Hi Satya,
I read about 3 types of sideway movements
Ledges - 4 to 10 bars long sideway move
Congestion / consolidation - 10 to 20 bars long sideway move
Trading Range - > 20 bars.
1 day NR pattern can very well result in Ledges on 60m chart.
2 day NR pattern results in consolidation on 60m chart.
Multiple day of Narrow Range (like we saw in last 2 weeks) will show as trading range on 60m chart.
So I guess, it depends a lot on visualising charts on different timeframe and forming our view on market internals.
Generally, it is more likely to get false break-outs in consolidation and trading range as players are trying to test the market. This is quite similar to accumulation /distribution phase.
Trading Range takes the same study to next level.
But if we can live thru that consolidation period.. then generally we are well rewarded at the end of it by clear break-out (ofcourse we need to know how to ride the break-out).
If you had noticed, then before current break, we had NR5 and NR6 days near the expiry date of last week. Last 2 weeks also gave the range of 250 points (against 300+ points of average weekly range).
So, this is how I will go ahead with tracking multiple TF for break-out
1) keep track of higher TF and find out when they are contracting
2) follow smaller TF and look for consolidation there as well
3) Get ready to trade the break-out on smaller timeframe with limited position size. Here we get entry on break-out of smaller TF but there is risk that higher TF can still result in no break-out.
In that case, we have to face false break-out on smaller TF and maybe face the stoploss.
4) Add on to the position when larger TF also breaks-out
5) Between step 4 and 5, following are some of the pointers that can give indication that we are getting real break-out or not..
In case of real break-out, we do see
- Range expansion (atleast 30 to 40% of NR bar range)
- Volume expansion
- Trendline break and failure of bounce towards the Trendline to cross it successfully
- Change it trend of swing highs i.e. from HH/ HL to LH / LL
- Trending Bar in the direction of break-out.. preferably 90-10 type of bar. This is another Toby's pattern where bar close is top 10% (i.e. 90% or bar range) or bottom 10% of the bar. These bars show the trend strength.
If you remember, we had seen most of the above points failing in various NR7 days of last 2 weeks but they are turning out to be true in the recent break / the break on budget Monday / the NR days when market reversed from 3920 low recently.
Hope this helps and gives you idea to design your system for 60m TF.
I would love to know observations from other price action trader as well.
Happy Trading
