Trendline Mastery - How To Identify Momentum Change

hey traders in this video we will dive into topics of trend lines and more specifically concept of overshoots now why is it so important to understand channels in first place well it's because we are price action Traders our goal is to learn to read the chart using the Naked candlesticks as they are printing on the chart as price action Traders we are not relying on indicators that provide lagging data indicators cannot predict what's going to happen in the future these candlesticks that on a chart they're forming patterns price stion is a language that is talking

to you and if you learn to understand the language of price action you will get the upper hand and you will be able to understand where the market is going for that reason as price action Traders we know that there's always some form of a pattern and we need to find and identify the proper Channel now generally the way we identify the proper Channel and the way we confirm it the channel is confirmed with three touches so we have a first touch right here second swing and we have third swing confirmation first two swings will

set up the trend line third swing will confirm it now this is important because as long as this channel this uptrend is in play We are looking for buying opportunities we are not thinking about selling we're only looking for hity setups to go long after we get a break we expect for prices to create new extreme that is because we are following the trend line Rule now but sometimes it can happen the market May form an overshoot now now break of a channel is break of the bottom trend line in uptrend and upper trend line

in downtrend but overshoot is the break with the direction of the trend meaning overshoot of bullish channel is break of the upper Trend channel line now overshoot is an unnatural activity in the market and it can cause a little bit of a Mayhem sometimes overshoot can lead either to break of a trend line or straight up reversal now a lot of times when you have overshoot you want to be careful taking a high prity setup at the key entry point right after overshoot because it can generate strong momentum in opposite direction but sometimes and this

not so common but it can happen overshoot may even create a brand new trend on its own it may create such a strong momentum that new trend will start all right so let's take a look at this uptrend we have in front of us because we have a short option working higher we have a break and new extreme form but prices keep pushing above EMA and we keep creating series of high highs and high lows so this can indicate to us that there's probably a wider pattern developing so we have first swing right here we

have second swing right here and we have third swing confirmation so what I'm going to do I'm going to copy this trend line put it at the top and I can see how nice is getting confirmed here and how nicely it's getting confirmed here as well as as long as this uptrend is in play I'm looking for high prity setups at the key entry points High prity setup is a twole pullback at the key entry point okay but notice what happened prices broke the upper Trend channel line which is right now an overshoot and it

can lead to break of trend line or possibly straight up reversal notice what happened in this scenario we straight up revers into a brand new downtrend now this is not common most of the times eight or nine times out of 10 big uptrend like this after break of the channel will create new extreme okay for that reason once you see pric is having a break of this channel you expect for prices to create new high you're not selling just yet only after the prices have moved quite far down and it retraced a large portion of

this uptrend that's when you potentially can start thinking about selling the market so once prices fell to push above ma here and push down this is where I identifi and I finally came to acceptance that we're not going to create new extreme but this is rare eight or nine times out of 10 you will truly create new high for the reason once I was watching this I was expecting to get felt second entry short above EMA and continue to create new high but this is what overshoot can sometimes create it can create break for sure

or straight up reversal and notice what happened we got a brand new downtrend once again confirmations at the top confirmations at the bottom massive overshoot down now this is such a steep brand new downtrend that a lot of times there can be a brand new downtrend form so when I was watching this I even tried to find possible downtrend like this but even this steeper downtrend has overshoot right here so once again it can lead to straight up reversal or it can at least break the channel and notice what happened once again we didn't create

a retest for a new low we have overshoot into bullish uptrend so another scenario but you guys can see it's important to talk about this it can happen and these overshoots it is a natural activity it is way too oversold and it will create strong momentum in opposite direction and our last example we have three overshoots during today's session uption working Higher One swing second swing third swing confirmation fourth swing confirmation just going to copy it put it at the top nicely fitting Channel and prices created and overshoot which means I got to be le

about taking Longs because what can happen it can generate strong momentum in opposite direction break the channel now notice what we have here we have a d working lower with the break new low formed you still expect new high for the uptrend and notice new high has been reached now take a look at this example right here and I'm going to show you guys example of similar structure from March 25th all right so here we have the chart from March 25th and you guys can see almost identical price action structure we have confirmation here confirmation

