Why was/is it not a VWAP false breakout? (but was an ascending triangle and worked - from Thor's recap)

[Teruki 21]

Hi there,
I have been reviewing Thor's daily recaps and it is about one of them.
(It's only about 3 minutes so if you have time please go ahead and watch it too)
I'm a bit confused about it and if anyone could clear it up it would be appreciated.

Thor said the stock touched the level ($30.9) 3 times and it is an ascending triangle so he went ahead and placed an order around 15:13 for long.
To me (as a newbie), it looks like the stock is rejected by that level and went down to below VWAP, and I might take it as a false VWAP breakout.
It kind of looks like an M shape on the 1 min chart which is often a sign of a false break out. 

He did say he was a bit worried when it went down a bit but as he also said it was supported by the 50MA and he added more.
I could see it was supported by the 50MA (and the 9 on the 5 min chart too I suppose) but to my newbie eyes it also looks like a descending triangle (15:15-15:22, rejected by VWAP at 15:20, also the 9 and 20 above on the 1 min chart). Also, there is a red big reverse hammer around 15:14 on the 5 minute chart (although without much volume).

Thor says he looked at Level 2 and the tape and confirmed it was up-trending and yes with that info I understand it would go up rather than go down.
Also, with the 5 minute chart, I understand it looks like a clear ABCD pattern too.
But I cannot be so sure it would go up just looking at the chart patterns especially on the one minute chart.
Even with the 5 minute chart, it seems to me there are too many wicks above.

So basically I am wondering,
1: Why is it more of an ascending triangle than a VWAP false break out? In other words, how can you see that the stock would go up where Thor placed his initial order?
2: Without the level 2 and tape information, are there more sings of the stock going up than down where he added?

Thank you!

 

Edited July 18, 2020 by Teruki

[Bailey Nevener 83]

 Good evening Teruki,

 

First off, these kinds of questions are what this site needs.

Also, the video you linked is actually a recap of $ANF.  Here is the video you meant to link based on the screenshots you provided.

 Analytical thought and true deconstruction of a trade is what really makes us all better traders.

As far as your question is concerned, I am not Thor, and I cannot speak for Thor.  

However, I have spoken with Thor in the chat before with a similar deconstruction, and I have an idea of where he is coming from.

I will now answer your questions directly.

------------------------------------------------------------------------------------------------------------------

1: Why is it more of an ascending triangle than a VWAP false break out? In other words, how can you see that the stock would go up where Thor placed his initial order?

This is an excellent question.  It is basically asking, "What is the deal with pattern recognition ambiguity, how can we make a decision with two different available interpretations of a trading setup?".

Obviously a moderator-esc approach to this question would be to tell you that two people can take two different trades on a stock and it isn't guaranteed that either strategy will work out 100% of the time, so therefore having opposing interpretations is the 'name of the game' and cannot be avoided.  This is true.

However, I believe that you have at least 3 brain cells, so let's actually think about what is happening here on a technical level.

A. VWAP False Breakouts, as outlined in Andrew Aziz's book, happen in a specific Time Frame.  That time frame is directly after the Open, a.k.a. Midmorning.  Therefore it cannot be a VWAP False Breakout trade in line with that strategy.

 

B. Let's think about it from a price action perspective.  Before we get into the weeds of the individual candles, we have to think about the trade as a whole.

First consideration:

Is $AMD currently in an uptrend, or a downtrend?  Uptrend.

How do we know it is in an uptrend?  Because it has been making higher lows and higher highs. As a general rule, we should prefer continuation instead of a reversal.

This means we should have to be CONVINCED the trend will reverse, rather than have to be CONVINCED it will continue.

This is also a later day play, where stocks tend to trend.  So it is already a more attractive long.

 

Second consideration: 

What has the price action been doing?  On the five minute chart, the price has clearly reversed from the lows, but when it hit VWAP earlier, it did a nasty drop.

