CHANNELS AND BREAK OUTS INSIDE THE RANGES

Each morning, the break out targets (BOTS) are set for the US market.  They could just as easily be applied to any trading zone.  BOTS are trading ranges, dividing the anticipated market action into the upper trading range (UTR) and the lower trading range (LTR).  If the long or short target breaks, we expect a trend to develop in the UTR/LTR and play the long/short trend.  If we have a test, or a slight BO that fails, we look for a reversal and play the contra trend to the BOT tested.  Simple enough:  long/short the break with trend, or short/long the FBO with a reversal trend.

But we will see trading days that will will develop into price movements that trend from low to high or high to low:  an intra-range day (ITR) often settling close to the middle target.  In an ITR day, we will look for trade set ups inside each range zone.  Favored trades will be:

1. look for channel plays
2. look for 50% control candles
3. look for intra-range wedges/triangle for breakouts
4. look for EMA failures and flips

The standard chart setup is to follow the 5m  and a 2 point range chart.  The range is added, as  a narrow focus only on the 5m can at times become the "trees" and not the forest; and there is additional information needed to identify the possible trade directions.

TODAY:  ES

The ES is the vehicle used today, but the techniques are applicable to any trading instrument.

PLAYING THE RANGE CHART:

The long BOT was challenged soon after it was posted.  The FBO became the first test, and the declining slope of the bar tops indicates a short (the reversal play discussed above) is preferred at the open.  We see  a 2 leg push down that establishes the lower TL for a possible channel (developed as day continued).  The first leg is very close to the 50% level of b5  which is considered a control bar.  Thus a long entry is suggested by the support line or at the top of b3, both near that "50%" area.

The next area of interest is the failure of price at the long BOT, and the TL  from the #1 push.

1. a short at the BOT is acceptable with the TL as the stop.  Support for this trade was the top body of b1 was approximately at the prior lows of the pre-open.  Additional support for the trade, #2 is developing as a lower high from point #1.
2. continue to short TL top, and long the support at/near the mid BOT and lower TL
3. by b29-30 the support line above the mid BOT is broken and it becomes a resistance line above the mid BOT.
4. the gaps are showing bullish interest. Gap2 is a stronger bull TL, but both fail to break the established Resistance.

The 5m chart tells a story too.  Your job as a successful trader is to follow the story.  The more you read, the better you get at trading the story.

We begin with a flip.  Flips are where the EMA goes from support to resistance and vice-versa.

1. we see a flip in the pre-open.  This is a short by b1 with a stop at/near 50% of b2 (considered a control bar).  B5 complete leg 2.  B5 is a bear control, and longs at the 50% level are acceptable if you can identify that a low appears to be in place (b2-5).  The opposite thought applies to a bull control bar.
2. the long BOT fails, providing a short opportunity. B11 become a bear control bar. 
3. at/near 50% of a control bar is important.  In this case it is near the prior low too.  This is where traders will 1) set a stop, 2) set a long also, i.e. an exit/entry.  Exit/entry (or continue in play) only when a prior low/high is identified.  The white line identifies this area of interest, and we see numerous 50% plays developed.
4. Buyers at b12-20-27-32 create a lower TL.  We have a wedge or triangle developing and a significant BO is expected.  B34 creates this opportunity.
5. the sell off runs to approximately 50% of the trading range, the mid BOT to the short BOT.
6. b48-66 we see a bull channel.  For those in the trading room, we were very interested in the channel break at the mid BOT and the EMA, with a short to the 50% level support between the mid and lower BOT.
7. the continued  failure of price to break the mid range (and prior low), was supportive of a long back to the mid BOT.

Two charts, two stories.  An excellent day for trading.