TheStrategyLab.com Price Action Trading Support Forum

Hi all,

If I understand correctly from the DOK instructions I am allowed to post a question here on the forum before continuing with my DOK on Chapter 2.

I have been applying the theory from Chapter 2, but can’t seem to find many Swing Points and Strong Continuation as defined in Chapter 2. So I wonder if I am applying the theory correctly?

I added a chart of the ES 5m 20/02/19 where a KME took place at 1500 GMT. According to my interpretation of the rules in chapter 2, the price action did not meet requirements for any swing points or strong continuation.

I added a second chart of ES 5m 19/02/19 what I believe is a correct Swing Point #1 in accordance with chapter 2 (for arguments sake I have called the Market Open WRBHG a KME, as marked on the chart).

Rules & Definitions
WRB = Wide Range Body, an interval that has a body larger than each body of the prior three intervals
WRB Hidden Gap = a WRB where the interval before and after the WRB do not share a tick. This represents a key change in supply and demand involving key market participants

Swing point 1
When the KME occurs it produces a first WRB Hidden Gap (WRBHG) in the same interval as KME. After the KME one of the following must occur:
• Price action after first WRBHG continues in the same direction. Also the price action after the first WRBHG must fill in the price action of any prior unfilled WRBHG. This change in price direction must occur prior to the formation of any next swing point.
• Price action after the first WRBHG continues in the same direction as the first WRBHG and then fills in the range (highest high to lowest low) of any prior three consecutive same direction intervals. Again, this change in price direction must occur prior to the formation of any next swing point.
The KME interval must have its close below the price of any prior down WRBHG or below the range of any prior three consecutive declining same direction intervals. Opposite for bearish.
The body of the KME interval that produces a WRBHG becomes a WRB Zone.

Swing Point 2
The KME interval is not a WRBHG and it must occur amongst contracting volatility intervals that occurred before the first WRBHG interval. The first WRBHG interval that occurs after the KME must be larger than the contracting volatility intervals.

• Price action was declining, then reversed direction through a first WRBHG interval. This WRBHG must share at least one tick with the three contracting volatility intervals and it breaks out above these three intervals. (This is bullish, opposite for bearish)
• After the first WRBHG u need three consecutive higher closing intervals prior to the next wing point. (the WRBHG counts as one of these intervals). This must occur after KME (This is bullish, opposite for bearish)
Strong Continuation 1:
Definition
Two or more WRBHG’s in the same direction. The first WRBHG is a breakout interval above most recent reaction high (bullish) (see definition below) or below most recent reaction low (bearish). The other WRBHG must have occurred after the first WRBHG before the next swing point.
Rules:
• KME can occur before first WRBHG, but must occur between the reaction high/low and the first WRBHG. If the KME occurs before the first WRBHG it must not be a WRBHG itself.
• The KME must not occur after the first WRBHG breakout
• Only the first WRBHG breakout interval can qualify as a WRB zone.
Reaction High
Price action with a minimum of two consecutive up intervals with higher closes before the reaction high and then price decline after the reaction high with a minimum of two consecutive down intervals. (Opposite for reaction low)

Strong Continuation 2:
v1,v2
v represents a WRBHG that is a is volatility spike that breaks out of the prior contracting volatility (minimum of three intervals). v1 is the most recent, v2 the one before that.
Definition:
Price action was rising (minimum of two up intervals with higher closes) before and below the close of up v2. This is followed by contracting volatility. This is followed by up v1 after which price action continues rising (minimum of two up intervals with higher closes) after and above the close of v1 prior to the next swing point. (opposite for bearish)

Rules:
• Only one of the v1/v2 is required to be a WRBHG
• Both v2 and v1 must be a volatility breakout above/below contracting volatility
• V2 WRB needs to breakout above prior three intervals, but v1 must breakout above all intervals between v2 and v1.
• The contracting volatility between v2 and v1 does not retrace the range of v2 and it’s prior three contracting volatility intervals.
• Contracting volatility between v2 and v1 intervals does not have WRB with bodies larger than the bodies of v2 or v1.
• V2 and v1 WRB are the same color
• V1 must occur at/after KME. If using v2 as WRB zone it must occur at/after KME


Thank you in advance

Hi,

Thank you for the DOKs. Your charts and annotations are correct. Also, Emini ES futures commonly has strong continuation & swing point price action definitions. Thus, if the chart you're looking at does not contain any price action definitions...you can lower the time frame to look for price action definitions for the purpose of the DOKs.

In contrast, for the purpose of trading...its important to remember these are basic price action definitions. Thus, there are others not discussed in the WRB Analysis Free Study Guide.

Another suggestion, use WRB Zones from highly correlated price actions. For example, SPY / SPX / NQ and others may have a WRB Zone when Emini ES does not. I commonly trade as such. Thus, if SPX has a WRB Zone...I will look at the same interval in Emini ES and then treat that interval as a WRB Zone in Emini ES even if it did not qualify as a WRB Zone in Emini ES

Regards,
M.A. Perry

Hi Mr. Perry,

Thank you for the reply.

