11:00 short
1t
11 ii
3
4 6 7
8
10
12
ii
5 .62
Exit long
9
2
1
8:30
9:00
9:30
10:00
10:30
11:00
6 7
iii
10
11
Exit breakeven
12:00 long
8t
11:30
12:00
12:30
13:00
1,439.00
1,438.00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
4/3
Source: Tradestation
OPPORTUNITY KNOCKS
Theres a lot of opportunity to capture short-term swings in the E-mini when trading off
five-minute charts.
-1t
16t
0t
0t
1t
8t
1,439.00
1,438.00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
1,423.00
15t
Net total 39t (9.75 points).
(About $440 after commissions.)
1,439.00
1,438.00
1,437.00
1,436.00
1,435.00
1,434.00
1,433.00
1,432.00
1,431.00
1,430.00
1,429.00
1,428.00
1,427.00
1,426.00
1,425.00
1,424.00
1,423.00
13:00A pr 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 4/3 7:00
Source: Tradestation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
43
TRADING TECHNIQUES
Although more complex strategies work for some, a proficiency in reading price
action itself is sufficient to succeed in trading for most retail traders. Here, we
define this concept and quantify some ways to profit from it.
46
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2007 by Futures Magazine Group, 111 W. Jackson Blvd., Suite 2210, Chicago, IL 60604
11 WAYS TO PAYDAY
Here are 11 possible trades on the five-minute S&P 500 chart, contained in one trading day. The first step to identifying patterns that work
is to study several charts like this and learn the recurring tendencies of markets.
10
1,539.00
1,538.00
11
6
1,537.00
1,536.00
1,535.00
1,534.00
1,533.00
1,532.00
5
7
1,531.00
1,530.00
1,529.00
5/17
7:00
1,528.00
7:30
8:00
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
35,000
15,000
5/18
Source: Tradestation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited. www.futuresmag.com | October 2007
Copyright 2007 by Futures Magazine Group, 111 W. Jackson Blvd., Suite 2210, Chicago, IL 60604
47
48
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2007 by Futures Magazine Group, 111 W. Jackson Blvd., Suite 2210, Chicago, IL 60604
TRADING TECHNIQUES
Reversal bars indicate the traders who drove the price in one direction are
unable to hold ground. While that sometimes portends an upcoming price drop,
certain attributes are necessary for reliable forecasts.
Predicting equity
index reversals
BY AL BROOKS
STRUCTURE
An ideally shaped bullish reversal bar has
its open around the middle of the bar,
a tail at the bottom that is at least
one-third of the entire candle, and a
close that is at or near the high. This
structure is reversed for a bearish
reversal bar.
This shape stems from the market
condition that at the start of the bar,
42
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
FOLLOW-THROUGH
Once a bull move begins, smart bulls
will look at the close of every bar. If the
bars continue to close near their highs,
new bulls will enter as soon as the next
bar begins; causing the bar to go up
immediately after it opens. This will create a series of bars that open near the
lows and close near the highs.
If there is enough upward momentum, buyers will buy at any price
because they are confident that even
if the market reverses back down, buyers will soon again overwhelm sellers
and the market will make a new swing
high, allowing them to exit with
a profit.
The size of a reversal bar is also
important. For example, in Size is relative (right) Bar 6 is a reversal bar
that is only five ticks tall. However, it
formed after the market just dropped
seven points (28 ticks) and it is relatively small compared to the prior bars.
The market just traded below a swing
low (seven bars earlier) and traders are
watching the price action to see who is
in control. What they see is a weak
reversal bar, and weak reversal bars are
better viewed as continuation patterns
and not reversal set-ups.
The following bar was a small inside
bar with a down close. Smart bulls who
bought the reversal bar would have had
enough disappointment and would
exit. Smarter bulls would not have
bought in the first place and instead
would place an order to go short on a
stop at one tick below that small bar.
The smarter bull would know that all
those traders who bought that small
reversal bar will dump and look for a
better entry.
THE ROLE OF CONTEXT
Location and context are crucial in
deciding whether to place a trade based
on a reversal bar. An important observation is that Size is relative shows a bear
trend day with at least 11 reversal bars,
yet nine of the 11 are bull reversal bars
and only two are bear reversal bars. This
is not an aberration.
