Thursday, September 29, 2011
Price Action Basics VII - The Initial trend, 1Rev and 1PB
After zero or many fBOs off the first bar of the day, the market may attempt to trend. This is called the initial trend and if its strong, it may eventually persist till the end of the day. However, on most days, there will be an attempt to reverse the trend.
If b4 was the initial trend attempt, then b5 is its reversal. On the other hand b4,5 could simply be another fBO and b5 to b8 could be the initial trend. b9 would then be the first attempt to reverse the trend. If this attempt is feeble, then it will fail and turn into the first pullback of the trend or 1PB. Often the protective stop above 1PB is not violated for the rest of the day (including today). This makes 1PB often the best swing entry of the day.
For practical reasons, the first deep pullback is usually a better swing candidate. The W at b29 or the W1P at b36 make excellent 1PB entries and are often the best practical swing entries of the day. This is because a protective stop of a deep pullback is less likely to be taken out before yielding a swing profit and a deep pullback is easier to enter than a one bar pullback such as b9.
Today, there was an excellent PM move, but on many days, the AM trend is the only large move and the lunch and post-lunch hours do not yield any large moves unencumbered by choppy movement and stop runs. This is why mastering the 1PB entry is crucial to profitability.