Walk Down the Hallway Until the Door Opens (Part 1)
09/02/2008 12:00 am EST
One of the tools I am proud to have introduced to the world of technical analysis is the Energy Point. Energy Points are formed when two lines of opposing force cross and my research has shown that Energy Points not only act as price attractors, but they are also areas that you should watch for either a change or an acceleration in trend. But what do you do if there are more than one Energy Points staring at you on your chart? The easiest answer is to simply wait for price to get to the Energy Point and then let price show you what it is going to do before attempting to enter with a high probability entry setup.
Let's look at a fascinating example from a recent market session:
This is an interesting chart because there are three Energy Points relatively close to each other, lined up nearly horizontally. And price will move past these Energy Points in one trading session. How do you choose the most likely Energy Point of these three to give you the change in trend or acceleration of the trend?
Let me give you one last piece of the puzzle before I show you how price played out against these three Energy Points: This is a chart of the Euro FX against the US dollar early in the US trading day on a recent Federal Reserve meeting day. If you trade at all, you know there will come a time when this day becomes volatile, so one of these Energy Points may be a great area to initiate a position. But you also know that the extreme volatility that can appear on Fed days can 'wash and rinse' you out of your position, leaving you without a position as the market returns to the trend.
How did price interact with these three Energy Points as the day progressed? Which Energy Point gave you the opportunity to enter a high probability position?
More tomorrow in part 2.