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Day Trading For Beginners – One of the Best “Indicators”

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day trading for beginners
day trading for beginners

Day trading for beginners can seem like a tall mountain to climb. Whether you’re looking to day trading Forex, the stock market, futures or E-minis, there’s a steep learning curve.

Trading can be a very rewarding profession, but the newbie must begin by understanding just that: Day trading is a profession and takes time and serious study to master. Even then, most people aren’t successful.

Today’s video on day trading for beginners shares with you a great technique for anyone. It can used for trading most any market that has professional traders participating. It’s a very basic technique, and that’s why I call it day trading for beginners.

Enjoy the video and please leave your comments below.

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VIDEO TRANSCRIPT:

Welcome to this video on day trading for beginners. First, notice that at the beginning of the day, we have the gap open. The E-minis go up a for about15, 20 minutes or so. Now, what we’re going to do is compare that with the advance/decline index.

The advance decline index symbol on my chart may not be the symbol that is used for your data provider. I am using Kinetic data here, so that’s the symbol for Kinetic data. And then I’ve got a 20 period simple moving average and I’ve got 2 minute charts as you can see.

THIS ISN’T A DAY TRADING FOR BEGINNERS “INDICATOR”

A common mistake is not realizing that the advance decline isn’t an indicator. That’s the first thing I want to say. To avoid any confusion, this is not something you can find in your list of indicators. It is an index, so it has a symbol. So just like a stock, for example, or if future’s contract. We’ll have a symbol. And in this case, E-minis here, it’s ES. Microsoft’s symbol is MSFT.

So the same thing here. This isn’t an indicator, it is actually an index that measures a statistic of the number of advancing issues versus declining issues. And issues mean basically equities or stocks. So how many are going up versus how many are going down at that time?

And it is something that I use a couple of different ways. First, let me show you the first way that I use it. And that is like this.

HOW TO USE THIS INDEX FOR DAY TRADING

In this chart, the E-minis are coming up at the open, but if you look at the advance decline index, it’s not going up, does not make a higher high. Whereas the E-mini does. That’s a warning to me saying, oh wait a minute, yeah we have a temporary little move up here on the E-mini, but I am not going to trust that. This is contradicting the advance decline index and therefore this tends to be more correct than the individual stock or futures contract that you are trading. I’m normally looking for this to win out between the two of them. This is going sideways and this one’s going up. So looking to take this short.

Now let me say one other thing here before we get carried away with this. This is not something that you use alone. In fact there’s nothing that you use alone. Nothing use in isolation. It would be part of your trading methodology. One part of your trading methodology. Alright, so let’s get that very clear.

AN EXAMPLE OF HOW TO USE THE INDEX FOR DAY TRADERS

Alright so let’s look at another way that we use this. Actually it’s the same way but look at it from a different perspective. You could call this a divergence. But the advance decline line goes up here but look again we have a higher high on the E-minis. Whereas we just have an equal high, essentially the advanced decline. And so therefore again that showing that this move up is moving up on weakness.

The Advance/Decline line is measuring what’s going on internally in the market. So if I was wrong here, I’d be thinking, oh you know what, I think, I’ll just get out. And identify other indications, other reasons to assure it, I may actually even go even short, and be able to get in early. So that’s the number 1 way to use it is these divergences.

A SECOND EXAMPLE

Here’s a second way that I use this. Here’s the 20 period simple moving average. And I put it on the E-minis. We have 20 period simple moving average on both of them. Here’s what interesting. The idea is basically to trade in the direction of the 20 period simple moving average on the advanced decline index.

For example, let’s compare here and here. A lot of times this will be the same. So here we are below, price actions below the 20 period simple moving average, and price is moving down. Now we get an identical move here, okay that’s great. Now here’s where we get something different though.

So here if you look at this section, and the E-minis, price gets below the 20 period simple moving average. But not so on the advanced decline index, it stays above it. Relative to the moving average, it stays above it. Basically we’re looking to go long when the advanced decline line is above the 20 SMA and short when it gets below it. And we also are looking at the angle. So we are able to stay into this all the way to right here, across or below it. And look what kind of reward that gives you.