here confirmation here it is nicely fitting off the highs as well so this is a bullish uptrend we form an overshoot and notice what we have leads to a break of a channel downtrend working lower created a break move to New Low and after that we expect for prices to create new high following the trend on rule overshoot generated strong manap in Direction and prices still created new high because this is what is mostly going to happen and notice almost identical example overshoot these two break of a channel a new high has been retested right

now we can correct so we had example of three overshoots and you guys can see how they can mess up the trend line rule because it is too strong too oversold to overbought and you can expect push in the opposite direction let's now take a look at the structure and let's analyze the high probability setups because we started with big news event which created a caused this massive selloff I first found this channel working lower that needed a break new low but lot of times such a massive selloff will create strong momentum and kind of

like a wider downtrend so just to be on the right side of the market I still followed this wider downtrend now notice what we have we have a break of the channel new extreme formed which means from this point on I'm not looking for shorts just yet notice I have a new low first entry short pullback second entry short first leg up pullback second leg up this is a two leg up pullback second entry short at the key entry point at the EMA this would be a high probability setup but right now since down TR

had the break and new low I need to be careful for me to safely resume the downtrend I need extra confirmation and I need to take a lower high so we see second entry short and we see lower high now technically this is not a lower high because it form micro double top but I'm calling this a lower high because it is very close and you can basically treat it as lower high technically is still continuation of the second entry short but there is absolutely no problem treating this as low high right now we have

confirmation of second entry short and this was my first trade for the day nice bearish bar notice the triple test small resistance up TR plate that with the break and new high indicating that the buyers are over and I'm not only drawing the main patterns I'm also drawing these trend lines for the small look Corrections now after that we actually have Micro double and we have additional push and additional the true lower high so I'm going to mark this setup I don't want to confuse you so this is technically the continuation of the second entry

short and then we have lower high the true lower high because this high is lower than the prior bar but you guys can see EMA keeps holding prices and at this point on bias is strongly bearish and we can now resume the sells even though you have a new low you don't want to take the second entry short just yet now after that market went into consolidation small the trading range and we strongly reversed higher so once you have a new low and you're strongly pushing above EMA I need to adapt to structure so once

we are already up here I need to identify a brand new channel and like I mentioned at first I would be only watching this channel right here and we have new high first entry long pullback second entry long you guys can see this is a twole pullback on the largest scale new high first cental long pull back we actually have a take higher here when I was watching this live I Had No trigger Above This bullish bar and now that I reloaded my data I can see that we have a new high first entry long

second entry long already right here but when I was watching this live I hit my second entry long all the way down here because I didn't get triggered Above This bullish bar so I treated it this as visual first leg down pull back second leg down if you had trigger here and you enter this I can see why you're a little bit closer to these highs and it's a little bit feels like at its high because the second L may follow but if you took a chance right here you follow the rules but like I

said I didn't have trigger here interesting that that now that I reloaded the data I actually get a trigger right here but there was no trigger at the time so I'm playing this as a new low second entry long right here but this second entry long is below EMA and is a doge bar but notice it is a visual tole a pullback so this is a and downtrend has a break and a new low indicating to me that sellers right now are not in control and notice is what we have we have additional trap and

a strong push above EMA big bullish bar after this to like a pullback so this is a great hyper probity setup close above EMA strong bullish signal bar and right now from this perspective I have a break and a new high form so I need to be patient for that reason I cannot just take a second inch long this is not marked as a Hy setup even though chances are that you're probably going to push higher but for the same reason just like here I want to see confirmation high low because once you have a

breaking new high you can get trapped on a second entry long great thing here is you have a break and new low and notice another first leg down second leg down so this is the high prity setup this is how it looks like Market likes to move in pairs of tools but once this seconden loan works and it confirms the trend line just going to copy put at the top you guys can see you have a high low confirmation of this twole pullback indicating that the bullish momentum is strong it is at the EMA it

is bouncing off the trend line decent high probability setup now the structure is bullish following the rules only looking for Longs but from that point on we didn't really touch exponential moving average here we have another second entry long but it's far from EMA you can easily get trapped then you get another second entry long to like a pullback but too high no room here directly into this trend line you don't know that it's going to create overshoot so this is not a great entry then we have overshoot which we talked about which means you

