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Gourmet Trader
Page 2: Dissecting the market (The Basics)

Page 5: Bar 1: The Forgotten

Page 7: Bar 2: Two to Tango

Page 11: Bar 3: Three to Swing

Page 19: Bar 4: The Invisible Line and Points of Control

Page 24: Bar 5 and 6: Mastering price analysis in real time

Page 28: 10 Bars and beyond: Bulls and Bears traps

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Dissecting the market (The Basics)

" More than a recipe book, the first collection Dissecting the market in a few bars
(The Basics) defines the fundamental elements behind price analysis. These are my
core trading principles, all trading analysis and decisions are derivate from them.

Trading is just a probability game based on pattern recognition

If every potential trade is a probability game, the job for a trader/scalper is not
forecast the future but to minimize risk using every available tool to find the best
available scenario.

1. The importance of order in the analysis.

In mathematics the order of the factors doesnt changes the result (5 x 8 = 40 and 8 x 5
= 40). However, when trading the order of analysis change everything.

a. If you only focus in how to pull the trigger (timing i.e LT rainbow, Stoch
Crossover, MA Crosses, CCI, etc ,etc ,etc ) you can have some results especially in
trendy markets, but you are doom to fail in the long run.

b. If you only focus in direction you will have 95% hit rate but only in your head
cause u will end up getting stopped out every single time, full of loses because
whipsaws or caught with million doubts every time a S/R or trendline is touch or
broken.

But before analysing DIRECTION, TIMING and MOMENTUM...

2. Price moves in Waves.

Regardless of the instrument and timeframe and despite of the market direction or
its condition (in a trend or in a range) markets always move in waves. Thats why the
Elliott Wave Theory and its followers. But we scalpers [traders] are not interested in
counting waves or forecasting the next possible move but in minimizing the
probabilities of a bad trade.

a.What we dont know about waves:

i.The exact beginning or end of a wave

ii.The potential height of the next wave

b.What we know:
i. Where we have less probabilities for a successful trade regardless of the direction
or condition of the market

Attached Image (click to enlarge)

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c. Have u ever wonder why you end up trading the death lows or highs in a trend

Attached Image (click to enlarge)

Your analysis might be right, the direction, condition and timing might be good but
you are playing a low probability trade because you are forecasting that next wave is
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going to be a lot deeper than the previous one when statistically this is not true.

3. The first factor for a scalper trader is to understand in which part of a wave is the
market.

Not using a statistical method but using common sense (sadly the least common of
the senses). Before you analyse trend S/R lines, Direction, Timing, Momentum and
despite the drawdowns, etc a trader should ask himself in which part of the wave is
the market.

The only rule of thumb is the later you enter a new wave the less probabilities you
will have to be successful.... "
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Bar 1: The Forgotten

A single bar is the first and one of the main pieces of information in a chart and is
usually forgotten or overseen by Indicators, S/R zones, Volume, Fibs, News, etc
filtering the noise of a single bar. But a sound analysis of that noise in key areas can
have a huge impact in market direction analysis and sometimes can make the
difference between a good or a bad trade.

We can spend days defining each potential 1 bar formation (e.g. doji, hammer,
hanging man, etc) but the important issue is understanding the core implications for
any 1 bar formation. The 4 cases in Figure 1 cover all potential formation (all other
cases derivate from them). The obvious static analysis is:
Attached Image

 

 A bull bar opens on the lows and closes on the highs. Buyers were in control
in all or most prices covered in that bar

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 A bear bar opens on the highs and closes on the lows. Sellers were in control
in all or most prices covered in that bar

Attached Image

 In a bullish bar buyers managed to control the lows and the close but at some
points (the highs and below the open) sellers were in control.
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Attached Image

 In a bearish bar sellers managed to control the highs and the close but at some
points (the lows and above the open) buyers were in control.