By the way, as a final tip, this can be used for trailing stops as well.

FREE GIFT!

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Trend Trading Indicators – The Best One & 3 Ways to Trade it

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Trend Trading Indicators
Trend Trading Indicators - which is the Best One?

Trend Trading Indicators are a dime a dozen, but which is the best one?

It’s an important question because a lot of trading methods are based on trading with the trend, also known as “trend following.”

In this video you’ll learn the best of any of the trend trading indicators I’ve ever used specifically for day trading. This is so reliable that I NEVER trade against it!

Enjoy the video and please leave your comments below.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.

VIDEO TRANSCRIPT:

Welcome to this video on Trend Trading Indicators.

Actually today I am going to show you one of the most effective and accurate ways to measure a trend that’s not really an indicator, but an index. Now what’s the difference? I get that a lot. So lot of times, like I did a webinar and a video on the tick index before and even after saying that it’s not an indicator, people still kept asking me to send them the indicator. Well it’s not an indicator, neither is this.

So when I say it’s an index, as opposed to an indicator, what I mean is you’re not going to find this in a list of indicators on your charting platform. It is a, well it has a symbol. Similar to a stock. So here is the symbol. So you look it up a symbol and now you’ll have to ask your data provider, not necessarily your brokered firm or your software provider, unless they are all the same.

Whoever provides your data, they will have a unique symbol for this. And it may be the same as mine or might be different. I am using kinetic for my data providers. If you have kinetic, you can use that symbol right there. Otherwise you have to ask your data provider.

THIS IS AN INDEX, NOT AN INDICATOR

But basically what it is is it is a statistic that is measuring the volume of shares of a security that are traded when the price is increasing, and then conversely when the volume of shares of a security that are trading when the price is decreasing, and measuring that difference.

There are several versions of this, this is one of the New York Stock Exchange. And they have others that will measure the NASDAQ, or the Dow or the S&P. You can get more specific if you want to. For example if you are trading the E-minis, you might want to look at the one that specifically measures for the S&P. If you are measuring or if you’re trading the MQs, the NASDAQ, the Qs, whatever, you may want to use the one for the NASDAQ.

This is one of the most powerful things that I’ve ever come across. This thing is amazing. It is really, really good. I really encourage you to at least experiment with this because this has helped my trading tremendously.

Okay, so here is how we use it. First of all, I like to add a 15 exponential moving average to it. You can try it with the moving averages. I don’t think there is any particular magic to which one you use. But I will just get a big picture.

#1 WAY TO TRADE THE TREND TRADING INDICATORS

Number 1: Unidirectional Days.

We get this maybe once or twice a week. So this is an especially helpful for day trading. Maybe once or twice a week we’ll get a market that pretty much moves generally in just one direction all day.

Here is literally the open of the day, and that’s the close of the day. And as you can see, right before the close, it goes all the way down there, and then we get a little pop up in last 30 minutes. But basically it’s a unidirectional day.

This is not a day where you’d want to be taking long trades. This is a day where you’d do much better if all you did was short the market. And that’s the only trade you took was shorting the market. I always have this chart up every single day and I’m looking at this thing, and if the net volume is staying below the 15 EMA all day long, I’m just taking shorts.

In fact, I’ll tell you what, there’s some days that you can just take a short at the beginning of the day, and as long as this thing continues going down, you can hold at least part of this position for the entire day. And just have a huge winning day. And let me tell you, one day like that out of a week, can make you a lot of money. Even if that’s all you traded. That can make you a truckload of money.

Now because of the gyrations and oscillations of the markets, you want to use money management, risk management obviously. But might want to still keep a contract or two on small part of your position for the entire day. And just rack up those huge wins. That’s the first way to use it.

#2 WAY TO TRADE THE TREND TRADING INDICATORS

Now the 2nd way to use Trend Trading Indicators is to take trend reversal trades. But here is the tricky part.

This index look is going down down down all the day. Now you’ll look at the say, E-minis. Maybe they’re actually going up, they start a little uptrend. And you look at this index and it’s still going down. Oh, that’s a beautiful trade. That is the perfect time to take a trend reversal trend back down, shorting it back in the direction of this. This is more of a broad stroke indication of what the market is doing.

