Day Trading Method - Start Point

I want to show you a trading method concept that I call start point.  I named it that, because I initially used it as the beginning of a new trading swing.  However, the start point is far more than what this name implies, as it would first be the endpoint of the previous swing, and thus be used for trade management.

Consider that you are long and your trade is moving into an area that you can view as a point where the swing would end and a new swing would begin, this would give you the opportunity to exit your trade. 

Additionally, this is used for trade filtering.  For instance, if I had what I would normally regard as a trade setup, but the entry would be directly into an endpoint-start point, then I would not take the trade – it would be filtered for the odds of the swing reversing right after I entered.

You are looking at 2 basic start point patterns; the yellow circle is an initial reverse into buy (1) top drawing shows a double top at the yellow line (2) bottom drawing shows a price momentum divergence high at the yellow line. 

Start Point Considerations

(1) The potential swing end point and the necessary trade management decisions – taking a profit or determining your exit if trailing.

(2) The potential swing end point keeping us from taking a new trade in the area – for instance if you were flat, do not buy the yellow dot into an price momentum divergence high.

(3) The potential swing end point leading a swing reverse, thus becoming a start point, and giving us a setup component and additional preparation time for a possible sell setup.

It is not my style to trade this way, because I do not pick tops and bottoms to fade direction for a new trade.  However, if I were going to, I would use the end point-start point to do so when it was an across the chart or left-right pattern like shown.

The pattern, when it is right side only, is not as significant as a swing end point-start point.  This is not because of the pattern itself, but because the pattern was not occurring at a clear price location, and thus not being as visible to anyone looking at the chart. 

That being said, the right side pattern can attain the same significance when it occurs at a daily price, or at a floor number, which is one of my favorite uses of floor numbers.

Consider this drawing for right side patterns that become selective start points:

(1) Right side double top at a floor number.

(2) A daily price low being retested as a double bottom.

(3) Right side pmd high at a floor number.

These now are significant, and would have the same trading decision implications as mentioned above.

Up to this point, we have been discussing swing reverse start points - we are now going to discuss swing resumption start points. These will be viewed as significant, as they are seen resuming left side direction after a retrace, and a reject of support or resistance.

I call left side support that becomes right side resistance, or left side resistance that becomes right side support a shift line. A shift line is the best resumption start point that we have.

So consider that you have a left side directional move that retraces back to a shiftline, for instance left side support that is now resistance – what a great place to look for a reject and a resumption of direction.

When you look at the drawing and the yellow line, you are looking at a channel low that is brought into this period – now look at the price action at the line:

(1) The line breaks out and then rejects at yellow square1.

(2) After price goes to a lower low there is a retrace back to the yellow line now as resistance.

(3) The line rejects as a double top AND becomes a shift line resumption start point.

(4) Sell the red dot as a start point-initial reverse combination.

(5) With diagonal breakout potential back through the retrace.

It is important that the breakout potential is recognized. We do not want to be trading reject-initial reverses in consolidation, regardless that they have a resumption start point – your trade will be late basis where the swing initially began AND you will not have continuation for the resumption.

Below the drawing you see 2 shiftline patterns: (1) a right side double top, and (2) a right side pmd high – these both are significant resumption start points when they occur at a shiftline, and another example of how something that could be right side only attains significance.

Understanding start point, begins with viewing it as a potential swing end point AND thus using it for trade management that will include profit taking at the location. In this context, the start point adds preparation time for exit and/or potential entry to a new trade swing.

Then start point becomes, as the name implies, the possible beginning for a swing reverse or swing resumption. But first recognize it as a swing end point, and manage any open trade accordingly for this. Additionally, do not enter a new trade into an end point-start point.

As swing resumption, you first understand the resumption start point AND how you would avoid entry into this regardless that you may have a trade setup. Additionally you would also hold an open trade, as a shift line is support or resistance.

The concept of start point includes swing continuation. We see that when a previous start point fails, especially in the case of what we call mixed method failure – this providing additional breakout potential, or even addon setups.

And start point adds selectivity to a trade, where a selective start point reject combined with a price component failure breakout can be entered on an initial reverse – we see this both with swing reverse start points or resumption start points. Again – any initial reverse decision must be contingent on continuation, and be especially aware of a resumption not being into consolidation.

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