Every time we introduce a piece of static information in a chart we are adding many
new variables to the equation. Some are clearly seen in a chart, others are hidden
because of the static nature of an ex-post chart. In this case:

1. A closed bar only identifies in absolute terms where buyers or sellers were in
control. We dont know if the buyers/sellers in those areas were strong
enough relative to the market participants (e.g. volume). In other words, in a
bear bar we can see that sellers were stronger in all or most prices in that bar
but we dont know, for example, that this was because of lack of buying
interest (too high to continue = the start of a retracement in an uptrend) or
because there were a genuine new selling pressure (the continuation of a
downtrend or a top in resistance) or because liquidity disappeared and even
small sell trades can push the market to the extremes (news, consolidation
after a major break, etc)
2. The other important hidden issue is that in a static 1 bar we dont know what
was the flow of trades in that particular bar. For example in a bullish bar we
dont know if buyers first push to the highs and after that sellers took control
but they couldnt get rid of the buyers on the lows (more bullish signal) or if
sellers first push to the lows but buyers took control but they were
overpowered by the selling on the highs and barely could close above the
open (a more bearish signal).

Paying attention to this information in areas of potential trades or in the analysis of

macro direction will definitively help a trader to stay in the right side of a trade. It
will be clearer when more bars added to the analysis.
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Bar 2: Two to Tango

A second bar adds a lot of depth in the analysis but before analyzing its implication
is important to remember that there are many variables in a consistent and
sustainable trading plan: the most important are timeframe, risk, market liquidity &
volatility and capital.

All of them have their unique implications, yet they all are mutually interdependent.
The success or the failure of a trading plan is given by how consistent these unique
implications and their interrelations are in your own trading plan. Finding the
equilibrium between those is the key for trading successfully and consistently.

However, these interrelations must never interfere or blur basic price analysis; on
the contrary they are adaptive variables that have to be used to facilitate trading. As
in any chart, the longer the timeframe (or a widely use timeframe) the stronger its
implications. Nevertheless, with the cases in figure 2) we can outline the key
implications that are applicable for any chart.

As you can see for example in 2a), sellers took control from the close of the 1st bar.
The early buyers on the opening of the 1st bar are the stronger. We dont know if
they are long-term positions, swing traders, day traders or scalpers. But 100% sure
there are in profits (or out with profits) even after the second bear bar. On the other
hand, the late buyers (we dont know who they are) on the close of the 1st bar are in
red.

Additionally is clear that weaker long hands (scalpers, small daytraders, amateurs,
etc) are betting on a break of the previous high to be in profits and every tick down
can trigger their stops especially if price break the low of the 1st bull bar. The same
analysis can be done for the sellers.

The early sellers on the opening of the 2nd bar are the stronger and a break of 1st
bar lows will confirm the move down. We dont know if they are long-term positions,
swing traders, day traders or scalpers. But 100% sure there are in profits at the close
of the 2nd bar. On the other hand, most of the weak sellers on the 1st bull bar are out
and a break of the 1st bar high will almost 100% confirms their defeat. However the
break hasnt happened yet.

Good to know but what do we do with this information? Is there any way to define
these implications in a coherent, objective framework to use them for price analysis?
Yes, with only two bars and ceteris paribus (with all other things being constant)
there are core notions (mini points of control, when is too late to take a trade, and
price breaks) that are relevant for any chart in any timeframe. Lets check them for
the 4 main cases:

Case 2a)
Attached Image
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 The stronger buyers at the open of the 1st bar have a wall protecting them.
This make the open/low of the 1st bar a mini point of control. As long as
price is trading above these levels bulls will be in control. A tick below will
put buyers underwater, weaker hands will start covering their position with a
loss and new potential breakout sellers may appear.
 Sellers need to break the bulls in every single price on the 1st bar range to take
control. In this case, and although sellers were dominating in the 2nd bar, the
outlook is still bullish. If the sellers that werent taking profits (and betting on
the top/reversal or pullback) on the 2nd bar fail to take over the bulls (break
the wall), they will stoke the move up when they cover their positions. This
make the open/high of the second bar the second mini point of control. A tick
above will confirm the move up and force the bears to cover and new
potential buyers may appear.
 This case is a clear setup for potential longs. The closer to the 1st point of
control (open/low of the 1st bar) you go long the smaller the stops and the
higher the potential targets for profits but because the move is not confirmed
until a break of the 2nd point of control (open/high of the 2nd bar) there is
also greater chances that price can fail to continue the move up.

