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The exception to the rule about 3 bars concerns double and triple highs (double and triple lows). In the case of a double high (low) the two bars count as only one correcting bar.
The exception to the rule about 3 bar concerns double and triple highs (double and triple lows). In the case of a triple high (low) the three bars count as only one correcting bar.
Trading the TTE has very simple rules:
1. Be sure that the 1-2-3 formation is not occurring in a consolidation, and that the Rh is following a 1- 2-3, Ledge, or Consolidation.
Trading the TTE has very simple rules:
2. As soon as a #2 or Rh point is evident on the chart, prepare to enter an order 1 tick above (or below) the extreme of the correcting price bar.
Trading the TTE has very simple rules:
3. As prices move away from the #2 or Rh points, move your entry stop to one tick beyond the extreme of the correcting bar.
Although we’ve shown you upward movement of prices for the most part, the same rules apply to downward movements of price from 1-2-3 highs, and downside breakouts of Ledges and Consolidations.
At the beginning of this lesson we said, “For a pro to be able to stop us from shadowing his moves, he would have to sabotage himself. You’ll see why shortly.”
The fact is, for the market mover to be able to stop us, he must stop his own momentum as he moves prices towards the orders bunched above the # 2 point or the Rh. He’s not likely to do that.
When trading the TTE we have an additional factor working in our favor, and that is the propensity of the Fibonacci traders to buy (or sell) .382, .500, and .618 retracements of price.
Not only do we gain momentum of price movement towardsthe #2 or Rh points from the market mover, but buying by the Fibonacci traders enhances that momentum. But we’re not done yet.
We also gain momentum from another group of retracement traders, the Gann traders. Gann traders tend to buy 1/3rd, 1/2 and 2/3rds price retracements. The Gann traders further increase the momentum generated by the market mover as he pushes prices towards the #2 and Rh points.
The TTE offers the possibility of using themomentum of others to cover costs and capture a slice of profits, as well as a free trade to the trader willing to use it to good effect. The TTE ahead of the breakout of a 1- 2-3 formation and the TTE ahead of the breakout of a Rh have identical possibilities that prices will reach the breakout point.
However, the probability for a trend to form is lower following a 1-2-3 formation once the breakout point is reached, than it is for a trend to continue after the point of a Rh is reached.
The third bar of a TTE ahead of a Rh always carries the danger that it could turn into a trend reversal. This is why a violation of the second correcting bar carries the best overall probability for success. Although it has a 5% less chance of reaching the point of the Rh, it also has a better chance of being able to cover costs and take a profit.
After the 3rd TTE bar, the probabilities begin to favor a consolidation which is why we don’t attempt to enter on a TTE beyond a violation of the third bar.
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