Trend days typically have lots of
SIZE IS RELATIVE
A relatively small reversal bar with a close at its open, such as Bar 6 shown here, is usually
a sign that the market is pausing and not reversing.
Bear Trend Day but only 2 Bearish Reversal Bars
2
5 6
13 4
10
11
1,558.00
1,556.00
1,554.00
1,552.00
1,550.00
1,548.00
1,546.00
1,544.00
1,542.00
1,540.00
1,538.00
1,536.00
1,534.00
1,532.00
1,530.00
1,528.00
1,526.00
1,524.00
1,522.00
1,520.00
70,000
30,000
6/20 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 6/21
Source: TradeStation
2 3
7 89
1 A
1,553.00
1,552.00
1,551.00
1,550.00
1,549.00
1,548.00
1,547.00
1,546.00
1,545.00
1,544.00
1,543.00
1,542.00
1,541.00
1,540.00
1,539.00
24,000
12,000
6/19 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
Source: TradeStation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
43
SIDEWAYS ACTION
Sideways markets require different considerations, such as Bar 1 shown here where a
reversal bar also took on the attributes of an outside bar.
2
6
1
3
5
1,555.00
1,554.00
1,553.00
1,552.00
1,551.00
1,550.00
1,549.00
1,548.00
1,547.00
1,546.00
55,000
25,000
7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 6/18
Source: TradeStation
ANOTHER PERSPECTIVE
When price action indicates a market is reversing, but theres no reversal bar, that
doesnt mean there isnt one on another time frame.
7 minute
1
11:00 11:30 12:00 12:30 13:00 6/19 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
Source: TradeStation
44
1,553.00
1,552.00
1,551.00
1,550.00
1,549.00
1,548.00
1,547.00
1,546.00
1,545.00
1,544.00
1,543.00
1,542.00
1,541.00
1,540.00
1,539.00
35,000
15,000
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
45
TRADING TECHNIQUES
Some aspects of trading are painfully simple. A technical condition can
be either right or wrong. A reliable pattern in the E-mini S&P 500 futures
market is a flag formation on a five-minute chart. However, its when
they fail that you often have the best chance to profit.
34
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
Flag 3
TL1
1,474.00
1,473.00
1,472.00
1,471.00
1,470.00
1,469.00
1,468.00
1,467.00
1,466.00
1,465.00
1,464.00
1,463.00
1,462.00
1,461.00
1,460.00
1,459.00
4 56
Flag 1 Flag 2 2
TL2
TL4
TL3
Flag 4
7
4/11 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
3
TL1
Flag 2
Flag 1
Double
Bottom
TL2
Flag 3
1 2
55,000
25,000
1,534.00
1,533.00
1,532.00
1,531.00
1,530.00
1,529.00
1,528.00
1,527.00
1,526.00
1,525.00
1,524.00
1,523.00
1,522.00
1,521.00
1,520.00
1,519.00
1,518.00
1,517.00
1,516.00
35,000
15,000
6/11 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
Source: Tradestation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
35
TL1
1,530.00
1,525.00
1,520.00
1,515.00
TL2
Flag 2
Flag 1
1,510.00
1,505.00
70,000
30,000
6/11 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
Source: Tradestation
EASY STREET
There are times when you wont want to play the counter-trend game. Here, conditions
supported a continuation of the larger bear move.
1,539.00
1,537.00
1,535.00
1,533.00
1,531.00
1,529.00
1,527.00
1,525.00
1,523.00
1,521.00
1,519.00
1,517.00
1,515.00
1,513.00
1,511.00
1,509.00
1,507.00
1,505.00
1,503.00
TL1
2
Flag 1
55,000
25,000
7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 6/8
Source: Tradestation
36
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
37
TRADING TECHNIQUES
Trading E-mini futures profitably is difficult and can become nearly impossible
when relying on too many time frames and indicators. Here is a relatively
simple approach that involves price action and a basic five-minute E-mini chart.
Five minutes to
fame in the E-mini
BY AL BROOKS
rading does not have to be
complicated. For most traders, if
they take time to look carefully
at candle or bar charts, they will
quickly discover that price action alone
is all you need to observe to be successful. As a bar develops, consider the tone
of the market, whether the bulls or
bears are in control, and more importantly, who is trapped and who will
have to get out. It can be that simple.