Case 2b)

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 The stronger sellers at the open of the 1st bar have a wall protecting them.
Buyers need to break the bears in every single price on the 1st bar range to
take control. In this case they already failed to break the mini point of control
(open/high of the 1st bar).
 The 2nd bar confirmed the move down. However, buyers overwhelm the
sellers at the lows closing the bar at the break point (low/close of the 1st bar)
meaning that sellers on the break that didnt take profits are not in profits
anymore and every tick above the close of the 2nd bar (and especially the
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high of the 2nd bar) will add pressure on them to cover positions or trigger
short stops (especially weaker hands).
 In this case bears are in full control and its too late to get in the train.

Case 2c)

Attached Image

 In 2c) we already knew that buyers managed to control the lows and the close
of the 1st bar but at some points (the highs and below the open) sellers were
in control. Because of the static nature of an ex-post chart we didnt know the
exact flow of action in that bar. Adding a second bar make the picture clearer.
 The second bar shows, that the sellers on the high of the 1st bar were strong.
They broke the wall protecting the bulls on the opening of the 1st bar
triggering stops and new selling and every tick down will add a lot of
pressure to the bulls that are still in. Also the 2nd bar broke and closed below
the mini point of control (open/low area of the 1st bar).
 Now, the strong sellers have a wall protecting them. Buyers need to break the
bears in every single price on the 2nd bar range (and the highs of the 1st bar)
to regain control. As long as the second mini point of control (open/highs of
the 2nd bar) is holding bears will be in control.
 In this case bears are taking control. There are potential setups for shorts
forming but it need a better entry because its too risky to get in at the close of
the 2nd bar (you dont want to be one of the weak hands that get shaking out
before the moves continue)

Case 2d)

Attached Image

 In the 1st bar on 2d) sellers managed to control the highs and the close but at
some points (the lows and above the open) buyers were in control. The
second bar shows that sellers are still in control. Buyers couldnt break the 1st
mini point of control (high/open are of the 1st bar). The wall protecting the
sellers is still holding (but it was already breach by the buyers on the 1st bar).
 In this case bears are in control. This case is still a good setup for potential
shorts. . The closer to the 1st point of control (open/high of the 1st bar) you go
short the smaller the stops and the higher the potential targets for profits but
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because the move is not confirmed until a break of the 2nd point of control
(close/low of the 2nd bar) there is also greater chances that price can fail to
continue the move down. In this case the break of the 2nd looks imminent.

These notions are especially useful if you using a longer timeframes for your
direction or S/R levels. In fast single timeframes analysing where are the mini points
of control, who is controlling or losing control and where not to get in a trade are
definitively key pieces of information that can exponentially increase your W% and
improve your profit/loss ratio.
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Three to Swing: Waves, Support & Resistance Levels, S&R Zones, and
Trendlines

Bar 3: Three to Swing

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S/R and Trendlines are surprisingly misplaced and misunderstood, usually as

consequences of problems recognizing the basics (High and Lows), or the
implications of multiple timeframes.

At first glance, they are very efficient and so simple to understand that it seems
impossible to deny their validity. But as you know, in a live chart they can be very
difficult to recognize before is too late (lagging) or they can spread faster (too many
contradictory swings) than swine flu, blurring the analysis of any rational trader.

S/R Levels are not the same as support or resistance points in a trendline

Its amazing how these 2 basic TA concepts are usually misunderstood and
misinterpreted. A typical example of this problem is newbies (and sometimes not
only them) calling the top or the bottom of a trend because a trendline got broken
(just quickly glance at some the 1000s threads calling tops or bottoms). But before go
in details, we need again to go back to basics.

In order to identify these areas and Trendlines, its necessary to add a 3rd bar in the
analysis and define the 5 core notions for price analysis from a technical perspective:
Swings (Highs and Lows), Waves, Support & Resistance Levels, S&R Zones, and
Trendlines.

1. Swings

 Like always, in the foundations is where all problems start. What is a swing?
What is the faster and most efficient method to determine a swing?