Even when this is going down the E-minis can, actually be making  higher highs and higher lows while this is still going down. So you look for those little uptrends occurring on the market and then take a trade reversal trade back in the direction of this index. And again those are fantastic trades.

Here’s an example of what I was just referring to where the net volume is up above the 15 EMA. Just along the whole way. However on the E-minis, we’ve got a lower low and another lower low. And so this looks like, ‘oh my gosh this is a downtrend. Looks bearish for the E-minis.’ But when you compare it with this, where the volume, the net volume is up. That means that this down move is probably going to be temporary.

Yeah you’ll get down moves, you will, you get moves against this. But there is more up volume or when price is increasing, there is more volume than when price is decreasing. You get still price increasing and decreasing, but which one has more volume behind it, So let’s follow the big volume. And not follow the small volume.Trade against the small volume traders. So this is one way to do that. And it works extremely well.

#3 WAY TO TRADE THE TREND TRADING INDICATORS

And here is the 3rd way to use Trend Trading Indicators. This is one way to help you stay out of choppy markets. So if you look at this, you’ll see that the net volume indicator, well index I am sorry. They all really stay above the 15 EMA or below the 15 EMA. And if you look at the angle of it, it’s not just straight up, or straight down like I had in the last 2 charts. It’s just pretty much consolidating here, and ah then we get a move up. But then it just comes back right down and consolidates.

That’s a day where there is no dominant volume to the upside or the downside. In other words of the market professionals, the big money hasn’t committed to bullish position or a bearish position and therefore most likely you are not getting any big follow-through to the upside or the downside. You can see that on the E-minis here too as well. So it follows just pretty much in a channel type of situation. There’s no big winners or losers to have here this day. They just aren’t existing because the market doesn’t provide that for you. So that’s the 3rd use of this and it’s how to stay out of choppy markets.

 

FREE GIFT!

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information or other topics you’d like me to teach in the future.

Also I am giving away one of my favorite chart patterns that works today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

Those interested in Trend Trading Indicators also showed in interest in this video:
http://www.topdogtrading.com/e-mini-trading-strategies-secret/

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The Tick Index Indicator: E-mini Futures Trading Basics for Big Profits

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The TICK index indicator has been a favorite tool of day traders of the E-mini futures trading basics for many years. However the way it’s traditionally taught is the opposite of what actually works in real trading.

Consider adding the tick index indicator to your trading method and it may take your E-mini day trading to a new level.

Enjoy the video and please leave your comments below.

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VIDEO TEXT:

Welcome to this video on E-mini futures trading basics using the Tick index indicator. This is a powerful tool. It’s changed a bit over the years. So I want to share with you how it really works because I find that a lot of people are not teaching this correctly. Most successful trading is unorthodox or against what’s normally taught.

So first of all we have 2 things on our chart. These are 2 minute bars. So we got E-mini futures down here. And here we have the tick index indicator. Now some people call this the tick indicator, and that’s wrong. This is not an indicator, it’s an index. An indicator is something that is derivative of other things, mathematical formula. Things like price, volume, and indexes are just what they are. They are not derivatives of anything else. In this case they are basically statistics.

WHAT IS THE TICK INDEX INDICATOR?

What is a tick? A tick is when a stock, in this case, it’s based on the stock market, New York Stock Exchange, specifically in this case. It’s when a stock moves up. If the last trade is traded at a higher price than the previous trade, then that would be an uptick. And conversely if the last trade, trades one trades lower than the previous trade before that, then that would be a down tick.

Literally every single trade that comes through the market, is an uptick or a downtick from the previous trade. So very short term indication on the tick index indicator, that’s the first thing you need to know about it is that it’s a very, very short term indication.

Now I use 3 levels and these have changed over the years but in today’s market, I find these levels very helpful. First of all you get your midline. 0 is neutral, alright. And then I have got my upper line here which is 600. And then the extreme line which is at 1000. And then below here we have negative 600 and negative 1000. So these are very very extreme obviously. Anything around 0 is neutral.