don't want to take a second entry long after that plus you're not even touching the EMA so you guys can see follow the short and downtrend you can definitely create break and new low because it can lead to break of a channel prices are pushing lower you have a shorten break new low of the downtrend and at this point on I expect still new high for the uptrend so I'm paying attention if I get F second entry short above EMA but I never get F second entry short above ma now the correction may take a

little bit longer so once we created this like down and we attempted to push higher again at this point on I'm still expecting for prices to create new extreme because this is the main pattern and bigger pattern is taking precedence the shorten Corrections shouldn't be so significant but once it rejected prices here again the exponential moving average this is where something is starting to be wrong here and at this point on the last rejection and the downtrend started so a little bit unusual but it can happen occasionally where you will not retest new extreme even

when the uptrend is this strong right here but I don't think it is safe to go short especially on a bunch of first entries while the uptrend is still in play for the most part you didn't even get a good second entry short or low high none of that stuff now we have strong overshoot this is way overdone way oversold we have new low formed first entry short pull back second entry short now you don't want to take second entry short right after overshoot but you can take lower high or higher low after the second

entry because even during overshoot because that can confirm the second entry short so I this was my second trade for the day lower high after the second entry short you guys can see they tricked me the overshoot was way too strong we didn't even manage to create scalp it was a little bit of a correction prices needed to create break new high before eventually pushing lower I was a little bit frustrated that this trade didn't manage to get the scalp I was almost having a perfect week and they got me right here but it was

still decent trade to take a chance on if you look at this like this lower high confirming second entry short the overshoot was just way too strong in this instance but this is a small bar then you have a break in your high had this bearish bar close below EMA I would have lik going short here then you have a lower high but it didn't take higher if we ticked higher Above This bullish bar it would have been great lower high to still attempt to create new low but no real great setup for us to

take a chance and right now something is starting to change we are not breaking lower new extreme is not being formed we are starting to go sideways we have new high and we have first leg down pull back second leg down and after this twole pullback bounced and pushed above EMA this is right now confirming the channel so right here you don't want to take a second or too long just yet because there's a still possibility that this down May create push down but once it bounced above EMA Hyo confirmed the second entry long even

the visual to like a pullback what is going on here this is where you can go long and Market kept pushing higher we already talked about the overo what it can cause we have another high low after second entry long when I showed you the example from March 25th I actually took the high low on that day and I remember barely scalping out so for that reason I didn't really like marking it because you really never know where it you're going to make the a TI scalp during overshoot you're kind of playing with fire this

option can create and will most likely reach new high for the most part you will probably create the break so you want to be careful strong rejection down break new low indicating to us the downtrend is over so notice I'm just following these short and trend lines and notice how price action is following these channels after we have a break in new low right now you're watching for push above EMA because push above EMA will indicate resumption of this uptrend and opportunity to take a high probability setup high probability setup is either second entry long

or F second entry short above EMA here you get a f second entry short below EMA you get a high low below EMA so this is an area where you figure you're going to most likely push higher but never really get the good chance then we bounce above EMA again and we for new high first entry long second entry long first leg down pull back second leg down this is a two leg pullback there's a small little quadruple bottom that is holding so this is a f second entry short new low first entry short second

entry short failure and a second entry long two high prity setups in one not the easiest setup to spot but one of those setups where you can take a chance because it's to like a pullback even the F second entry short support is holding and you expect to get new high for the uptrend only after price is pushed above EMA and resume the bullish momentum this is where you're getting the confirmation that the structure is strong and you have new high formed first entry long p back second entry long tole a pullback at the EMA

at the key entry point you expect new high to be reach just like in this example and decent High prod set up before Market close interesting structure today you can definitely make a case for me marking a couple more setups slightly more aggressive overall very interesting that overshoots played such a major role that they managed to completely reverse the market almost every single time only this overshoot finally follow the trend line r after creating the perfect new high other than that these overshoots can be a little bit tricky but right now you know how to

handle overshoots in the future so I hope the video was helpful educational I'm going to see you guys in the next one take care everybody