BarroMetrics Views: Entry Zones III
We were looking at the UK 100 yesterday when I said that for Habits of Success traders, they usually look at the weekly for trend identification and zones. So let’s have a look at the weekly, Figure 1 (the yellow lines are the 1-period swing).
We see that from ‘0’, the instrument had an uptrend. But a ‘B’, we broke the low at ‘X’; so, whatever we had in the weekly, we did not have an uptrend. In this situation, there are three possibilities:
- The start of a downtrend – we need to see lower swing lows, lower swing highs to confirm.
- The start of a sideways pattern – we’d need to see a turn down from the Primary Sell Zone of ‘A’-‘B’ as a preliminary confirmation.
- The resumption of the uptrend. For this to be the scenario, we’d like to see a line turn on the monthly, preferably to monthly support followed by a monthly line turn up. The line turn up would suggest a resumption of the monthly uptrend.
Figure 2 shows the 1-period swing on the monthly.
What the monthly shows: a sideways pattern, with a pullback to the Value Area High [VAH] (support), followed by a bounce.
Normally I would not trade for a move up from there – for me, the reward:risk is just not there. To go long, I’d prefer to wait for an upside breakout (i.e. a move above 6950 and retest). The reason is in a sideways market, the Primary Sell Zone is usually a rejection zone for a move to the Primary Buy Zone.
As a weekly timeframe trader, I’d be happy to go short at the monthly Primary Sell Zone on a setup and entry on the daily timeframe.
But let’s say John has different reward:risk profile that would lead him to go long at ‘S’, what be the thought processes?
- Trend up, looking for an upside breakout i.e. if we are long and the upside breakout occurs, we are looking for the uptrend to continue.
- The zone is the VAH at 6076 to 6077.
- (turn to Daily chart, Figure 3) Setup – a contraction setup at the VAH; the entry would be the following bullish conviction bar. If we entered at the close, entry would be 6187; stops would be below 6010.
FIGURE 1 Weekly UK 100
FIGURE 2 Monthly UK 100
FIGURE 3 Daily UK 100