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This is a discretionary pattern trade that can come up during the day session. It can be referred to as the first punch through trade.
Looking at a Trade Station Sept 14, 2023 NQZ23 five minute candlestick chart with a 20 length exponential moving average indicator you can see at the 1345 Central Standard Time candlestick it punches through the exponential moving average line, this would be considered a first punch through trade. A Trade Station 1345 candlestick ends at 1345. Context can be everything in a trade, I don't always take this trade and I try to use as much discretion as I can in any trade. I can be more picky concerning my pattern trades, I definitely miss out on some good trades, a more aggressive trader would get more points but it's a comfort zone you find yourself adapting to, everybody's style can be a little different.
Fund managers trade in huge lots of shares, moves on the equity index products can last generally about 45 minutes. You can see a move start at 1250 and end at 1330, there are nine consecutive down candlesticks. You don't see a lot of chop and that down movement is a steady down move, this is a classic set up for a pattern trade. At 1335 I'm thinking maybe go long, at 1340 still interested, at 1345 a predictive candlestick first punch through the exponential moving average indicator. More context to this trade is there have been uptrends in today's market and this is going in line with the uptrend. Go long here at about 15 681.00 or little bit less. Some traders that held off, long at the XMA would be also be a good spot. Looking for about 30 points, and my 30 point stop puts me below the 1335 candlestick low.
The 1350 and 1355 candlesticks are upward pointing dragonflies, so feeling better about this trade. 1410 target hit, 30 points.
If I had not hit my target by the 1415 candlestick I may bail because it's at the end of a nine candlestick move. Again this can cost me points but I want to protect profit, and since the down move was below the XMA we could be entering into more of a wave pattern.
There is a first punch through at the 1430 candlestick but I'm not feeling it mainly because it's not in line with the overall daily uptrend and it is also getting later in the day.
This a trade you can practice with and see if you like it or not. I especially implore beginning traders to do a lot of practice trading before trading any type of trade with real money.
Can you help answer these questions from other members on NexusFi?
Why would a bar closing on the other side, or trading through a random line (why 20 XMA and not 15, 5, 30, <any other number>) have any more significance than any other bar? What make the 20 XMA special? i.e if the bar "punch through" the 19 XMA, this is not a valid trade?
The 20 EMA may be arbitrary, but it's not random. Certainly the 19 or 21p EMA might also "work" but what I took away from the OP's post was that this moving average was just one part of a bigger picture. Note that in the thread title he called this a discretionary pattern, and in his comments, he emphasized the importance of context. In this example that context included the individual candlestick bars that were printing on his chart, as well as the time cycles, all of which combined to form something he saw as a compelling reversal opportunity.
The discretionary part is always the most difficult to put into words, and it's exceedingly difficult to quantify or automate. There are just too many variables, some of which may not even enter the conscious mind of the observer. It's why a trade like the one described above is so difficult for anyone else to replicate. But perhaps there are still a few things we can learn from the OPs observations and experiences. The time cycle, for example, is something I find intriguing.
How important is this 45 minute / 9-period sequence? Does it make a difference what time of day it occurs? I'd love to hear more about this, and how it ties into the context the OP is reading. Also, what conditions might cause him to avoid trading a "first punch" reversal? How would he manage his risk if the trade failed to perform as expected? These are all important details that anyone wishing to replicate this strategy would need to explore.
The nine consecutive 5 minute NQZ23 sequence is not critical to the trade, but is something that would catch a discretionary traders eye, and would add a greater probability to a potential move. When I say not critical, means you do not have to see 9 consecutive directional candlesticks for a first punch through trade to work, but in this trade it is important to me, again discretionary.
You will also note that the candlesticks in the 1250-1330(CST) move do not have large predictive downward bodies, adding to the fact that large predictive upward candlesticks could have some follow through. The 1345 punch through candlestick is the second larger predictive candlestick in the anticipated move adding further context to the trade. If it were the fifth predictive candlestick to punch through, I do not know, but maybe not. Moves do not of course always happen to be nine 5 minute candlesticks, but is something to possibly anticipate and keep an eye out for. Again ~ 45 minutes.
Time of day may not make any difference to one trader, but some to another. If you add a lot of context to the trade, they can be profitable at any time of the day session, as long as there is time for follow through.
If I had to pick one indicator to add to my chart, it would be the 20 length exponential moving average. For me, it is an excellent refence point for the candlesticks, to see patterns or price/action.
@Trend Trader, an interesting set of posts. Can you illustrate by adding a screenshot or two, so readers do not have to mentally construct an image of the price action from the description?
As to one aspect of the pattern:
I like the 20 EMA too, for the same reason: it gives a simple reference for what price, and the price trend, is doing, which is why many traders use it, or something like it. I think that if you are trading anything like price action, you will need something like that to hang your hat on.
Hence the value of a screenshot, so the context is explicit and visual.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I misread your question a bit. The difference in the time of day for a 45 minute move should not make a lot of difference to a trade as long as you can add as much context to the move and to the trade as possible.
The conditions to avoid for this trade would be: going against the trend, not too early or late in the day session. Getting in the trade too late in the move. Keeping an eye on todays range, and where you are compared to the average of the last three day's session range. News events such economic calendar reports, FOMC, Fed chairman speech, and such. What does the pattern of the last hour or two look like could cause me to avoid this trade. Excessively choppy markets, poor pattern appearance and a lot of variables I am probably failing to mention.
The importance of the 45 minute move is looking more important to this particular trade because it is starting to shape up as a wave pattern.
This trade setup looks pretty good, so I will ride the initial stop out.
I failed to mention that keeping an eye on todays range, and where you are compared to the average of the last three day's session range would factor into an exit decision. The previous 3 day session range was 166.42 pts. At the 13:45 candlestick close, and 15681.00 entry we are at a 150 pt. day session range. When looking at the looking at the ninth candlestick in the trade move, that would factor into an exit, had we not hit our target.
