Trader Tip: Angle Trading In our ever quest to search for new ideas to develop our trading strategies, here may be an idea that is of interest to you – angle trading. An angle trading “price pattern” indicator can sense whether an instrument is in an accumulation phase or distribution phase (see more here) of it’s market dynamics (in this Blog post we will discuss the long case, but the inverse for a short position build up is also true). This can be interesting to know, as we can then use this understanding to anticipate next price moves. In this Trader Tip we shall discuss how angle trading might be useful in our Trade Plans to build a more successful systematic and repeatable approach in our trading.
First a bit on angles of price moves on a chart. Assuming a vertical line of the chart “x” axis, the angle is the degree price is moving in time from this vertical line. In general, if the angle is greater than 45-degrees, the price is in a spike market dynamic, often due to an news event, that may return to it’s mean or establish a new trading range. This is not a specific multi-phased accumulation/distribution rally situation (another Trade Plan strategy). Typical accumulation market dynamics move in a 45-ish degree rally, followed by a temporary digestion phase, then again a 45-degree rally continuation phase (to new highs). Once the rally accumulation has completed the market rounds into a distribution phase, which will have an angle of less than 45-degrees. The key is being able to spot this “price pattern” on the chart to take advantage of the subsequent price moves that could follow.
In this attached example (click image to enlarge), we will go into some detail on how to spot this angle indicator strategy. On this chart, first see that the market is moving in waves to higher highs. Second, we see that each thrust higher has an angle of 45-degrees. Note that an angle, or short-term tend line should have at least 3 touch points, and the number of thrusts in the overall rally should at least 2 and more ideally three or more. When the thrusts or waves higher are equal in length and/or symmetry, it makes the pattern even stronger. Understanding that the chart aspect ratio can be manipulated on the chart, the key would be to set the chart in a reasonable fashion and that the waves/thrusts would be identical in terms of angle degrees, despite the fact that your chart aspect ratio may be different.
The accumulation phase is over when we notice two things. First, a new higher high has not been made on a wave to the upside, and secondly, the angle of the rally becomes less than 45-degrees. The Trigger area (to go short) would be the break of the last angle short-term trend line and the most recent swing low point. This means we have a breakdown situation and price may begin to accelerate now to the short side in a tradeable trade.
We have not discussed much about the actual Trade Plan, I will let you do this. Rather we are pointing out the Trade Plan set up to identify potential Trigger areas, where the further actual Trigger can be defined at a lower level, in conjunction with the other parts to the Trade Plan (i.e. Stops, Targets, etc…). This idea is best suited on the 15-minute, 1 hour and 4-hour time series charts. However, you may want to play around with the time series used, to refine it further, when constructing your Trade Plan(s). Click here, or watch below a video presentation of this Trader Tip.
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