However, the drop was on fairly low volume, so I would expect a retest of VWAP.  This kind of low volume, large range, drop tells me I should be cautious on placing my stop super close after any entry.

 

Third consideration: 

Heavy wicks on the 5 minute chart.  Obviously huge wicks pointed against your trade direction is a huge No-No to go long into during the morning session, but remember, it is 3 p.m. at the time of this trade.  The five minute chart essentially becomes the new 1 minute chart at this point.  

With this in perspective, you would expect to see some kind of pushback at VWAP, which could give an excellent entry to go long if it comes down to a decent distance from a support.  If these 5 minute candles are treated as 1 minute candles, this pullback would be a joke.  It can now clearly be seen as a preferable long with a stop placed under that higher low.  

Remember to perhaps space it down a little bit so you can hold onto your position in the event of something like the previous chop.

 

------------------------------------------------------------------------------------------------------------------
2: Without the level 2 and tape information, are there more signs of the stock going up than down where he added?

The only thing he has going for him here is that this is a late day play, he is EXPECTING a trend continuation.  He doesn't know if he will get it.  

Once the price flew down he was nervous he would get stopped out, but what did it do?  It traded flat above a support.  

Once he saw it was probably the bottom of that short term range, it broke up slightly and he added Risk to his position from the bottom of that range.

At that moment it was very possibly ANOTHER higher low.  If he was expecting continuation, then it would make sense to add at the bottom of the range, rather than at the area of his original position, which was obviously closer to the breakout region of the range.

 

These are considerations that can help you have a preference on a trade and exactly what your options are for stop placement. 

This is not a complete strategy or a fool proof ideology, but it is a useful way to organize the chaos.

 

Here are the items of importance I have laid out:

1) The Trend is up, try to go with the trend if you can, but if you are CONVINCED it will reverse, then check to see if an equal amount of signals point to continuation, and then choose the continuation trade if they are equal or don't take a trade until the chart develops hammer candles and stars that provide more information.

2) The Time Frame  suggests that current trends will continue.

 3) The Price Action is not respecting the 1 minute chart at all, so treat the higher timeframe (the 5 minute chart) as the new one minute chart, and seldom place a stop below any higher low on the 1 minute chart that is not dually represented as a higher low on the 5 minute.  (If you see a bunch of 1 minute hammer candles at the base of the 1 minute higher low, you could consider a stop under them as valid, even if that higher low is not represented on the 5 minute).

 

This is how I view it.

Rate me if you dare lol.  
 

 

 

Edited August 2, 2021 by Bailey Nevener
Typos

[Teruki 21]

Thank you very much Bailey!
And thank you for pointing out about the mistake about the linked video (Oops, it must have confused other members) and also thank you for putting the right one here. I really appreciate it.
Just wanted to say quickly thank you now - I just found this post and went over it but not in detail yet. I will read in detail after today's market.
(I may have more questions then, haha).

Thank you again and I will post something again later.

[Rick Lee 10]

11 hours ago, Bailey Nevener said:

Good evening Teruki,

 

First off, these kinds of questions are what this site needs.

Also, the video you linked is actually a recap of $ANF.  Here is the video you meant to link based on the screenshots you provided.

 Analytical thought and true deconstruction of a trade is what really makes us all better traders.

As far as your question is concerned, I am not Thor, and I cannot speak for Thor.  

However, I have spoken with Thor in the chat before with a similar deconstruction, and I have an idea of where he is coming from.

I will first answer your questions directly.

 

1: Why is it more of an ascending triangle than a VWAP false break out? In other words, how can you see that the stock would go up where Thor placed his initial order?

This is an excellent question.  It is basically asking, "What is the deal with pattern recognition ambiguity, how can we make a decision with two different available interpretations of a trading setup?".

Obviously a moderator-esc approach to this question would be to tell you that two people can take two different trades on a stock and it isn't guaranteed that either strategy will work out 100% of the time, so therefore having opposing interpretations is the 'name of the game' and cannot be avoided.  This is true.

