Controlling Chaos: Bounces and False Breakouts

Posted by Fetor 21 Comments

I shot a video (below) covering why there is a statistical difference between the number of times a price bounces off a price area in relation to the number of times it “breaks out”. If you have any questions please post them below and I will try to answer them.

Albert Traylor

Thanks for the video.

Is there or is it advisable to look for a correlation between time and volume? As a newbie I find spotting trends confusing when I start looking at various period charts. On the 5 minute it is trending up the 4 hour down, etc. Is it helpful to look to smaller time periods in times of higher volume? As price action will be magnified by the increased activity.

http://www.forex4noobs.com/blogfet/ Fetor

Albert,
Trends on lower frames are broken more often because of the nature of the time frame. The higher frames provide you with a more accurate understanding of what the sentiment of the market is. An H4 chart because it incorporates more time will give you a better understanding of the actual influences in the market. A M5 or M15 chart covers less time thus has less influence on traders….though it does have influence. That is the general principle. What you need to do is learn that when you are trading off a lower from you must be aware of the higher frames surroundings so that you are exiting properly. Read my blog post on time frames and targets. This may be helpful. On your H4 you may see an overall upward trend, but on the lower frames, yes you will see the price trending up and down inside that H4 chart, but the lower frame trending is not the bigger picture trend, it is only a small snapshot in the very near term so you have to adjust to that and realize the difference. The price has to move the same way on all time frames, the difference is that on your higher frames more time is incorporated in setting the price levels therefore it is going to be more influential over a greater number of people. In my articles for noobs and charting for noobs I cover all these concepts, you’ll just have to keep at it until you see it, and I promise it will come. It’s just a matter of looking for the same thing repeatedly and it will begin to come together. If you are trading real money keep it slow and low amounts. If you are trading demo, then attempt to trade it as closely as you would to real cash in that you don’t let your losses run wild. Cut them off as you would a real trade. On your profitable demo trades take profit when you normally would as you set your targets. If you still have questions, please feel to post them. I’ll attempt to dialogue with you until you see it, but you have to read the material and work with it. Good luck to you.
http://www.forex4noobs.com/blogfet/ Fetor

Albert,
I went back and read your question again and realized I never really answered your question, but droned on about other stuff that maybe would apply. Yes, lower time frames are very helpful. I depend greatly on the M5 and M15 time frames, especially when I get around support or resistance I look to the M5 because I want to have the best sense of who is controlling the buying and selling. Though I can’t necessarily see the volume, I can see by using the M5 the tracks that the buyers or sellers are leaving behind to tip me off as to the number of buy orders against sell orders and where the pressure is -to the low side or high side.

Rob J

Great Vid fetor, I think im getting smarter with each Vid you release, Again thank you for your time
Cyprusman

Thanks Fetor, really well explained and useful thank you.
Your explanation also illastrates why there is more probablity of success trading with the larger time frame trend instead of countertrends. I suppose the ideal dream trade would in your example would be to buy at the bottom, and every now and again get a bonus breakout up to the next level.
MiG

Hi Fetor,

Excellent videos, as always! Hopefully you’re going to release more!

Now to the questions I have:

In your particular example you illustrated in your video. When you spot a trend like this, you spot it and trade it from what time frame?
I saw that you talked about the 4H – 15M – 5M. I do understand the 4H is for the bigger picture and the 5M is for the trigger.
In your video you talk about the 1H TF. I was wondering if you trade more this kind of setup from the 1H TF.

I am just trying to understand what is the best TF to spot this kind of formation, and then apparently to trigger your trade you get to a lower TF like the 30M or 15M.

My message may seem a bit confused as I am… If you don’t understand my point, please let me know, I will try to explain it with other words.

Thanks a lot Fetor!

Cheers,
MiG

http://www.forex4noobs.com/blogfet/ Fetor

Mig,

I guess my first response would be that you see this pattern on all time frames for the most part, but if you are going to trade bounces like this that the H1 is best as it finds itself in the middle of higher and lower frames though it has a bit more in common with H4 than M15. Some of my point in the video is for you to see that this is basically how price moves on all time frames. Try this, take an area on your H4 or H1 and mark out where the price is ranging, then go down to a M5 time frame and you should be able to do the same thing between that higher time frame line but on the M5 because the price will be giving you M4 s/r as well. But for trading purposes, your H1 and higher will serve you well in seeing where those levels (ranges) are and then trading off the support and resistance (buy and sell areas).

