Zen Trading Tech

Index

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