Attached Image
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 The simple and more effective way that will cover most of the swings (in very
volatile conditions especially with very small timeframes a swing can be
formed in only 1 bar!!! another reason why trading very fast charts requires a
lot of skills and experience ) is the one shown on the charts. So you need3 bars
and the only rule for a swing high is a Lower High in the Bar [-1] a Higher
High in the bar [0] and a confirmed LH in the bar [+1]. The opposite for Lows:

2. Support and Resistance Levels

This is one of the core fundamentals on Price Analysis. Once you have determined a
swing you can also start defining (but not analyzing and even worst trading) S/R
levels and Trendlines. These levels will also allow us to objectively define if price is
making Higher Highs, Lower Highs, Higher Lows and Lower Lows.

To define S/R levels you just need Horizontal lines on those swings:

Attached Image (click to enlarge)

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3. Waves

 Once you have recognized a swing you will also have answered the first issue
in price analysis: The direction of the current move (wave direction).
 This is a key concept because it allows you to establish if the new wave its
going in the direction of the trend (meaning a potential entry) or its against
(meaning you will have to wait until the end of the this wave for a potential
entry if the conditions are still valid [e.g. HH and HL or LL and LH]).
 It also allows you to trail and adjust stops if the trade is not a scalp or exit a
position if conditions are met and price for example is stalling and failing to
break new highs or lows.

4. Support and Resistance Zones

S/R Zones are particularly useful when using multiple timeframes to identify
potential areas where price may stall, or profit targets if already in a trade, or
filtering false breaks (or anticipating one). To identify these zones we need a
confirmed valid swing.

Attached Image (click to enlarge)

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 In the case of a Resistance zone, the area between the high of the swing bar,
the close of the swing bar and more important the open of the next bar after
the swing will define the resistance zone.
 In the case of a Support zone, the area between the low of the swing bar, the
close of the swing bar and more important the open of the next bar after the
swing will define the support zone.

Three to Swing: Waves, Support & Resistance Levels, S&R Zones, and
Trendlines (Continuation)

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4. Support and Resistance Zones ...

Attached Image (click to enlarge)

 In general if you have a setup to get in a trade, and price is trading inside this
zone, you may have a very good entry given the reduced risk of placing your
stop. On the other hand, if you are already in a trade and you are using
multiple timeframes and price enters in this zone you may consider closing
your position or at least banking some profits.
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Nonetheless, and probably the more important information you can have with S/R
zones is filtering a fake Break or anticipating a valid Break when you are using a
longer timeframe for direction.

 For example in the case of a fake break of a swing high, price can breach the
swing high but if that bar CLOSED BELOW the resistance zone is a FAKE
Break (happens every day).
 On the contrary if price breach the swing high and closed INSIDE the
resistance zone the break would most of the time be imminent (happens
occasionally and only when markets are “behaving” especially outside of
major news or the opening and close of the markets),
 Of course if it closed ABOVE the swing high the break is already confirmed
(happens every day especially when the move is driven by fundamental
reasons or when there is change of trend direction).

Some very important notes on S/R zones:

1. The timeframe is key. S&R zones are worthless if you are trading very fast
charts because of the tiny range. Also the most widely used and longer the
timeframe the more important these levels become.
2. Recognizing a fake, imminent or confirmed break in a second timeframe is
not a reason to take a trade. Triggers are completely independent of this
analysis.
3. If you are using a single timeframe, S&R zones may be lagging most of time
and will only serve to confirm a trade you already in or exit a trade when you
confirm a false break.
4. Don’t confuse S/R zones with S/R levels. The latter are more important for
price analysis because they will define if prices are making HH/HL/LL or
LH.

5. Trendlines

While S&R levels give you a horizontal perspective, trendlines give a more vertical
approach. For trendlines you connect 2 swings (in the case of the chart 2 swing
Lows).

Attached Image (click to enlarge)

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I know these are basic concept but in these very essential notions you can find the
roots of most problems in this analysis.

 For example, based only in this chart you may think to go long in the next test
of that trendline [case a] (which is valid idea) but price can go but not break
the Horizontal Support level, breaking the trendline and still be a valid long
setup [case b].
 In other words the valid setup for longs is because price is making HH and
HL!!! ; And not because the trendline is broken you should start looking for
shorts, not until you have new swings pointing to a different scenario!!!! [case
c].
 The second fundamental trendline analysis issue is defining the relation
between swings and timeframe. Here is when everything gets messed up:
 All swings in your current timeframe will be reflected in a lower timeframe
but NOT ALL swings from your current timeframe will reflect on a higher
timeframe.
 This means that you can connect an “unlimited” numbers of swings but you
need to recognize which swings correspond to your current timeframe and
which one are from a higher timeframe. In other words if you connect a major
swing to a small swing you may end up with an INVALID trendline.

