Zen Trading Tech

Index

1. Index
2. In This Post:
3. Why Read About Spikes and Channels?
4. Where Did We Get to Last Time Video
5. Spike and Channel Introduction
6. Why Is This Important? Different Trade Management for Difference Parts of the Cycle
7. Drill #1: Finding Spike and Channels
   1. Step 1: Mark Up Spikes
   2. Step 2: Mark Up Spike Breaks
   3. Step 3: Furthest edge of the pullback is a test target
8. Drill #2: Draw and Re-Draw Channels
9. Drill #3: Spike and 2, 3, or 4 legs
10. Drill #4: BO of Channel One Side, Then Breakout of the Other Side
11. Drill #5: Leg size
12. Summary

In This Post:

• We will cover new drills to take your understanding of spike and channels to the next level

Why Read About Spikes and Channels?

• In the first spike video we practiced identifying spikes
• In the second spike video we practiced one way to enter spikes after a pullback
• In this video we connect spikes to the rest of the market structure and introduce new drills
• Trading entries and exits should match the market structure they live in.

Where Did We Get to Last Time Video

• We found spikes
• We marked up 2nd legs
• We looked for failures
• Then we saw how failures lead to measured moves
• We also looks at counter-trend vs trend spikes

Spike and Channel Introduction

• Below is a breakout on the open
• The spike breaks, but we don’t know where the pullback will finish

• New high, so we can see where the channel test target is.

• Test the channel and it holds after 2 tests

• New high and spike and channel continues

• Structure looks complete now. Spike and 3 legs up. Or 4 legs up.

Why Is This Important? Different Trade Management for Difference Parts of the Cycle

• It will be difficult to get consistent entries when our price action reading is not consistent
• So lets practice!

Drill #1: Finding Spike and Channels

Step 1: Mark Up Spikes

• Use indicator if unsure

Step 2: Mark Up Spike Breaks

• Where does the pullback start? Where the spike breaks
• An up-spike gets broken when we go below a prior bar. The reverse for bears.
• Note that a spike can break with an opposite or pause bar. See my video on leg counting.

Step 3: Furthest edge of the pullback is a test target

• Now you know where the spike is because you also now know where the break is
• When price continues in the spike direction we can see the furthest point of the pullback
• Draw a Line at the furthest edge of the pullback
• This is the start of a channel
• This is a test target for later alligators
• The market loves to test them

Drill #2: Draw and Re-Draw Channels

• Follow the drill from before and connect channel line (Use channel tool if your software has one)
• If the spike becomes faster, it will over-shoot the channel line
• If there is a 2-legged pullback it broadens the channel
• Over time it will change so practice redrawing the channel to see how they behave.
• Below I have not drawn ALL of them – just what I considered to be the major ones.

• As the day goes on the channels change – but they stil act like a channel

Drill #3: Spike and 2, 3, or 4 legs

• Put a box (green or red) around the spike
• Start counting the pushes relative to the size of that spike
• Most important part is to focus on the spike and legs after it to avoid countertrend trading

• Many ways to count
• Works on all timeframes
• Market can create infinite variations of the same pattern.
• Function is to match your trade order type and management to the structure
• Different phases will be relative to the spike

Drill #4: BO of Channel One Side, Then Breakout of the Other Side

• In this drill we will draw channels and look for the breakout of either side
• Here a small version and a larger version

• This drill can prevent you from entering late and help to position yourself for the swing back into the channel

• You can also combine this drill with trendline break test – Video below

Drill #5: Leg size

• Once you can find spikes and channels look at the leg sizes
• Practice finding which 2 legs are the most similar

• This will help counting in a live environment because the legs should be relative to each other.

Summary

• In this post we covered 5 drills for spike and channels
• I highly recommend practising each one for a set of charts – 20 days or set a timer and practice it for 25 minutes.
• Staying focused on one aspect of price action will help develop live trading skill