ESRX was downgraded from Buy to Hold at Citigroup in pre-market. It gapped lower on the open but managed to fill the gap in the 15 min. OR. Despite early strength, it could not close above the 20 EMA. That failure was followed by two red inside bars at the base of PP support (blue line). The second inside bar was NR7. I shorted a break of the first inside bar just below the PP. My target was a full retracement back to the ORL at R2. Price stalled at the 75% retracement level and started to reverse. I quickly booked a partial and watched closely to see if price would consolidate or reverse.
As you can see from the 5 minute chart below, as price moved from the 75% retracement level back up towards the 50% level, it carved out two doji-like sticks with long upper shadows and it could not close above the down sloping 5 period ema. This signaled further weakness ahead. The target was reached shortly after as price resumed in my direction.
9 comments:
Very nice trade! I have not used pivot points yet. How do you calculate them? Does your software calculate these intraday pivot points? If yes, what are your settings? I would like to experiment with them :-)
Thanks,
anarco
Thanks Anarco,
My software (Esiganl) calculates the basic formula pivot points P S1 S2 R1 and R2. R2 is the red line on my chart. I wrote the formulas for the calculations in a post which you can find in the Intro to WSW Blog (side panel - Key Posts) under Pivot Points - Basic.
The blue line is a visual pivot point which is a S/R area where price pivots and changes direction. For ESRX this PP came into play on the 15th and the 11th. It's easy to see if you look at a wide range view of the 15 minute chart.
If you read all of the posts I wrote on PPs in the Intro to WSW blog, you'll be able to get a good feel for it. My theory is that once a PP is breached, it sets off a momo move. Of course, the markets have to be in the right mood. Lately, PPs breaking to the downside have had much better results than those breaking to the upside.
Jamie,
I was just wondering what is your definition of NR? Bar within previous bar body or within the high-low range? Thx, bob
Thank you for pointing me to the PP posts; they are all really good! I am digesting all this info and hope to slowly work it into my trading.
I have a few more simple questions about your ESRX trade. The PP was drawn around 70.70. The swing low on the 11th was around 70.70 and the swing low on the 15th was around 70.45.
1. What made you decide to draw the intraday pivot at 70.70?
2. Did you have that drawn before the session started or when you saw the 2 inside NRB forming before 11am?
3. If you would have drawn the intraday pivot around 70.45, this trade would had not worked that same, right?
Anyway, I realize that some of these question may be answered as I play with these ideas, but every bit of info helps the learning process.
Thanks in advance!
anarco
Anarco,
There were two swings down on the 15th. The first one observed the $70.70 support and the second one breached it, but immediately reversed. The base of that reversal is at $70.70. It carved out a doji morning star reversal on the 15 min. chart. The high of the doji bar is the base and it was pretty close to the original PP. For me the true PP is the price that comes into play most often. In fact, I don't refer to it as a PP until it comes into play at least a second time. If it sets up a low risk entry, it is worth a shot, but if it has already had a significant move to reach the PP, it needs to consolidate that move, so it's best to wait for either a consolidation or a retest.
I map out my lines when I review the charts the night before.
If I had planned to trade a breach of $70.45, there wouldn't have been a low risk dummy entry, so I would have passed.
Hi Bob,
Narrow range bars are narrower than the average. NR7, for example is the narrowest bar in the last seven bars. If narrow price bars are coupled with volume contraction, it can be like the calm before the storm or a coiled spring. So we can generaly expect price and volume expansion to follow contraction. I do prefer that my NRBs be inside, but it is not a prerequisite for a trade.
There are two links in the Intro to WSW blog under Key Posts in side panel which will help expand on the subject of NR7 and low volatility breakouts.
Now I understand this better. Thank you very much for the detailed explanation.
anarco
Thx, but when you talk about inside bars, is the "inside" with reference to the body of the bar or the wicks of the bar?
Bob
Bob,
Inside means inside the entire candlestick including the wicks.
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