Now here is what’s a little unusual. Lots of people will say that when you get down to these lower levels on the tick index indicator then that is bullish, that the marketing is getting oversold. And if you saw my videos on the RSI, you’ve heard me talk about this concept. That is not correct.

HOW TO PROPERLY READ THIS INDEX FOR E-MINI FUTURES TRADING BASICS

What’s actually happening here is we are getting bearish movements, so I put on my charts an audio alert. When the tick index indicator comes and hits this line here, or hits the very lowest line which happens much more rarely. Then an audio alert goes on. And that tells me that there is now a very bearish move in the market so my sentiment switches to bearish. And I don’t even have to watch the chart. I have it actually on a separate monitor.

I don’t even really watch when the audio alerts go on for certain things. Then it alerts me to, oh, okay, wait a minute, this is bearish. So as you can see it hits the red line there, it hits the red line there. And indeed the market does end up going down quite a bit.

Now the other side of it is, we go down, we go hit the red line which is negative 600. As it retraces, we like to see it hold the zero line. Now it’s not going to hold it exactly. But what we don’t want it to do is go back up to positive 600, or the green line. So we want it to go down here, hit this level multiple times, and then as on the retrace, kind of stay here around zero. So there’s strength down and weakness up. And that creates the bearish movement. That is showing bearish sentiment in the market.

NEUTRAL MARKETS

Now in neutral market, is when the tick index indicator, just kind of hovers around the zero line because little bit above, little bit below. Little bit above, little bit below. Never hits negative 600 or positive 600. That indicates basically a choppy market. That’s one of the question I get a lot of people asking me. How do I stay out of a choppier market? Well this would be one way that you could do that.

Notice all of a sudden then, boom, we get a nice impulse move. And it goes up in positive 600. So now we become bullish and if you look at this, you know the market did basically go sideways during this time. Came after this low, and then it went sideways, and then once we hit that, then from here to there, yeah it goes up a bit, it’s not going up a huge amount. Again remember this is a very short term chart. This is best for scalping, real short term trading. This thing can change very quickly. We don’t go… the other thing is that we don’t go back up and hit 600 again, do we? So that’s a little bit of warning.

HOW TO READ THE TREND RETRACE

Now on the other hand, on the retraces, it is pretty much holding the zero line, and one way to know if it’s holding the zero line. Yes it goes a little below zero line. But look each one of these bars is still touching the zero line. None of them get completely below it. And most importantly, none of them get down to negative 600 on the tick index indicator. So that’s indicating to me that there’s still bullish sentiment here. May not have been as strong as the bearish sentiment we had over here. But, and that’s why it moves up on a more gradual basis.

Now look at this chart here, so again same principles. We start out, market doesn’t hit negative 600 or positive 600. Wait for the first time it does. Boom. There it is. Now notice price hasn’t really gone down that much. In fact up until this time, price action’s been going up. And then we get this. And from there on out market goes down. Notice by the way, again the same principle, goes below 600, when it comes back up to retrace, it holds the 0 line.

Every one of these bars is touching the 0 line. Goes back, hits negative 600 again. That’s a good sign. Retraces. Now it gets a little bit above here where we may not like it as much. But not quite as bad. But anyway you catch your quick little move. Again. Hey you know that’s what, maybe 30 minutes in the market. That you are maybe little bit longer than that. But hey not a bad little trade if you are a scalp trader.

HOW THIS WORKS IN REAL, LIVE MARKETS

Now let’s get realistic. Nothing works all the time. So I always love to show examples that don’t work on the tick index indicator. You know a lot of courses and things people just show you all the perfect textbook examples and everything looks great and then you go to trade it, and it ends like, hey why didn’t this work? Well that’s because nothing works all the time. In trading, we are not trading certainties, we are trading probabilities. So therefore you always have to have money management or risk management involved. Because nothing works all the time.

So here is a great example of that. I love to point these out in my courses and things that always do this because I want to get in your mind, the fact that, no I am not expecting this is going to work every time. So here we go, hit positive 600. Alright and sure enough the market, going up a little bit. That’s cool.

