Thought I'd begin a thread concerning this topic.
As an intra-day trader, I seem to go short or long depending how price reacts to a major degree. IOW, I stay impartial bias that is 100% and expect a good move from a degree, not a particular direction. That way I will profit from rebound or breakout.
In my experience, three scenarios associated with price action are typical at a major degree:
1) Bounce (change)
two) Breakout (price runs through degree)
3) Chop (price chops about degree, subsequently finds direction)
The issue then becomes, could every scenario be predicted into any useful level? And if so, how?
So today I look for common threads in lead-up price action that give clues as to how price will react at a major degree.
These are my observations. Please note, that price action observations are made from a 10 or even 30 second candle chart. I expect others will bring their observations, also:
1) Bounce (reversal)
a) if a degree has not been touched for awhile and price has not traded close to the degree, a 1st signature change is much more likely.
B) on many days, reversals are more common to the upside down (when encountering resistance).
C) on hefty trending days, 1st signature reversals counter-trend frequently fail (then grow to breakouts or chop).
2) Breakout
a) Momentum. If momentum is tough entering a degree, price is more inclined to breakout.
b) Direction. If direction is down moving into a degree, price is more inclined to breakout.
C) Momentum Direction give a greater probability breakout setup. Although price overeat or can still reverse.
3) Chop.
A) Happens frequently around major levels. Price will dip beyond degree, then return the other way, then combine.
B) Consolidation break-out indiors could be useful here. Fast bollinger bands or alternative breakout tools can be helpful to gauge management at consolidation.
Putting it all together.
The idea is to capitalize at least 2 of the 3 conditions stated. Some traders presume a single condition, and focus and trade only that (and profit!) .
In my experience, here are some drawbacks with this:
1) Trading just breakouts.
While I've heard this can operate, chop creates significant drawdown as price tosses around a degree. Further, even some 1st rebound reversals frequently pass a degree by some ticks (triggering limit orders), then slam down (or up).
2) Trading just reversals. Again, this is sometimes profitable and from what I hear, how many big players trade. But, breakouts slam change traders. And chop can frequently end with a failure to the downside.
3) Trading just chop. Breakouts are overlooked. And reversals are usually overlooked. Although drawdown isn't as thick, assuming a good chop indior is utilized.
So how can a trader make sense of that??
Well, here's how I trade it
As price approaches a major level, I Wait-and-watch for a breakout. If price reacts to a degree, then place on a change. Then if price retests and consolidates, wait for a breakout.
Assume breakout gt; change gt; consolidation.
Be interested to hear how other seasoned traders browse major levels. What they look for. Common price action etc?