A Price Study
Price is the key to everything. Price action will give you guidance as to what to expect for future moves. Below is an example using the Nikkei 225 futures.
Note that price has been trading in a zone of consolidation for several hours. Movement is enough that one could have actually traded the highs and lows of this consolidation. It is very easy to see by looking at what has already happened but that offers no assurance as what to expect of the next candle.
So let us take a look at what we have and how we may have interpreted the probability of the last down swing. To begin we know there is resistance in the area of the highs as they pretty much build a ceiling. Previous down swings might have been difficult to predict and could have been caused us to have been caught in a whip saw action. We can see big candles down and then again big ones back up. Considering that this is a 9 min chart it is pretty chaotic movement. What we seek is something a bit more predictable.
Note the arrow: At this point price is beginning to settle down. We have a green bar close with three red bars opening at that close. Two of the bars have long upside wicks. These signs are indicating that be Bears are trying to control price action. The upside wicks indicate attempts to push price up by the Bulls but having it driven back down by the Bears. That is a sign that the Bears are in control. On the fourth red bar a Bearish support zone is created. The second bar to open below this zone is your signal to enter. Since the forming bar was the first to open below the zone, the one following will signal your entry when it closes and is still below the zone.
The screenshot does not show you the final outcome but you can look it up yourself by looking at the morning price action of the Nikkei 225 on May 2, 2016. You will find that it made a retrace and then returned to the down swing netting about 60 ticks or $350.00 for one contract.
Some may play it with an exit and then re-entry but the play is about the same as riding it to the end. My method was to exit when price stopped moving and re-entered when a big red bar broke that low where price had previously caused my exit.
Note: The support zones you see on the chart are created by the TWSRT is a product of Testedwisdom.com. There are specific rules that apply to use of this study and this article is not an attempt to explain those rules.