Now however it comes back down, and it doesn’t hit 600 again. But now it hits negative 600. Well that sucks right. It went from negative 600 to positive 600, then right back down to negative 600 again. Well yeah. Sometimes that’s going to happen.

The point is, you can’t use this alone. You need to put together a number of non coorelated variables to give yourself a probability scenario. There’s No holy grail and this isn’t a holy grail either. So this can be one extra piece of evidence that you use along with whatever trading method you’re currently using. But don’t use it alone, it is not foolproof. So I like to show you these examples.

VOLATILE, DIRECTIONLESS MARKETS

Now then, by the way after the tick index indicator goes down to negative 600, it goes right back up to positive 600. So it’s kind of crazy market right now, right. Very volatile. We hit big move in one direction, the other, another, another.

Finally it decides to settle in. so now it stays, keeps coming back here hitting 600, almost there. And on the downside, everyone in these bars is touching the zero line and therefore, at this point, works very well. And from this point out we can say okay, we can be bullish here. So becomes unidirectional. Most importantly, always have your money management, or risk management in place.

HOW TO TIME YOUR ENTRIES ACCURATELY

And, oh one of the things I want to mention too, is timing your entries. So what will happen is the indicator, or not the indicator but the index, it will come down and it will hit one of these levels. And, but if you enter that level you are basically buying when the market’s already down. I like to, if you do that you’re got to be paying retail, I like to wait for a retrace and pay wholesale. And I use my timing, or my cycle indicator in order to tell me when to get in. be happy to make that available to you if you subscribe to our YouTube channel, send me an email at barry@topdogtrading.com. I’ll be happy to share that with you absolutely free.

Now here is the last example I want to give. We haven’t seen this yet. And this is more rare. Specially these days. But it does happen. And that’s where the index comes down to either negative 1000 or goes up to positive 1000.

Now back in the days of yore, I was always taught that that’s a reversal situation because it’s so extreme. And unfortunately then I actually started trading and I found out that wasn’t really so true. It is extreme. And sometimes the market will reverse off of that but again it’s really got to do with the dominant direction of the market. The market is in a dominant direction down. So it goes down, retraces a little bit. Goes down again. What’s happened, what happened there? Well it goes back and hits a negative 1000 again. And then it almost does it the 3rd time.

OUR MARKET INSTINCTS ARE USUALLY WRONG

So this whole time, you know this pick is just a bearish bearish market. It’s usually not good to trade against the dominant energy of the market. And amateurs seem to always want to do that. I used to always want to do that too. I know, we all, as human beings seem to have some kind of instinctiveness that we just want to trade against the dominant direction of the market. Let me tell you, that’s the exact wrong thing to do. Always trade with the dominant direction of the market.

There’s times when you can trade against trend. That’s when it’s extended, and gets weak. You get an exhaustion pattern, things like that. So there are set ups for trend reversals. But believe me, even though the risk reward is good, the win loss ratio is not as good. And it’s just so much easier to just go with the flow of the money. So there you go. And so even these extreme.

And by the way, I’ll say one more thing here. I found that on these extremes of the tick index indicator, usually the number 3 is pretty darn good. So if you do want to look for an exhaustion pattern, wait for it to hit a 1000 3 times. Then look at everything else. Look for other things that would cause you to think that the trend’s going to reverse if those line up. after 3 times hitting a 1000 or negative 1000, you may just get a reversal at that time.

IN CONCLUSION

One last thing that I will say too, there is a tick index for the Nasdaq. And there is also a tick index for the DOW. I don’t find them to be as reliable. So you might think, well if I am trading the E-minis or the DOWN, maybe I’d want to or the diamonds or the Qs. Maybe I’d want to use the tick index for those markets. I don’t find them to really be as reliable. So I just use the tick index indicator no matter what I am trading.

FREE GIFT!

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information or other topics you’d like me to teach in the future.

Also I am giving away one of my favorite chart patterns that works today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

Those interested in the TICK indicator index also showed in interest in this video:
http://www.topdogtrading.com/e-mini-trading-strategies-secret/

Subscribe to my YouTube Channel for notifications when my newest free videos are released by clicking here:

Head And Shoulders Chart Pattern – 3 Rules To Trade it Profitably.

