Update.. Step1 :- Triple Timeframe Analysis and Construction of structural framework Support and Resistances
Hope you all doing well. I apologize for not being active with my blogging these days and I missed you as much as you missed the blog updates. 🙂 I am too much occupied with the personal stuff and not getting sufficient time to fit blogging into that schedule. And yes, my trading has, of course, changed a lot since then both in technical and psychological departments. I will try to update those changes one by one as I am back to my routine life again. All going good with the topsteptrader program I have opted, and I will start that again from the second week of November. Enough with that, let’s get into the meat of this article.
I hope you have already read the article about HTF S/R construction in the beginner section of this blog. If you haven’t read that, go through that first here.
Like always, lets start this article with a ‘why’ question.
Why do I need a support and resistance framework to operate in markets?
If your answer is for a zoom-in view into the ocean of market information, you are not wrong. But that’s not the answer that I am looking for.
My intention of asking was, what are my expectations from a support or resistance?
To provide necessary order flow to reverse a weak move with a TST/ BOF
and to provide necessary order flow to push prices in the direction of the strong move after the breakout (a BPB).
That’s absolutely correct.
Now, what exactly do you mean by ‘move’ in the above answer? Trend? or Swing?
It can be any of those two. So, this forced me to classify the S/R levels into two types.
a) Major S/R (HTF framework), which are capable of reversing the weak trend. I use these to look for CT trades, for TST and BOF.
b) Minor S/R (Using LTF chart), which are capable of reversing the weak swings. I use these levels to look for with trend trades, for PB and CPBs.
So, it all boils down to an important rule of mine.
No CT trades within the HTF S/R framework and I must only look for CT setups when the trend is weak while approaching the HTF S/R levels.
So far so good!! Forget about the minor S/R levels for some time. My job now is to identify those levels that can reverse the trend as the first step in my analysis and discard the levels that are not capable of reversing the trend. This was way before(almost 3 years back) my introduction with YTC and luckily, my first step coincided with the first step explained in the YTC methodology, ‘construction of HTF framework’. It gave me a practical way of finding those levels by using a higher time frame. I sincerely thank Lance for that. 🙂
For me, a structural boundary is a level where I can confidently look for a CT trade or to book profits of WT trades if the trend is weak.
I exactly don’t know what the expectations of Lance are from those levels. So, I was supposed to blend the S/R framework construction procedure to suit my expectations on the framework. It was not an easy journey though, and finally, I came up the one I have explained in the previous article I have linked at the start of this article. With that procedure, I’m able to discard few S/R levels which are not capable of reversing the weak trend. But still, I came across some levels with the new procedure in my trading that are not reversing the weak trends with TST/BOF, causing some unnecessary CT trades. Please don’t think that I am searching for perfection in the market, which I am not. I am just trying to make maximum out of the strategy by eliminating the messy parts.
So, recently I have changed my first step slightly to suit my expectations and this procedure discarded few more levels that are not reversing the weak trends, and also removed some useless grids out of my charts. Things like these happen when I am in a break from markets :D. The following image explains that. The change is very simple though, but it made a lot of things crystal clear.
Now the question is, what if that breakout of SH at point 2 happens during live. I mean, suppose market was at point 3 at the start of the session, where point 2 is a valid S/R, and then the breakout of point 2 happened during the live (in TTF), When shall I call that breakout as a successful one so that I can discard the level at point 2?
Simple. Recall what I have explained in the trend transition article about a transition from sideways to up/downtrend here. Use the same principle in this scenario as well. Price acceptance beyond the level is what I need to confirm the breakout. The following image explains that.
Again, it’s not a fixed rule to form an SL and breakout to new highs after BPB. It is a bit subjective on the context of the market. We just need price acceptance after BPB, but a BPB is necessary before confirming the health of the breakout.
The level thus deleted can provide some order flow in the future after deletion, but I noticed that it is not reversing the trends. So I cannot trust this level to take CT trades and hence I don’t need that level on my chart. I hope I made myself clear until now. I request you to go through the article till now if you have any doubts before moving onto the real-time examples.
The image explains how I validate the already existing level during live. The example is from Nymex crude on 29-10-2015.
The thing is simple. I only play(CT BOF/TST or WT BPB) the first interaction with the levels. In a different way, I only focus on the virgin levels and discard them after the first interaction when the price got accepted beyond the level or when the level is not behaving as per my expectations. 😉
I will try to post a few charts when I come across them to make this explanation a bit clear. As always, don’t take things for granted. Test them on your own and then add to your trade plan.
Check out this article for a detailed explanation about the updated procedure of defining structural framework.
I also want to ask you one question about this from your practical experience as I have just started practising this method by manual backtesting on Nifty Futures. I wonder how frequently price touches HTF support or resistance in Nifty Future so we can look for setups there? As per your markings, does price interact with HTF sup/res every day? I am asking this because at least initially I want to keep my trading confined to only near HTF support and resistances. I think this way I will get very few signals in a week to trade. Also please tell if this structure works on good liquid stocks as well.
If the level is good, it will do something on the first interaction. Can’t comment on the frequency of tests with the levels as it has been a long time since I traded Nifty on 5 min. But please keep the following comments in mind while trading intraday timeframes in Nifty.
1) You have to trade the trend, not the swings in 3 or 5 min charts of Nifty as the swings don’t extend much in these timeframes to give significant profits.
2) Take hourly as your higher timeframe for Nifty, not the 30mins. as you will end up with a lot of useless levels with 3min.
Sticking to the trades at structural boundaries is a good move. I know you will learn all these with your observations, but I am just giving my thoughts. Just take action with small position sizes. There must be some adjustments for sure for every instrument you trade depending on its liquidity and volatility. Reviews help us to find those.
Thanks for sharing your great insights into PA with us.
What is the reason behind calling a PB to the breakout level to be a “higher odd trade”?
Don’t you think that a PB that ends prematurely (even before reaching the BO level) and then resumes its motion back towards the direction of the BO has a higher probability of going further from the S/R that it broke?
Or it is only due to the reason you mentioned – it provides more space for reward?
Under normal market conditions, when there is sufficient liquidity, most of the time price retest the good levels after breaking it. If it’s not, that means the market is in some sort of hurry to move in a certain direction. So always the best trade after BO is a BPB. So taking PBs in that context is somewhat like chasing the Euphoria or panic, which is a bit risky. The decision of whether to take PB trades or not before BPB depends on the strength of the trend and the potential risk to reward. 9 out of 10 times, I wait for a BPB and risk that 1 time if I feel that the trend is too quick and the pullback is damn too corrective. Even when taken, I will look for conservative targets, not the extended ones.
The first leg in that swing is a PB which failed, and the rally started after retesting the broken out level. And yeah, I miss few trades because of this rule, and it’s totally fine for me. If missing trades doesn’t suit your personality, you better work something around this to filter the best PBs before BPB after a breakout.
Hope that helps.