Real Example of S&R Zones

While writing this post, I fortunately came across with this excellent trade on the
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euro (6EM0) (and excellent case of S/R zones in action in an imminent break). Today
GMT+1:

Attached Image (click to enlarge)

Give it a try. Apply these 5 basic notions in any chart without indicators. You will be
surprise with the results. Of course new questions will arise like how do you pull the
trigger? Or how do you deal with choppy conditions? (Remember that choppy is not
ranging … ranging is as tradable as any trend). How do you define a good target? Is
it worth using a second longer timeframe? Are the instrument, timeframe and time
giving enough room (true range) for entries and exits? .

Despite these questions I can guarantee if you master these 5 core notions you will
have solved most of the direction issues in the analysis (AND WITHOUT
INDICATORS !!!) and you can then focus in the more micro technicalities such as
how to pull the trigger.
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Bar 4: The Invisible Line and Points of Control.

The 5 macro notions in price analysis (Swings, Waves, Support & Resistance Levels, S&R
Zones, and Trendlines) were defined in the previous post. All the following notions are built
upon those principles and they will only add depth in the analysis. They shouldnt be
interpreted (used) outside of this context.

Adding a 4th Bar in the original example will clarify the notion of mini points of control that
I mentioned before. It will also give a very powerful visual aid to recognize what is the
market doing right now and ,particularly important, will give us the first hint to develop a
price based trigger. But before that lets define in more detail what points of control are.

Attached Image

Points of control can be defined as any price or price range that hasnt been tested in the next
consecutive bars. They can be the ultimate top or bottom in a chart (strongest points of
control), a Support or Resistance Levels in a swing (normal points of control) or more
commonly, areas between consecutive bars in a wave (mini points of control).

With just an ex-post chart (after the fact) and with only few bars we dont know why this
happened (e.g. Point A in Fig. 3a. because of lack of selling interest or strong buying at those
levels or the opposite on Point A in Fig. 3b.) but in general:

 As long as price is trading above/below these levels bulls/bears will be in control.

 The wider the mini area of control the strongest the trend but also the deeper the
potential pullback/retracement. As you can clearly see the mini points of control A in
both Figures are a lot wider than the mini points of control B sending a clear message
to who is in control (bulls in fig. 3a. and bears in fig 3b.)

Attached Image (click to enlarge)

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Attached Image (click to enlarge)

The Invisible Line

Going back to the original example (Fig 4a)

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 We knew that there were stronger (smarter/early) buyers at the open of the 1st bar and
there is a wall protecting them. After the close of the 3rd bar, sellers couldnt break the
bulls in every single price on the 1st bar range to take control, making the open/low of
the 1st bar a mini point of control (Point A).
 We also knew that although sellers were dominating in the 2nd bar, there were almost
wiped-out by the buyers on the 3rd bar leaving only a few sellers still holding in
profits and making the open/high of the second bar the second mini point of control
(Point B). The 4th bar confirmed the bears failure to take over the bulls stoking the
move up when they covered their positions and attracting new breakout buyers.
 Finally, we knew after the 2nd bar that we had a clear setup for potential longs and the
closer to the 1st point of control (Point A) you go long the smaller the stops and the
higher the potential targets for profits but because the move was not confirmed until a
break of the 2nd point of control (Point B) there was also greater chances that price
can fail to continue moving up. Here is where the invisible line comes to play.

If you connect with an invisible line (the dotted line in the chart) the Highs/Lows (depending
on the case) of consecutive bars you can establish a visual aid of where and when a particular
point of control is going to be broken. In the case of fig 4a) you can plot that line joining the
highs of the 1st, 2nd (Point B!!!!) and 3rd bar and you can clearly recognize how after a few
ticks in the 4th bar that line was broken (and not coming back!!!) and the move up was
confirmed.