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Head And Shoulders Chart Pattern
3 Steps to Improve Your Profitability with the Head And Shoulders Chart Pattern.

This video on the Head And Shoulders Chart Pattern shows how to dramatically improve your win/loss ratio.

Head And Shoulders Chart Pattern is not simply a higher high, followed by a lower high.

WRONG! That’s not enough to identify a profitable Head and Shoulders Pattern.

The best ones are also TRIANGLES at the same time! Oh, and there’s 2 other critical elements most traders are never taught.

Enjoy the video and please leave your comments below.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.


VIDEO TEXT:

Hey! Welcome to this video on the Head And Shoulders Chart Pattern, and you know, a lot of people trade this totally wrong. A lot of people over-simplify it, but I’m also going to show you how to trade the most effective patterns. What they look like and why. So, we give you the logic behind as well, so you can have confidence in it and understand that, ‘Oh this makes sense!’ So, here we go. Let’s look at a couple of things. There’s really 3 points in today’s video.

RULE #1

A real, true Head and Shoulders chart pattern is one that occurs at the end of a trend. because Head and Shoulders pattern is a trend reversal pattern. Sometimes I see people looking at things like that. They’ll actually see this as a left shoulder, and that as the head, and that as a right shoulder. That is absolutely not a Head and Shoulders pattern.

By the way, for those who maybe don’t know, a Head And Shoulders Chart Pattern basically looks like this: you have a high, then you retrace, a higher high, then a retrace, then a lower high and then a retrace. And people call these different things but basically Head and Shoulders pattern. That’s the basic idea. A high, a higher high and a lower high.

That’s an over-simplification and that’s the problem that a lot of amateur traders make, is they think that’s all it is. That’s the basic Meta pattern but there’s more to it. The reason that this, right here, does not qualify as a Head and Shoulders pattern is because a real Head And Shoulders Chart Pattern only occurs at the end of a trend. And we do not have an up-trend here. So, this would be…we’ve got a nice impulse move here, but really we’ve already had a major down move and this does not qualify as a trend moving up.

WHAT IS A TREND?

A ‘trend’ defined by Webster’s dictionary is the extended general direction of a move. So, think of that, extended, general. Long-term move, right? This is not a long-term move up. So, this is not Head and Shoulders pattern, and that’s why this does not go down and why it does not work because it’s not even a Head And Shoulders Chart Pattern to begin with.

RULE #2

The second point here is that here, we could look at potential Reverse Head and Shoulders chart pattern. There is your left shoulder, your head and the right shoulder. This is also a bad pattern. Now this one’s a little better than the other because at least, we are in a down trend, and it looks like it could be occurring at the end of the down trend, in order to then reverse the trend and go up. We’ve met rule one but we are violating rule two. What’s rule two? Well, let me show you.

The neckline goes from here to here. Okay, so left shoulder, head, right shoulder, and then this high and that high. Now, here’s the problem with this: so, this, if we draw a line horizontally across here, we’ll see that this right neckline broke the high of the left neckline. There’s actually some people who say that’s a good thing, and that those probabilities were the probabilities of that type of pattern is better than if the neckline stays below this neckline or in other words, the right neckline stays below the left neckline.

THE PROBLEM WITH BACK TESTING STATISTICS WHEN TRADING THE STOCK MARKET, FOREX AND E-MINIS.

Understand that a lot of statistics done on chart patterns are done on daily charts. Now, I showed the daily chart on the last chart. This one’s a little two-minute chart. You might think, ‘Well, do Head And Shoulders Chart PatternS actually work on a two-minute chart?’ Yes, they actually do – they do as long as there’s enough volume. This is the E-minis here and so, good volume, two-minute charts work fine.

But the statistics that work on a daily chart don’t necessarily work in an intraday chart, number 1. And number 2 just because something statistically had worked in the past does not mean it will in the future, and so be very leery of all those statistical analysis because well, you see it everywhere that you sign up for a brokerage firm software, whatever it says, ‘past performance is not indicative of the future results,’ so there you go, enough said.

