Trader Tip: Cat Whiskers As we have said in the past we at Blue Point Trading tend to prefer “price pattern” vs “price derived” indicators to signal trade direction. “Price pattern” indicators are patterns that tend to repeat and when identified allow the trader to get into a position before the move occurs. “Price derived” indicators (moving averages, oscillators, MACD, etc … most of your typical chart pictorial indicators) tend to be lagging. In other words, the move has to start before the indicator shows a direction, causing you to get into the position later. In this article we are going to discuss a “price pattern” indicator that will help the trader to know if a Support/Resistance (S/R) price point will be broken. We call this “price pattern,” Cat Whiskers.
We often see market price bump against S/R price points. Markets tend to stall at these points as breaking to new price levels means the underlying volume is needed to support these new levels. However, the opposite maybe equally true as well. Large volume players pushing prices on a longer term basis (programme trading), may wish to defend S/R levels to ensure the longer term trend continues. Or still yet, it may be a situation where the supply/demand beyond the S/R price point is just too great.
From a chart “price pattern” perspective at these S/R price points, price moves quickly anticipating the break, merely to be defended by other traders and knock it back down – even those that played the break get spooked and bail out and/or reverse the trade. This battle at the S/R line can create a series of up and down candlestick moves (Dojis, hammers, mirror candlesticks, etc …) and yet price goes nowhere. This “price pattern” can leave a series of tails/spindles on a series of candlesticks. We call this “price pattern,” Cat Whiskers because of there resemblance.
The point with Cat Whiskers, is that price maybe ready to reverse direction – an interesting Trigger for a Trade Plan. Please see the adjacent chart for a pictorial view of the Cat Whisker “price pattern.” The points below are addition considerations when making a decision using this concept:
- The S/R that they Cat Whiskers are bumping against should be weak. In this case, not many touches at the S/R point over the past 200 to 500 time series bars.
- There should be more than 2 but not more than 5 Cat Whiskers. Too little and you have a risk to break through the S/R point straight way. Too many and you risk that the S/R can break through and the reversal will not happen.
- If a higher time series MA (Moving Average) is moving with the implied movement of the Cat Whiskers, this makes this concept even stronger.
- Avoid this concept if there has been a recent major news event that has recently caused a big market move.
Though this is not a Trade Plan, you may want to build one around this concept, set with in a higher time series “price pattern” or S/R indicator. This Cat Whisker concept can work on just about any time series. Just be aware of the time series vs scale of pip movement will be in accordance to the times series AD[time]R (Average Daily[time]) Range). Click here, or watch below a video presentation of this Trader Tip.
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