The short term bias…
I hope you are nailing the markets. Without wasting any time, let me jump straight into the topic. So far I have talked about
Levels of supply and demand
Impulsive vs corrective moves.
The next and the very important thing in analyzing a chart of any timeframe is forming a bias. If you are not good at forming a bias, there is no reason to trade the live markets. Go back to market replay, learn and practice.
So what is a bias?
Simple… Bias is the high probable future direction of the market. So the real question is how to define it when the candles are printing at the hard right edge. First I need to talk about the trend to make it a bit clear.
According to the classical technical analysis, every timeframe does have three types of trends.
Long term trend
Medium-term trend and
Short term trend.
The timeframe you have picked can be weekly (or) daily (or) 4H (or) H (or) 5min. (or) some other timeframe. I only mentioned these five timeframes as they are the ones that are predominantly used by the traders and the candle closes, tails in those timeframes convey some information. I got fixed to the 5min chart to day trade and hourly chart to swing trade. Even the way I trade the 5min chart can be considered as swing trading.
What is swing trading ?
The type of trading where you look to catch the impulsive swings in the short term trend, in a given timeframe is known as swing trading.
Al brooks mention in one of his videos as any trade that has at least 1:2 risk to reward can be considered as a swing trade. That definition is a bit vague. Let’s stick to the one I have given. In reality, swing trades do have a nice risk to reward if you enter at the start of the move.
The remaining two types of trends, namely Long term and the Medium-term trends are used for positional trading which I have never touched. So I am not the right person to talk about them.
I hope you have practised identifying the impulsive and the corrective moves. If you haven’t please stop reading this article, get some hindsight charts, and practice as follows.
Identify the swing highs and lows in the chart.
Name them with alphabets from left to right.
Then name whether the swing between a swing high and a swing low is impulsive or corrective. There is no right or wrong. Go with the eye. Impulsive moves have candles that have strong closes and fewer tails, with great momentum. Corrective swings will have weak closes, lot of tails and decelerating momentum. Don’t just call a swing as corrective just because the momentum is decelerating. Check the candle closes and tails as well.
Once you are good at identifying the impulsive and corrective moves, identifying the short term bias is simple. Look at the following image. Everything is self-explanatory. Forget about what you have learnt about trends for a while and go through this. In the following image, ‘I’ stands for an impulsive move, ‘C’ stands for a corrective move.
Once the bias is formed, wait for a corrective move against that bias, and fade it.
Let us say the short term bias is up, wait until a down move starts in the TTF chart, identify the demand levels, confirm that the move is corrective with the help of momentum, candle close and tail analysis (I will talk about this in a separate article), fade the move near the level. Or look for a bear trap to enter long.
Have a look at the following examples to understand what I am saying.
Short term long bias:-
I looked for a long trade at E as well. When the bias is up, I look for reasons to buy.
Short term downside bias:-
Short term ranging environment :-
Stay away conditions:-
These are the examples that I have gathered from the recent charts. I hope I made everything clear here. These things just simplify a lot of crap about forming a short term bias. Practice well and feel free to post your queries if you have any s and I will try to answer as soon as I can. Just focus on the last two to three swings to form a short term bias. I will try to elaborate on this topic with examples if I find any. Too many topics to cover and very less spare time in my pocket.
Excellent. Thanks for the pain taken for us. I have some questions.
The Order of Trading Plan should be as follows:
- Look into HTF ( say Hourly) Structure – Form a Bias
- Look into the TTF (say 5 minutes) – Form a Bias
- Now, TTF-Bias will prevail over the HTF- Bias ????? Pls, explain.
I don’t consider the bias from HTF. I use it only to find levels which have the potential to reverse the weak trends.
Forming bias, impulsive vs corrective moves, strength and weakness analysis, candlestick analysis and stuff happens in the TTF itself