However I believe that you have at least 3 brain cells, so let's actually think about what is happening here on a technical level.

a. VWAP False Breakouts as outlined in Andrew Aziz's book happen in a specific Time Frame.  That time frame is directly after the Open.  Therefore it cannot be a VWAP False Breakout trade in line with that strategy.

b. Let's think about it from a price action perspective.  Before we get into the weeds of the individual candles, we have to think about the trade as a whole.

First.  Is $AMD currently in an uptrend, or a downtrend? Uptrend.  How do we know?  Because it has been making higher lows and higher highs.  We should prefer continuation instead of a reversal (meaning we should have to be CONVINCED it will reverse, rather than have to be CONVINCED it will continue) not just because of the higher highs and higher lows, but because it is also a later day play, where stocks tend to trend.  So it is already a more attractive long.

Second.  What does the price action look like?  On the five minute chart, the price has clearly reversed from the lows, but when it hit VWAP earlier, it did a nasty drop.  However, it was on fairly low volume, so I would expect a retest.  This kind of drop tells me I should be cautious on placing my stop super close.

Third. Heavy wicks on the 5 minute chart.  Obviously this is a huge No-No to go long into during the morning session, but remember, it is 3 p.m. at the time of this trade.  The five minute chart essentially becomes the new 1 minute chart at this point.  With this in perspective, you would expect to see some kind of pushback at VWAP, which could give an excellent entry to go long if it comes down to a decent distance from a support.  If these were 1 minute candles, this pullback would be a joke, and it is clearly a preferable long with a stop placed under that higher low.  Remember to perhaps space it down a little bit so you can hold onto your position in the event of something like the previous chop.

2: Without the level 2 and tape information, are there more signs of the stock going up than down where he added?

The only thing he has going for him here is that this is a late day play, he is EXPECTING a trend continuation.  He doesn't know if he will get it.  Once it flew down he was nervous he would get stopped out, but what did it do?  It traded flat above a support.  Once he saw it was probably the bottom of that short term range, it broke up slightly and he added Risk to his position from the bottom of that range.  At that moment it was very possibly ANOTHER higher low.  If he was expecting continuation, then it would make sense to add at the bottom of the range, rather at the area of his original position, which was obviously more akin to the breakout region of the range.

None of this is to say, if you analyze a chart enough, you will be able to figure out what to do each time correctly, but rather the items of importance I have laid out.

Trend = up.  Time Frame = late day trends are stronger.  Price Action = 5 minute candles are the new 1 minute candles this time of day, so pay more attention to higher highs and higher lows on that time frame.  This is how I view it.  Rate me if you dare lol.  
 

 

 

@Eric Dubs, some interesting thoughts from @Bailey Nevener on this trade by @Thor. 👆

[Teruki 21]

Hi there,
Thank you Bailey again for your awesome explanations on Thor's trade I asked about.
I read what you wrote carefully and it made sense a lot.
I did not think about the time frame (afternoon) and, especially as a newbie, to think the 5 minute chart as the new 1 minute chart is a great way to understand the pattern. So now I understand that the big picture is the trend being going up, but there was a minor chance of reversing which I saw in the 1 minute chart as double top and wicks in the 5 minute chart. There could have been the case (or there had been more chance of it) if it had been happening in the morning, but since it was happening in the afternoon (where the trend tends to continue) and with the fact it did not break the support (at least for a while), there was more chance of keeping trending up.
Please correct me if my understanding is wrong somewhere.

I would like to thank you again, Bailey, for answering this question. The hardest thing in learning trading so far for me is that there is no right answer. A "right" trade could become a loser and a "wrong" trade could become a winner and as a newbie it is difficult to tell which is the case. That's why moderators' recaps are valuable and I watch tons of them but occasionally (or often to be honest, ha ha)  I don't understand them. I love Thor's recaps but they are sometimes a bit too difficult for a newbie and I get stuck not understanding them. Anyway, to be able to ask this kind of questions here and someone would post with answers of this quality is really great for me. I know it must have taken you a lot of time to read my question, come up with answers, and write them down and I really really appreciate your time and effort.