Obviously if you didnt pull the trigger on time the invisible line will tell you YOU ARE TOO
LATE, YOU MISSED THE TRAIN, COME BACK LATER
The second very important piece of information with an invisible line is given by its SLOPE.
The slope of this invisible line will most of time tell you if you are in the wrong side of the
market in the current wave, the strength of a trend and pullbacks and if the move is
overextended (overbought in an uptrend) without indicators !!!! (e.g. in an uptrend the
invisible line instead of sloping down or horizontal has a steep slope up). These cases will be
clearer when more bars are introduced in the analysis.
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The same analysis goes for Fig 4b).

Attached Image

 We knew that stronger (smarter, early) sellers at the open of the 1st bar had a wall
protecting them. After the close of the 3rd bar, sellers couldnt break the bulls in every
single price on the 1st bar range to take control, making the open/high of the 1st bar a
mini point of control (Point A) and leaving a very wide mini point of control area
untested.
 In the 2nd bar the move down was confirmed. However, by the close of the 2nd bar,
we also knew that buyers overwhelm the sellers at the lows closing the bar at the
break point (low/close of the 1st bar) leaving the sellers on the break of the 1st bar
that didnt take profits uncovered (especially weaker hands may have started covering
shorts if price would have moved above the high of the 2nd bar). But this didnt
happen and by the close of the 3rd bar all prices of the 2nd bar range were tested
making the open/low of the second bar the second mini point of control (Point B).
 Finally, we knew after the 3rd bar that bears were in full control and it was too late to
get in the train. Nevertheless, if we introduce the invisible line joining the consecutive
lows of the 2nd, (Point B!!!!) and 3rd bar, we can clearly recognize that after holding
for a while, the bulls gave up and the line was broken and the move down was
confirmed.

Remember that the slope of this invisible line will most of time tell you if you are in the
wrong side of the market in the current wave, the strength of a trend and pullbacks and if the
move is overextended (oversold in a downtrend) without indicators !!!! (e.g. in an downtrend
the invisible line instead of sloping up or horizontal has a steep slope down).

Therefore, pay particular attention in this case to the slope of this line (horizontal in a
downtrend) in comparison with the previous case (sloping down in an uptrend) and try to find
what the market is telling you. (Hint: Starting move, continuation move or potential reversal)
Some very important notes on Invisible Lines:
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1. Always respect the order in the analysis (3 Essential notions in price analysis).
These lines are only worth if you already have defined the current direction (e.g. wave
analysis HH, HL, etc) and you are in the right side of the market.
2. So NEVER EVER go against the current direction. If you go crazy plotting invisible
lines connecting every single consecutive High or Low you are going to have a very
poor profit/loss ratio and your broker will end up making more money than you (if
you make any). Remember this is a visual aid to recognize what is the market doing
right now, and a first useful hint to develop a price based trigger.
3. In other words, you only draw these lines on the side that is controlling the current
move. In case 4a) we only draw a line on the highs because bulls are in control and in
4b) on the lows because bears were in control.
4. Always check if the instrument and timeframe are giving you enough room (true
range) to apply this notion. If you are trading very fast charts or tiny range
instruments, your analysis can be right but it may be impossible to implement in
practice.

The final use of these lines are to add a fast, objective and efficient tool to evaluate any chart
without getting lost in translation with indicators.

Try it. Open any chart, find the last 2 or 3 swings, define what are they signaling (HH, HL,
LL, LH), check the last bars on the current wave and plot the invisible line connecting the
highs or lows (depending on the direction you see in the swings). If you can't establish [in the
first minutes you see the chart] the current direction and where in the current wave the market
is, just close everything and come back later, the market is in choppy mode....
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Bar 5 and 6: Mastering price analysis in real time

"Execute the basics; master the basics...when you master and execute the basics, the rest
comes naturally

Yes all these notions make sense and look great in an ex-post chart. The problem is
applying them in a live chart. Sound like a clich but its true, only trading (screen
time) day after day like in any other activity will make the process natural. No
mentor, guru, blog or book can give you a shortcut to proficiency. Therefore, the
only think I can aim is to establish some basic notions in price analysis that can at
least set a potential pathway to follow; but at the end successful trading is a
personal journey that cannot be canned in a recipe book.

