You say "right track" as if there's only one way to do this, but it is anything but mechanical.
I don't remember if I said so in the book but the charts in the book were done in real time at the time. Therefore they are no more than an illustration; they are not a template. Trades were taken, for example, without regard for time of day, largely because this is used all over the world, and traders in England and Eastern Europe have opportunities that we don't, so to consider the
overnight as "noise" is at best insensitive. The most one can take away from all this are the principles, which was the intent.
This is further modified by the trader's individual quirks, particularly with regard to risk tolerance. If and when one becomes supremely confident with this, a 10 or 20pt stop may be nothing. A 40pt stop may be another matter. But one can't prescribe any of this. There is also the issue of management, which at the beginning tends to be cautious. As one becomes intimate with his market, the management may become looser, enabling the trader to hold longer; he knows when a particular break or
pullback is nothing to be concerned and when it signals real trouble.
Having said all that, you are enmeshed in lines and channels. If this were a recipe, you'd be timing the "beat at medium speed" so that it took exactly three minutes, no more, no less, without ever thinking about what exactly this beating is supposed to accomplish, much less why it's being done at "medium". What you have here is way beyond too much.
The point is to go short when price hits the upper limit of the weekly trend channel. Where and when and how one goes short is detail. The objective is to be short at a level and at a time when one is at least reasonably secure in his decision to be so.
I have a problem viewing dark on black, so I'll provide my own example.
Let's say that for whatever reason you want to go short at the test of the channel in February (as distinct from any other test):
One could short using weekly bars, and some big-money traders trading
OPM might do just that. But you aren't willing to assume that much risk. You want something more precise. So you look at the daily:
Though you wouldn't know it at the time, in real time, you've got 10 days to decide what to do. How do you know when to enter? And where? This is where the SLA comes in:
There's no reason to enter until price is done testing the upper limit of the channel. Once the last fanned demand line is broken, you can take an aggressive entry, aggressive in that there's no lower high. Such an entry would also mean a stop that may be too wide for you: note the DP.
You could also wait for the lower high and enter there. This would mean more information and the price would be about the same, plus the DP would be lower. Or you could take the third entry, but this is available only in hindsight. Price could easily have plunged after the second entry, and there are neither an information advantage nor a price advantage in waiting for it, even if one somehow knew that it was in the cards. If even the second DP represents too wide a stop, one can enter any of these retracements using a 30m bar, or 15m, or 5m, or less. Any of these would mean a much tighter stop. What is more pertinent is whether or not you'd be there to take it. However, if you can see price approaching the extreme of this channel, you can make it a point to be there. Or assume the risk of a wider stop. That's your choice.
Using a more recent example, which is a short off the upper limit of the
range rather than the trend, given that the last test of the trend channel was two months ago, one can see that although the previous daily swing high has been tested, the hourly demand line had not yet been broken. This isn't necessarily a deal breaker, but it's something to consider.
If one chooses to wait for these breaks, he can see that the upper limit is being tested again after the open on the 24th.
If he elects to go short there, and why not, he can zoom in all the way to the 5m chart and enter with as tight a stop as one could reasonably want. And if price breaks through this level and makes a higher high, he can plan for that trade as well.
After that, it's just management. No surplus of lines or channels or whatnot. Just follow the price.