DirtyStopOut

Thanks for yet another clear and concise video Fetor.
Sorry if this question has already been asked in another post but do give much weight to fundamentals- with the exception of NFP and other major announcements ?

http://www.forex4noobs.com/blogfet/ Fetor

DirtyStopOut,
I do not trade any fundamentals. Concerning the news, I only pay attention to when news reports are coming out so that I don’t get caught trading right before a volatile time in the market. I stay out of the market during news releases and will come in 30+ minutes after depending on the weight of the release and what I’m seeing on my chart. Before I begin to enter back into the market I want to see that the chaotic nature of the news release is being controlled again and traders have calmed down. Fundamentals do matter, but not really for intraday trading in my opinion (others will tell you differently) because I see that the fundamentals are priced into the market before the news release ever happens. Of course when the news release happens it triggers a market reaction, but that is in the immediate. Fundamentals are like a snail and technicals are like a rabbit. Fundamentals slowly move the market over time one direction or the other, technical (supply demand intrady trading) is faster pace as it zeros in on the most recent price movements and follows much more closely the daily price flux. It’s like when you need directions and you are looking at a map on the internet, there is a zoom button that allows you to zoom in to see the surface streets and you can zoom out to see just the main roads. The zoom in feature is like technical trading and allows you to see the daily flux in price and focuses mainly on that, the zoom out feature moves you back to see the flux in price over a larger period of time ignoring the daily movement in price. In between the zoom in and zoom out there are varying levels and so we see traders attempting to use both techs and fundamentals together for a hybrid approach. So there are different ways to go about this, but I don’t pay attention to any news other than to be aware of the schedule of news releases.

Tradernoob

Very good video. Thanks a lot Fetor. I wonder if you will write an e-book about the methodology. I things become more clear when I read, especially who do not understand English very well. (my case).
Thanks
ronald

As usual, another great explanation of market trends and the reason behind the movements. This is worth viewing again since it keeps one grounded on what is going on and learning to use various options at technical points of S+R.
MiG

Fetor,

Thanks a lot for your reply.

While I will follow your recommendations, I will ask you something that may be useful fore everyone here. I do not know if it is feasible for you, as I reckon it is a lot of work.

But if you could do a kind of weekly analysis with your R&S + TL that would be good. And then when doing the new weekly analysis (following week) analyze how the price navigated in the predicted way, if it was.

I am just throwing an idea that could be really, really helpful. But this can be done in any other way if easier or more clear.

Cheers,
MiG
DirtyStopOut

Fantastic analogies in your explanation Fetor,
I’ll add your answer to my trading notes.
Appreciated

DSO
FlashBack

Fetor – thanks man.

Another FANTASTIC video…great stuff, and thank you!

FB
pbw

Nice explanation Fetor. It is almost like when a building is built, first each floor has to be built with good foundation (range trading), once that is done then a stairway is built to go to the second floor (breakout) so that can be built, etc.
Kim

Really interesting stuff, thanks a lot.
Mick

Hi Fetor,
just finished your video course – brilliant. I realy enjoyed your approach to trading using supply & demand.
Could you recomend one or two books along the lines that you appoach the markest to do a bit of further study please?
all the best,
Mick

http://www.forex4noobs.com/blogfet/ Fetor

Mick,
Here are several authors that have been a great influence on me:
Martin Pring – Technical Analysis and Price Theory
Steve Nison – Candlestick Theory
Thomas N. Bulkowski – Chart Patterns
Al Brooks – Price Action and Trends

http://---------------------- Irwin Godin

Just caught your video. You are a great communicator. You make it so simple even a caveman could understand it.
Mick

Thanks Fetor. A bit of winter reading..
PipCounterz

That was an awesome video and put into words something I have believed for years and years in business. Great work….