Selecting An Entry Point

The methods for selecting entry points are straightforward but will take some getting used to. Entry techniques are based upon three levels of entry into a market.

These will be grouped as major, intermediate, and minor. All of them have one thing in common — THRUST!

We will not be buying or selling retracements (corrections) while they are in the process of retracing. We will not be buying or selling within a channel or Trading Range unless a single leg up or down has sufficient length to enable execution of a winning trade. If a series of trades turns out to be within a Trading Range or within a channel, it is purely coincidental and definitely not because of having drawn channel lines, or in some way having defined a Trading Range. The same thing is true of uptrend and downtrend lines; we will not use them other than for visual perception, and we will not trade retracements to them.

I can and do successfully enter markets without any signal from the daily chart. But I much prefer to enter an intraday trade based upon a significant event taken from the longer term momentum of the market. The daily chart gives us those significant events.

Remember the price action pictograph?

For example's sake, let's assume that this time it represents a daily price bar. What would constitute a significant event in this market? What is the most major thing that can happen?

Let's agree that the single most significant thing that can happen is a breakout of the high or low of that price bar.

Why? Because, as previously pointed out, this market is in a Trading Range between its high and low. To that extent, prices are stagnant. Unless prices make a new high or a new low, they are not really going anywhere.

But what if this market were to take out the high of the previous bar like so:

At this point the high of the previous bar is violated.

Could money have been made trading the breakout of that high? The answer to that is yes, provided the move is sufficiently great! And it is one basis for trading the intraday bar charts.

What we are talking about here is THRUST. For the time being, let's forget about where the market closed. That is of no significance whatsoever. We will have made our money and been out of the trade long before the close.

The important thing is that prices opened at a certain level, and at some time during the day the price action took out what had been the intraday high at the opening level, which was its first high for the day. When that high was taken out, it was a significant event. Profits could have been made. An even more significant event took place when the high of the previous day was violated.

IMPORTANT! when daytrading an intraday chart, we are interested only ln what is happening today. we are not worried about the close. the close is many price bars away. we are not worried about tomorrow - tomorrow is a whole new set of events. we are not worried about what happened yesterday -yesterday is history, except in that what happened yesterday, or the day before, or the day before that, may be related to what our actions will be today. More of that relationship ahead.

Although we will consider turning a daytrade into a position trade according to certain rules to be explained later, we must have a rule for our daytrade in and of itself, and this rule is absolute:

unless we are considering conversion to a position trade, we will NEVER carry a daytrade overnight! We will always be out by the close of trading. That is what makes the trade a daytrade. It is not to be held overnight. If we do consider it for holding, it will have lost its status as a daytrade. We will have converted it to a position trade and will then begin to observe a different set of rules.

The truth about making money in the markets is that most of the money to be made is made when prices "pop" and then begin to trend. It is the connector trends between congestions that offer the most profit potential.

With that in mind, we will take in order major entry signals, intermediate entry signals, and minor entry signals.

Chapter 4 MAJOR ENTRY SIGNALS

In Chapter 2, we looked at the definitions of the chart formations making up the law of charts. For your convenience they are repeated in this chapter along with chart examples of each. The major entry signals which follow are derived from TLOC and are given the highest priority. They are all derived from the daily bar chart. There is a good reason for this which I will explain for your benefit now.

One of the most important times of the day for daytraders is when entry signals are generated from the larger time frame of the daily chart. For example, the taking out of a Ross Hook that has formed on the daily chart will as a rule generate far more thrust than the taking out of a Ross Hook that was formed on a five minute bar chart. It should be obvious to you that this is so. Similarly, the taking out of a Ross Hook that was formed on a weekly chart is a much more significant event than the taking out of a Ross Hook formed on a daily chart. The thrust needed to move prices beyond any of the formations described in the TLOC is greater as prices move out from the five to the ten minute chart, and from the ten minute chart to the thirty minute chart, and so forth.

If you are a daily chart trader, you cannot afford to pass up the opportunities offered by major pattern formations on the weekly charts. If you are a daytrader, you cannot afford to pass up the opportunities afforded by major pattern formations of the daily chart.

I have known highly successful traders who daytrade exclusively from daily chart signals. Therefore I have termed these daily chart patterns as major entry signals. These signals do not in any way preclude your taking entries from the five, ten, fifteen, thirty or sixty minute charts.

What we are discussing here is magnitude of movement. And the magnitude of move (thrust) from a greater time interval almost always gives us a better opportunity for a sizable win than does the move from a lesser time interval.

Major entry signals follow:

• The breakout of a Trading Range.

in all of these techniques based on the bar chart, we will ignore any gap breakouts. gaps nullify our entry into the market. we want to enter only those trades that trade "through" our entry price.

i am repeating the definition of 1-2-3 highs and lows because they are important, and this time i will show them in the context of charts. please be sure you study them carefully. they are an integral part of what follows.

A typical 1-2-3 high is formed at the end of an uptrending market. Typically, prices will make a final high (1); proceed downward to point

(2) where an upward correction begins; then proceed upward to a point where they resume a downward movement, thereby creating the pivot

(3). There can be more than one bar in the movement from point 1 to point 2, and again from point 2 to point 3. There must be a full correction before points 2 or 3 can be defined.

A number 1 high is created when a previous up-move has ended and prices have begun to move down.

The number 1 point is identified as the last bar to have made a new high in the most recent up-leg of the latest swing.

The number 2 point of a 1-2-3 high is created when a full correction takes place. Full correction means that as prices move up from the potential number 2 point, there must be a single bar that makes both a higher high and a higher low than the preceding bar or a combination of up to three bars creating both the higher high and the higher low. The higher high and the higher low may occur in any order. Subsequent to three bars we have congestion. Congestion will be explained in depth later on in the course. It is possible for both the number 1 and number 2 points to occur on the same bar.

higher high . higher low

^-higher low higher high

^-higher low

—higher high [_higher low

The number 3 point of a 1-2-3 high is created when a full correction takes place. A full correction means that as prices move down from the potential number 3 point, there must be a single bar that makes a lower low and a lower high than the preceding bar, or a combination of up to three bars creating both the lower low and the lower high. It is possible for both the number 2 and number 3 points to occur on the same bar.

"lower high lower low

3 lower /1iigh lower low lower high 'lower low

3 I—lower high lower low lower low

lower 3 r high lower low

2 A typical 1-2-3 low is formed at the end of an downtrending market.

Typically, prices will make a final low (1); proceed upward to point (2) where an downward correction begins; then proceed downward to a point where they resume an upward movement, thereby creating the pivot (3). There can be more than one bar in the movement from point 1 to point 2, and again from point 2 to point 3. There must be a full correction before points 2 or 3 can be defined.

A number 1 low is created when a previous down-move has ended and prices have begun to move up.

The number 1 point is identified as the last bar to have made a new low in the most recent down-leg of the latest swing.

The number 2 point of a 1-2-3 low is created when a full correction takes place. Full correction means that as prices move down from the potential number 2 point, there must be a single bar that makes both a lower high and a lower low than the preceding bar, or a combination of up to three bars creating both the lower high and the lower low. The lower high and the lower low may occur in any order. Subsequent to three bars we have congestion. It is possible for both the number 1 and number 2 points to occur on the same bar.

lower high

4— lower low lower high

<-lower low lower high lower low lower high lower low lower high lower -low

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