Here is the problem with the logic of the above-mentioned pattern. We actually want the right neckline lower than the left neckline, and here is why: this might seem like, ‘Oh good, this is a confirmation that the move is strong – up.’ Well, as in most things with trading, by the time you get confirmation, the deal is done. I prefer to call trading ‘speculating,’ kind of an old term there from the days of yore, but I prefer to use it because it keeps reminding me that’s always very risky, that we’re managing risk.

PROFESSIONAL TRADERS GET IN EARLY, AMATEURS WAIT FOR TOO MUCH CONFIRMATION AND THUS GET INTO TRADES LATE.

So, traders – good traders – professional traders get in before things are confirmed, before things are obvious. Well, by the time this occurs, everybody sees it and therefore, the amateurs are getting in and it’s too late – you are too late to the party. You want to get in before things are confirmed and then you manage your money and risk, in case it doesn’t work out, and that’s professional trading.

So, if you look at this, okay, we break that high. Now, again the entry which we’ll get around trend point 3 is also a problem, with this…let’s just look into the future here a little bit. So, as you can see it didn’t really go very far.

The entry, the traditional entry is when it breaks this high, and if you took it when it broke that high, you get exactly what happens a lot these days which are failed breakouts. So, I would never want to enter above this high. Just way too late, that is amateur trading. So, let me show you how I trade these Head and Shoulder chart patterns that works out real well.

RULE #3

Here’s our 3rd principle, and let’s just review one and two first…and show you how it works here. So, we’ve got pretty good move down, it’s been moving down for quite a while, comes back up, so that’s our left shoulder, that’s our neckline, make a lower low. Now that’s our right neckline and that’s our right shoulder.

Now, we could enter, the break here, but as I said, I don’t like that but here’s the first thing that I want to point out: this pattern is two patterns in one. In other words, having the right neckline lower than the left neckline gives you two patterns in one. So, a lot of people are going to wait for this breakout here, or some people would do the trend-line and that’s actually a little bit better. I would prefer that. I’m not against trading the trend-line; that one’s okay. But waiting for up here, you’re really paying retail instead of buying wholesale.

TWO PATTERNS IN ONE!

But here’s what I want to point out about these patterns – two patterns in one. Look at this: so, if we connect these highs and we connect these lows, what do we got? We’ve got a triangle, a symmetrical triangle. And so when you get a Head and Shoulders pattern like this where the right neckline is lower than the left neckline, you have two patterns in one.

One, you’ve got the Head and Shoulders pattern, and two, you’ve a Triangle pattern. Triangle patterns are known for breaking out into fairly nice moves. At least, you get a usually good impulse move out of them because there are contraction that moves into expansion, and that’s a cycle in the market: expansion, contraction, expansion, contraction. So, we’re looking for a nice impulse move out of this which we get, and since we get a nice impulse move there, we get back into a little contraction, another impulse move there into back into little contraction. Normal – that’s what normally happens.

WHERE TO ENTER THE HEAD AND SHOULDERS CHART PATTERN?

Where do you get in? Okay. So, you’ve got a couple of options. Number one is you can trade the break of this trend-line. In this case, that option and the one I’m going to mention wouldn’t really make much difference.

If you have a timing tool, a cycle indicator, then you can actually trade this low right here, before the breakout, and that really gives you an incredibly low risk and then proportionally, higher risk-reward ratio. But you got to have a great timing-tool in order to do that.  So, if you don’t have that I’ll give you mine. Feel free to write me up at barry@TopDogTrading.com and I can make that available to you for free, and it works out in any charting platform.

ONE FINAL, BUT IMPORTANT POINT

And one last point that I, one last point that I mention about the Head And Shoulders Chart Pattern. For these to work out, what you want to see a shift of momentum. In other words, momentum can be stronger down here. I’d actually like to see momentum shift here where it’s maybe a little divergent but then for here and this right shoulder. I definitely want to see very little momentum going down.

Whatever momentum indicator you like to use, whatever is your favorite. I’ve done lessons on RSI, and MFI and all kinds of things like that, even the momentum indicator. But you definitely want to make sure there is a momentum shift here. So, that this move down here is a weakness and where our momentum is shifting back into a bullish territory.

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