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Keltner exit reached - break-even trade
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Today's ES Blog Lesson
Feel free to ask questions in our IRC chat room or in the Enthios Forum at Yahoo Finance.
Building Blocks of Trading Everything in nature is made up of building blocks.
Just as the universe is made up of atoms, so the market is made up of basic units called Market Structures.
And just as there are two basic part to an atoms – protons and electrons – so in the market there are two types of structures, Market Structure High and Market Structure Low.
Most price movement in the market can be defined in terms of MSL’s and MSH’s, and the ranges that are found in-between them.
Likewise, everything you find at enthios.com is, for the most part,defined in terms of MSL’s, MSH’s, and the building block that they form together, 1-2-3 Reversals.
Market Structure Low (MSL)A Market Structure Low (MSL) is the first sign of a potential reversal in prices from a downtrend to an up trend.
It is usually made up of three price bars (or candles): A low, a lower low, and then a higher low.
The “Low” is measured from the actual low of the candle, not the closing price.
Ideally, as shown in Figure1, the Low and Lower Low will both be “down” bars (where the closing price is lower than the open price), whereas the third bar, the Higher Low, will be an up bar.
Figure 1 - MSL
http://www.enthios.com/fpdb/images/msl.gif
The MSL is actually triggered when prices subsequently move above the high of the third candle, as shown by the dotted line.
Of course, it is dangerous to enter a long trade simply on the trigger of a MSL.
But this book is filled with ample opportunities to use the MSL and MSH as triggers for different trades.
A MSL can also be made up of two bars or candles when they both have the same low. This is known as a double bottom, as shown in Figure 2.
Again, ideally the first bar of the double bottom will be a down bar, and the second will be an up bar.
In this example, the second is a doji (open and close were the same), which is neutral.
Figure 2: Double Bottom MSL
http://www.enthios.com/fpdb/images/msl-double.gif
Market Structure High (MSH)The opposite of a MSL is a Market Structure High (MSH).
It is the first sign of a potential reversal in prices.
A MSH is usually made up of three price bars (or candles): A high, a higher high, and then a lower high.
The “High” is measured from the actual high of the bar, not the closing price.
Again, the MSH is triggered short when prices move below the low of the third bar in the MSH pattern.
Figure 3: MSH
http://www.enthios.com/fpdb/images/msh.gif
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Note how the entry to this was not triggered until prices moved below the VPC line. Although this was a losing trade, at least it was ameliorated by the VPC as a filter.And, as is often the case, even in a losing trade the prices will usually rebound enough to produce a b/e stop.http://www.enthios.com/blogs/images/EE%202007-11-26-1249.png
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