[Bailey Nevener 83]

Teruki,

Thank you for getting back to me on this post!

I will address what I think I can add to from your previous reply.

 

"I did not think about the time frame (afternoon) and, especially as a newbie, to think the 5 minute chart as the new 1 minute chart is a great way to understand the pattern."

I'm glad that you were able to take something away from that, and here's another way to think about it.  

The lower the volume, the more you should "zoom" out in terms of transcribing one timeframe and treating it as its higher timeframe.  

This is a self-fulfilling prophecy as volume almost always is lower in the afternoon.  

If volume starts to pick up, like right before the close, it may be time to "zoom" back in.  You will notice the lower time frame's moving averages will start to be respected again.

This will allow you to dynamically analyze what 'minimum' time frame to watch.  

If you're in doubt which time frame to watch, I would advise looking at previous price movements.

Look at how far 'whipsaw' movements can go at the stock's present current average volume.  

This is a good idea:  whichever chart's 20EMA it respects, treat that as the new 1 minute chart.

For example, that first test of VWAP on $AMD shot back down to the 5 minute chart's 20EMA and it wasn't on any exceptional volume in comparison to its neighbors.  

This can help you disregard the 1 minute chart for any meaningful information.  (in regards to how we have learned to trade)

Unless volume starts to pick back up, any stop you place under short term 'support' (e.g. under a 1 minute chart higher low that can't be seen on the 5 minute chart) may get absolutely destroyed without warning and no volume!

This is not a rule, but it will help you make better decisions based on the stock you are trading.

 

I'll go more in depth on your reply if you'd like, but I feel like that was a fair piece of information you can take with you.

 

Also, there are a ton of valuable things that can be gained from watching the recaps of traders, but the thing they are verifiably good at is trading. 

Therefore the BEST thing you could do in my opinion is watch Andrew and the gang trade live.  

Professors, athletes, and the like, lose touch with what their 'secret sauce' is when they've been in the game for so long.

A coach that has a proven track record of making winning NFL teams is probably going to teach you how to play football better than a NFL player.  

These 'NFL' traders are teaching us how to play, but I have 0 clue how many people are profitable compared to how many are not as a DIRECT result of their teaching.

This is NOT to bag on anyone.  We can't all be GODs at everything!  They are two separate things.

 Watch them in the act, and it will teach you more about what they DON'T know they are doing.  

This is that information that they can't articulate to you.  See what I mean?

 

Edited August 29, 2020 by Bailey Nevener

[Teruki 21]

Bailey,
Thank you SO MUCH for this again.
Everything you wrote is so helpful/useful, but
"This is a good idea:  whichever chart's 20EMA it respects, treat that as the new 1 minute chart. "
this sounds like a really great idea and I will observe stocks this Monday with this in mind.

Yes, I am in the chatroom every single day from the pre-market show to the end, ever since I joined the BBT in April.
(I don't work now for personal reasons, so I am focusing on trading.)
I have learned so much, but sometimes things happen so fast and it's hard to follow them, especially after the open.
That said, I definitely understand what they are doing more, so hopefully I keep learning and I become better at it myself.

Thanks again!

Edited August 30, 2020 by Teruki

[Eric Dubs 1]

@Rick Lee and even more interesting thoughts from @Bailey Nevener! This is gold thanks Bailey!

[Bailey Nevener 83]

@Eric Dubs You got it!  Honestly it is all hocus pocus until you can convince yourself to think like this in real-time.

[Mitch The Duck 4]

Loved reading this. Thanks all.

[Hansabraun 7]

@Bailey Nevener I just had to comment on how keen I find your insight to be.  Well done.   Excellent work and thank you for sharing!

 

[Bailey Nevener 83]

8 hours ago, Hansabraun said:

@Bailey Nevener I just had to comment on how keen I find your insight to be.  Well done.   Excellent work and thank you for sharing!

 

No problem!