- Early Read of Chart
Territory: Win it, Prove it, Lose it:
▪ Winning Territory
▪ FT (Follow-through bars)
- Bars1, 2, 8, 11
- Apex Splitters
- Fade4th of anything
Territory: Win it, Prove it (FT), Lose it (Violations)
The box creates many opportunities for price to “win territory” with penetrations, “prove itself” with FT bars, and "give it up" or lose it through violations.
Territory is won when a bar penetrates an up angular and closes above it in the case of a move up, or when it pierces a down angular and closes below it in the case of a move down. Territory may also be won in a similar fashion with respect to horizontals.
Having won the territory, price must then “prove itself”. It does so by immediately printing a follow-through (FT) bar and by maintaining proximity to the angular, or by not violating (giving up) the nearby angular or horizontal.
Territory that is not won will not be defended.
Follow-Through Bar (Alan's examples of FT bars)
Traders can study the chart showing the various types of follow through bars and then review prior days charts both statically and in playback to better understand this very important concept.
In its simplest form, an FT bar is a HH and a HL (or a LH and LL) in the direction of a trend. However, when a bar creates a HH and a HL, but the HL violates its adjacent angular or horizontal, that is not a FT bar (a non FT bar) as that violation gave up previously won territory.
Proximity to an angular is quite strict. Price must stay close to the angular, but must not penetrate it. When price is still correctly trending relative to the nearby angular, but the slope of the trend is creating distance from it, minor angulars may be placed to protect the trend. However, the minor angulars do not in themselves create opportunities, they serve only to protect.
Ranking FT Bars
An FT bar takes precedence over other obligations such as the 2Z, Apex Splitter, or VBTs.
Territory won and confirmed by an FT bar can be ranked in importance as follows
If nothing has been won, there is nothing to protect.
Quality of FT Bar
A quality follow through bar going up will have a HH and a HL and will close in the higher part of its bar. Likewise a quality FT bar going down will have a LH and a LL and will close in the lower part of its bar.
A quality FT through a quartile is stating that the next quartile in the direction of the trend (ie, next down quartile or next up quartile) can be expected as a target.
An FT bar is checked when the move continues in the direction of the trend without violation of the FT bar. It becomes unchecked when the low of the up FT bar is taken (or the high of a down FT bar is taken), ie, the FT bar is no longer predictive.
Where people get trapped is they see a lousy (poor quality) FT bar and immediately enter. The market has spoken, but has not activated them. It is saying to expect lousy follow through.
A pattern completion target can be set by following the angular that was won to its endpoint on the box.
After having won territory, should a bar then pierce the angular or horizontal just won, a violation is created and price "gives up" the territory.
In the case of an angular, the use of that angular to provide protection is not to be trusted. In the case of a horizontal, it is saying that price does not want to go into that territory, or that if it does, it will not defend it.
Additionally, if that violation was also a VBT (see VBT section), this should be noted on the chart as while the move may continue, odds of it failing (intraday) are established by that VBT.
Price will often use the space between like angulars as a channel, stepping down or up the channel successively through the quartiles. Alan calls these bands.
When a channel gets violated, the pattern completion is the exact end of the violated line. When a channel has not been violated, the pattern target completion is a quartile extension of that line, extended each time another band is won.