There is only one last thing left in this collection: bullish and bearish traps. But
before that I will add a 5th and 6th bar in the analysis to talk a little about the types
of charts and wrap up the notions defined before.

Attached Image

Time charts have a unique feature over all other form of charts: the obvious control
of time. Controlling the frequency in which each bar is formed it is very helpful, it
allows to have a time reference to make decisions, it tells a trader when to watch the
screen, when its too late to entry and when to get ready to pull the trigger among
other things.

These characteristics are especially important if you are scalping or trading fast
timeframes. However and as you probably know,there is always a tradeoff when
trading: in this case, bouncy charts, more whipsaws, lots of choppy (because of the
nature of time charts, bars are plotted regardless of volume size or # trades) and
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missing some trades (most of them if you are using a bad time chart for your
instrument) because of the size of the trigger bar can make a very bad entry.

In my opinion, the higher the timeframe the less impact these bad factors your
trading plan will have. Again, the fundamentalist (long term traders) and investors
are right and thats why, ceteris paribus, trading daily, weekly or monthly charts are
by far the best option from a technical perspective.

Sometimes time charts can be poor for trading analysis but good enough as 2nd
timeframe trigger when using multiple timeframes in slow charts. In general as a
rough reference (it depends on the instrument) common used time charts are better
for direction and volume/tick charts can be more useful for triggers. Yet at the end it
doesnt make much difference if you dont have a consistent trading plan, a
winner/loser is a winner/loser regardless of the chart type.

As you can see in fig 6a) again the bears took control from the highs of the 4th bar
testing a good range of the buyers in that bar. By the end of the 5th bar buyers
appeared and manage to push price up a few ticks below the open but they were
overpowered again by sellers on the 6th bar.

Attached Image

In any case, the analysis in order of importance will go like this:

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 The most important issue with these bars is the formation of the 1st swing
high(bars 3 and 5 highs are lower that bar 4 high). This marks the beginning
of the wave down.
 In that swing we plot a horizontal bar and we have the Resistance level.
 The area between the high of the swing bar, the close of the swing bar and
more important the open of the next bar after the swing define the resistance
zone.
 The mini point of control A is stronger than ever. The wall protecting the
strong (early/smarter) buyers on the open of the 1st bar not only resisted the
sellers on the 2nd bar, but know they have a new round of buyers protecting
them in bars 3rd and 4th.
 Now there is a new mini point of control A1 because the price range between
the open/low of the 3rd bar and the open/low of the 4th bar hasnt been
tested in the next consecutive bars.
 Its important to remember that we dont know if the new buyers in bars 3rd
and 4th are long-term positions, swing traders, day traders or scalpers. But
we know that there are stronger buyers holding from bar 1 and therefore
these are not the ones who initiated the move up (continuation buyers). By
the close of bar 6th we also know 100% sure that all buyers in point A and A1
are in profits.
 Obviously, every time the move extends, buyers will start taking profits and
adjusting the stops to protect profits. For example, scalpers will be mostly out
already, day traders and swing traders (depending on timeframe of course)
will be probably out, or scaling out and adjusting stops to higher levels. In
other words, only if buyers in point A are big enough and have a longer
perspective this point will hold for a long time (for long term traders, these
bars are just noise. Assuming that point A represent real buying pressure,
they can afford to see price chop around for a long time or even retrace back
to the A area).
 Bar 4th broke the mini point of control b. Now there is also a new mini point
of control B because the price range between the high of the 4th bar and the
high of the 5th bar hasnt been tested yet.
 We can also plot a new invisible line that is still sloping downwards in an
uptrend connecting the consecutive highs of bar 4th and 5th. As you can see
the 6th bar not only couldnt break this line but sellers in this bar broke almost
all the buyers in the 4th bar (which is a nice visual indication of where were
the weaker bulls in that last wave up compare this with the sellers on the 2nd
bar ). Bears are in control since the beginning of the wave down (as we expect
in any a wave down sellers control wave direction)
 After 6 bars the move up is intact but now there is a new wave down against
the tide. Is time to get ready for when the next wave up is forming to get in
the first HH and HL high probability setup.

In the case of fig 6b), these bars only keep warning us that the move is
overextending.