I normally don't like to drop down a timeframe while trading, but I suppose for the purposes of identifying WRB Zones I can't hurt. Thank you for the suggestion.


Your second suggestion about using correlated markets to identify WRB Zones is interesting. I never thought of using intermarket analysis this way, thank you!


Also, I am assuming my charts in this post are not sufficient for a DOK of chapter 2, but I will need to show a chart of each type of Swing point and Strong Continuation?

Wouter

Hi Wouter,

Yes, its mention all over the website, forum and chat room that I use intermarket analysis and intramarket analysis to help with my analysis and trades. Yet, it goes over the heads of most or they ignore it via thinking I have on my monitor just a chart of Emini ES futures and nothing else to do my analysis or look for trades in Emini ES futures.

Some will then say they do not understand my trades or analysis because they ONLY are looking at the chart of Emini ES futures to try to correlate with what I'm doing (analysis or trades). Regardless, inter/intra market analysis helps me to view more of the playing field instead of having tunnel vision (seeing very little).

I now only need to see DOK charts for strong continuation price action definitions #1 & #2 along with images of timestamp trade fills in broker trade execution platform (simulator). The latter would be ok for real money trades but only for someone that has already posted such for simulator trading.

Yet, if you don't want to post images of timestamp trade fills in broker trade execution platform...you can join the free chat room and post real time trades in the chat room and then follow up with explanation of the trades here at the forum (or within a private thread) via the key concepts of WRB Analysis involving some of the specific trades you posted in the free chat room. This is not a very good option because many members complain that posting their real time trades in chat rooms are a distraction from their trading...something I agree with.

Reason why most members do not use the free chat room and prefer to just post images of timestamp trade fills in broker trade execution platform in their private thread.

Regards,
M.A. Perry

Hi Mr. Perry,

Thank you again for the reply. See here my charts of Strong Continuation type 1 and type 2. Broker statement to follow. This will be later in the week as I am having to change brokers and waiting on the process to complete. In the meantime I will also post my DOK for chapter 3.

I have seen that you use intermarket analysis and I think it is brilliant approach to understand what is going on in the markets. I have used it in a limited way where I see a setup developing on both the EUSTX50 and DAX and will take the trade (sim so far only) on whichever instrument gives me the best signal.


Wizzle

Hi,

I just wanted to post a quick message before you post your timestamp trade fills in broker statement...

Make sure you blacken/whiteout any account numbers and name on account for security & privacy reasons. There are a few trolls & hackers still visiting this forum.

Regards,
M.A. Perry

Hi Wouter (Wizzle),

Here's the problem with your understanding of Strong Continuation price action definitions:

Chart for Strong Continuation #2 @ http://www.thestrategylab.com/tsl/forum/download/file.php?id=5832

In your chart you only have 1 contracting volatility interval between the v2 and v1 intervals. There must be a minimum of 3 contracting volatility intervals between the v2 and v2 intervals.

The above rule is repeated a few times in the strong continuation #2 via statements like The contracting volatility (minimum of three intervals) between v2 and v1 intervals.

In fact, if you study the DOK charts by other users, you'll see a minimum of three contracting volatility intervals between the v2 and v1 intervals.

Chart for Strong Continuation #1 @ http://www.thestrategylab.com/tsl/forum/download/file.php?id=5833

The WRB Hidden GAP interval that's a breakout of the most recent reaction high...that WRB HG interval must close above the most recent reaction high. In contrast, in your chart, it looks less or equal to the most recent reaction high instead of closing above the most recent reaction high.

Reminder, I only share 2 types of strong continuation price action definitions. Some users have their own definitions of strong continuation especially the users that are trend traders and need them to help them to identify a trend.

Some of these users are using +10 types of strong continuation price action definitions that they've personally designed beyond my 2 types. A few of them have coded/programed their price action definitions including my 2 types.

Regards,
M.A. Perry
TheStrategyLab.com

Hi Mark,

Thank you for spotting the two errors!

I do have the rule (minimum of three contracting intervals between v2,v1) written down in my checklist for Strong Continuation type two, but I missed it on this chart.. Thank you.


I expected a comment on the break above the reaction high on the chart for Strong Continuation Type 1. On the data I have the WRB closes one tick above the reaction high, the visual representation of it is not great (using tradingview atm).


Do you want me to post two new charts with all the correct rules?

Wouter

Hi,

New charts not needed. The key issue is that you understand your errors. Also, you probably have notice that different data providers often do provide slightly different data info...as an example...your chart had the close of the WRB HG breakout interval > than the close of the most recent reaction high by 1 tick whereas my charts via eSignal, broker and TOS had different info even among themselves.

For example, that reaction high was different for all three of my data providers and I've notice how these data providers are different the past +20 years.



This is one of the flaws with chart analysis...different traders using the same strategy can see different data info...impacting their trade decisions, profit targets, trade management and such.

Regards,
M.A. Perry
TheStrategyLab.com

Hi,

Ok thank you. I understand the errors I have made.

Yes the correct data provision is an important factor. Just an fyi this is not my usual data provider.

Wouter