While this approach works with all
time frames and all markets, it is efficient on five-minute charts of the Emini S&P 500. Typically, there are
from 10 to 20 set ups per day on the
five-minute time frame, which is far
more than needed to do well. If you
trade enough contracts, you only need
to net one or two points a day
to succeed.
Its typical (right) is a five-minute
chart depicting a normal day in the Emini S&P 500, while First shift (page
42) is a closer look at the first four
hours of trading. For example, 37 is the
37th bar of the day. By reviewing the
price action as this day unfolds, we can
point out several opportunities as they
occur. Along the way, we might refer
to various formations, but general price
40
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
ITS TYPICAL
This chart shows a typical day in the E-mini S&P 500. Theres sideways action, big trend
moves and numerous opportunities for profit.
1,449.00
1,447.00
1,445.00
1,443.00
1,441.00
1,439.00
1,437.00
1,435.00
1,433.00
1,431.00
1,429.00
1,427.00
1,425.00
1,423.00
1,421.00
1,419.00
1,417.00
1,415.00
12:30 11/21 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 11/22
@ ES.D 5-min CME L=1417.75 -28.25 -1.95% MAX (20) 1425.87
Source: Tradestation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
41
1,450.00
1,448.00
1,446.00
1,444.00
1,442.00
1,440.00
1,438.00
1,436.00
1,434.00
1,432.00
1,430.00
1,428.00
1,426.00
1,424.00
1,422.00
1,420.00
1,418.00
1,416.00
43
6
10
31
16
28
22
3
41
8
37
13
20
12:30
13:00
11/21
7:00
7:30
8:00
8:30
9:00
9:30
10:00
Source: Tradestation
42
BIGGER SWINGS
The sell off down to Bar 37 also breaks
the bull trendline from Bar 20 to 31.
The bear trap is set and the new bears
are worried by their inability to move
the market down forcefully. Also, bulls
are eagerly looking for any sign of
strength to add to their longs near the
EMA. Bars 35 and 37 have down closes,
and they are two attempts by the bears
to gain control and both fail. Bulls go
long and bears exit at one tick above
Bar 37. This results in a significant
higher low. Bar 38 is a strong bull trend
bar that broke above the EMA and
broke above the bear trendline from Bar
32 to Bar 34.
Now, you should expect at least two
legs up, which the market gives you:
one ending at Bar 41, and the other at
Bar 45. Bar 43 is a new high for the day
and a huge second leg up (Bar 20 to Bar
31 was the first). This second leg up also
had two legs (Bar 37 to Bar 39 and Bar
41 to Bar 43).When the day is not a
clear and strong trend day, you should
always be looking for set ups that allow
you to fade new swing moves and new
highs and lows for the day. Bar 43 gives
you several and you would sell, expecting at least a scalpers profit and likely
two legs down.
This approach is difficult to quantify
and requires practice to develop a feel
for the market; however, once learned,
it works consistently. For most of us, the
five-minute chart is the best time frame,
providing enough time to spot most set
ups and enter the market. The fiveminute chart offers an incredible opportunity to a day-trader if you remain
patient, trade within your means and
take time to understand what the price
action is telling you.
FM
Al Brooks, M.D., stopped practicing medicine 20
years ago to raise his kids. He has been day
trading for his personal account ever since. He
can be reached at Albrooks223@gmail.com.
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
TRADING TECHNIQUES
If you enjoy the excitement of being in the market, you might want to consider
an always-in approach to trading. Heres how to use price action analysis in an
always-in swing strategy in the E-mini S&Ps.
38
ITS A PROCESS
Whenever you try something new, it is
best to take your time. With this trading strategy, print out several days of
charts and study them before you risk
real money. When you are ready to
trade, start with one contract, regardless of how large a position your
account size can support.
Next, consider trade management.
Even though this strategy requires you
to switch back and forth between long
and short, you can get distracted and
lose money. Therefore, whenever you
are in a trade, always have a stop in the
market, risking about six ticks. Once a
trade moves at least six ticks in your
direction, move your stop to breakeven
or to one tick beyond the entry bar (a
good trade should never reverse the
entry bar). Sometimes, however, you
may consider continuing to risk one or
two more ticks if the first move in your
direction was strong. Often, the best
moves will have pullbacks that do not
hit a breakeven stop and often just
miss it by one tick.