Attached Image
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 There is no new swings, S&R levels and therefore no new S/R zones
 The mini point of control A is stronger than ever. The wall protecting the
strong (early/smarter) sellers on the open of the 1st bar have a new round of
sellers protecting them in bars 3rd 4rd and 6th.
 Now there is a new mini point of control A1 because the price range between
the open/high of the 4rd bar and the high of the 5th bar hasnt been tested in
the next consecutive bars.
 Bar 4th also broke the mini point of control b. This time there isnt a new mini
point of control (B) forming because all prices have been tested by bar 5th.
This is the first clear warning that new selling is evaporating and the move
can stall or bottom.
 If we plot a new invisible line connecting the consecutive lows of bar 4th and
5th (the lows because bears are in control) this time we have a 2nd important
warning that the move is overextending and its definitively too late to get in:
An invisible line sloping downwards in a downtrend. The move down on the
6th bar was almost impossible to catch because of the risk in placing the stop
and the big range that was required to break the invisible line.
 After 6th bars sellers are in full control and there is not much to do.

I can go forever analyzing an ex-post chart bar by bar but thats not my point. I only
wanted to show you a pseudo rational approach that can help you analyzing the
basic price notions in any live chart. Before moving to live charts I am going to add
one more bar in the next and last post in this collection to define the last basic notion:
bears and bulls traps...
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10 Bars and beyond: Bulls and Bears traps

There are many definitions for Bulls and Bears traps but I am only interested in traps
in the context of this collections. In simple words, a trap will appear when traders,
especially weak players (in intraday common timeframes), are caught in the weak
side of the current direction.

Attached Image

Any trap involves 3 stages. In the case of a bear trap:

1. The move is first propelled by late buyers, especially in a swing high or a test
of a resistance level, stuck without profits by consecutive bear bars. They will
be forced to close positions or their stops will be easily hit.
2. The second force in the trap is the sellers calling the top or reversal.
3. The trap is completed when the sellers of the apparent top/reversal break the
lows of 1 or more bull bars forcing some late buyers (all or almost all weak or
short term buyers) to close their position and giving a new cheap price for
smart buyers to go long and continue the move up.

Introducing bars 7 and 8 in the example (fig 8a), shows these stages very clearly. All
late buyers on the highs of the 4th bar are under water after the close of the 6th bar
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(they are losing money in every tick down). New sellers calling the top/reversal
appear until the break of the low of Bar 7 that kills all buyers of the 4th bar.

Finally, late sellers (weak and amateurs) are attracted to go short on the apparent
confirmed reversal but they get trap when the real buyers (those in point of control
A1) fund a new bargain to buy and move the prices up.

Attached Image

-> As you can see enough bears were trapped making the start of the new wave up
(bar 8) fast and furious (weak sellers covering in the rush). The break of the
resistance level will only happen if enough buyers get in. The easy entry without
indicators or volume analysis is at the close of bar 7 (No indicator will give you such
a fast signal and it happens many times every single day)

Of course by the close of the 8th bar there is a new swing low, a new support level
and a new support zone. This mark the start of the new wave, the one we were
waiting for the high probability setup to go long. Extra confirmation is given by the
break of the invisible line connecting the Highs of bar 6 and 7. In this particular case
this entry (the open of the 8th bar) is exactly the same as the one in the bear trap.

In the second example 8b), bar 7, forms a first swing low, a support level and a
support zone. In this case there is also a potential bull trap forming when the late
sellers on the 6th bar are under water after the close of the 7thbar (they are losing
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money in every tick up). New buyers calling the bottom/reversal appear in Bar 7
that kills all sellers of the previous bars but find resistance on the expected point of
control a1.

Attached Image (click to enlarge)

However, in contrast with the previous case the buyers on the 8th bar are real and
strong and they manage to kill all sellers breaking both point of controls (a1 and a)
and clearly signaling the break and change of direction to the long side.

If you pay attention to detail the last bar in this chart is the first on the first case and
that's when this collection ends: connecting the last 2 consecutive swing lows with a
trendline and waiting for a new swing low for longs.

Attached Image (click to enlarge)

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...and that conclude the series .... i hope some find some clues, hints or simple reminders of
basic concepts ...