Today we’re going back to the basics of the Hawkeye Methodology. But don’t get that wrong…
Just because we’re talking about basics doesn’t mean this isn’t incredibly powerful.
As with everything, the key to success relies on the fundamentals and proven principles.
If you watch boxing or mixed martial arts you’ve seen this a million times. The fighter that wins the most is the one who has solid fundamentals, not the one who throws weird punches or spinning kicks.
With trading, something similar happens. Once you can understand the structure of how the market moves, then you can “read” and track trends.
And that’s precisely what we’re going to cover today: the six ways the market moves.
(Grab a pen and take notes because this is information that we only share with paying members)
Okay, let’s get into it…
Identifying what the market is doing and how it’s moving is absolutely vital for your success as a trader.
Luckily, there are only 6 ways a market can move:
- Trend Pause
- Congestion entrance
- Congestion exit
- Trend reversal
So, how do we identify where we are in the market?
Using Isolated Lows and Isolated Highs.
Isolated lows occur when there’s a lower low than both the previous bar and the next bar (Point A) and a lower high than both the previous bar and the next bar (Point A).
Phantom isolated lows occur when only the low condition Point A is met. At this point, there’s no need to see where the high is.
Isolated highs occur when there’s a higher high than both the previous bar and the next bar (Point A) and a higher low than both the previous bar and the next bar (Point A).
And phantom isolated highs occur when only the high condition Point A is met. There’s no need to see where the low is for these guys.
So now that you know how to identify what’s happening in the market let’s talk about the different ways the market moves:
Trend runs are established (Point A) when the close is above the dot, the dot is rising and the close is greater than the open and in the top 40% of range.
At Point B the dot is equidistant from the previous point and continues to be equidistant.
A trend pause is exactly the same as a trend run. However, when a close is under the dot and open (Point A) but the dot is still rising, it denotes a pause.
At that point, you’re looking to see resumption of the trend run (close being greater than the dot ). This should occur within three to five time frames.
Congestion entrances happen when the close is under the dot and the dot is flatish to the previous dot. This is the congestion entrance (Point B). You then look for the last isolated/phantom high (Point A).
Once the congestion entrance has been defined, you’re then waiting for the first isolated phantom low to form (Point B). This has to be within 5 bars.
Next, extend a dotted line from the isolated/phantom high (Point A) and the isolated/phantom low (Point B), you then have your congestion high and low.
As the chart continues, you’ll see new lower isolated highs (not phantoms) and isolated lows developing. You then move your congestion parameters to these newly formed pivots (Point C and Point D). It should be noted that you can only contract in congestion.
If after congestion entry, there are no isolated / phantom low formed within 5 bars, you are then in a trend run down and should trade it according to the rules.
Once you’ve got defined congestion, you’re waiting for a close either above the last isolated high (Point C) or below the last isolated low (Point D).
At Point E, the close is greater than at Point C and a congestion exit to the upside has commenced. The bar close must be greater than the open and in the top 40% of the range of the bar (approximately).
In this example at Point E, the dot has also closed above the dotted line at Point C. This is a stronger indication of congestion exit but a close also greater than Point C is sufficient.
Our final market move to cover today is…
At Point B, the bar is wide and the dot is less than the dot 3 bars previously and the close is less than the dot.
And there you have it, all of the possible ways for the market to move, Now that you understand that, we’ll build on that foundation with more complicated concepts next time.
This is just the tip of what we cover inside Hawkeye Traders…!
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