All entries and reversals are on a
stop, one tick beyond the high or low
of the prior bar. If you are long one
contract and there is a set-up for a
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
1,467.00
1,466.00
1,465.00
1,464.00
1,463.00
BAR 50
-3
1,462.00
1,461.00
BAR 62
1,460.00
+17
1,459.00
BAR 26
1,458.00
-6
1,457.00
1,456.00
BAR 18
-2
1,455.00
BAR 5
1,454.00
+19
BAR 56
1,453.00
-1
Net +73 Ticks (about $850)
1,452.00
+22
1,451.00
V() 31144.00
1,450.00
BAR 71
45,000
15,000
1/3 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
BAR 8
BAR 14
+3
BAR 2
Source: TradeStation
DIFFERENT DAYS
The first chart shows sideways action preceded by a big gap down, which often leads to a
huge trend. The second shows a small sideways day prior to a holiday. Despite the lack of
big trends, both days were profitable swing trading days if you followed your rules.
1,462.00
1,458.00
1,454.00
1,450.00
1,446.00
+2
BAR 7+10
+26
1,442.00
+4 BAR 33
1,438.00
+24
BAR
25
BAR 46
+12
1,434.00
BAR
54
+14
+3
1,430.00
-10
BAR
73
BAR 13
1,426.00
+13
BAR
38
-6
-8 BAR 20
1,422.00
BAR 50
1,418.00
+13 Net 109 Ticks (about $1,200) +6
-1
BAR 66
BAR 79 1,414.00
-2
V() 31144.00
+9
50,000
20,000
1/4 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
+8
BAR 72
BAR 67
1,502.00
1,500.00
1,498.00
+6
1,496.00
BAR 11
1,494.00
+6
BAR 4
BAR 37
+4 1,492.00
BAR 77 1,490.00
BAR 62
1,488.00
-2
1,486.00
+14
BAR 51
BAR
44
-2 +3
BAR 19 BAR 29
1,484.00
+11
-1
-2
1,482.00
0
+3
1,480.00
1,478.00
Sideways for 4 1/2 hours
1,476.00
1,474.00
1,472.00
Net 44 Ticks (about $500)
1,470.00
50,000
V() 31144.00
20,000
12/21 7:00 7:30 8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00
-3
BAR 57
Source: TradeStation
Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
39
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Reproduction or use of the text or pictorial content in any manner without written permission is prohibited.
Copyright 2008 by Futures Magazine Group, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606
TRADING TECHNIQUES
You dont need a complicated approach to trade the E-minis. By keeping a close
eye on price action and taking the time to learn a few simple setups, you are
well on your way to reliably capturing numerous intraday profit opportunities
Trading breakouts
and micro trendlines
BY AL BROOKS
ENTRY SETUPS
Two of the most reliable entries are
failed breakouts and breakout pullbacks
because both involve trapped traders
who will be forced to liquidate and
move the market in my direction.
A breakout is a breakout of anything,
including a trendline, a trend channel
line, a swing high or low, the high of
today or yesterday, a trading range, or
any pattern identified on the chart. A
failed breakout is a breakout that reverses
within a bar or a few bars of the breakout.
For example, if there was a breakout to a
new low of the day and the breakout bar
became a strong bull reversal bar, then if
the next bar trades one tick above that
breakout bar, the breakout has failed.
If within a bar or two of the tentative
failure, the market again trades one tick
below the low of the prior bar, then that
failed breakout has also failed. This scenario is called a breakout pullback. Because it
is with the trend (in the direction of the
trend that led up to the pattern) as well as a
second attempt, it is a very reliable signal.
A setup related to the breakout pullback occurs just before a breakout rather
than after. If the market quickly moves
to the verge of breaking out but instead
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PRICE BREAKS
The first chart shows a single days price action in the E-mini S&P 500 with the EMA. The next
two charts include the micro trendlines that captured the dynamics of the trading sessions many
moves. Drawing such trendlines helps you gauge the probability of whether your best chance is
with the trend or against it. Notice the two main trendlines extend for the entire day.
Source: TradeStation
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