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Topic: FTR
1. Introduction:
Before we can solve the PA puzzle and read it successfully, we need to be able to
understand the pieces that comprise this puzzle. After all, every building is made of
stone and brick blocks.
For all of us at RTM, the beauty of price action is as dazzling as the structure of the
Chartres Cathedral. The only difference is that instead of bricks and stones in real
buildings, here we have PRICE CAPS, FTR, DIAMONDS, QUASIMODOS,
FAKEOUTS, ENGULFS, etc. Nothing is more important than FTR and ENGULF
in the building blocks of price structure.
In this article, I am aiming to explain one of these two important pieces of price
structure –which is FTR. Together, we will explain how it works, where it can be
found, and what role it plays in price structure.
Before anyone can proceed to the next stages, FTR needs to be learned properly.
Please don’t make haste. Learning PA is an interesting journey; so enjoy it.
2. What is FTR?
So, what actually is FTR? FTR means “failure to return”.
Wait… who wants to return? Where do they want to return to? Why are they failing
in the first place?
These three important questions must be answered.
Everybody knows that when price approaches or breaks a certain barrier, one of two
things can happen as soon as the barrier breaks:
Either the price returns from under/over the barrier and moves in the opposite
direction of the break, or it fails to return and moves in the direction of the break. In
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the second scenario, a FTR is formed. This always happens, and identifying it is of
crucial importance. Why?
Well, a high buy/sell pressure exists in the supply/demand zone that can’t return after
the price breaks; therefore, it should continue on in the direction of the break.
Note 1: The buy/sell pressure always exists at the formation of the FTR left by the
price. Do you understand this concept?
So let’s take a look at FTR anatomy now.
In the following figures, you can see a diagram that refers to the different types of
FTR. Look at them carefully. They might seem a little different, but they are actually
completely similar in terms of structure.
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The red line demonstrates a barrier which can either be a SUPPORT/
RESISTANCE, a FTR in the opposite direction (will be explained later) or the limit
of a PAZ (price action zone).
Price action breaks the barrier at point 1; and retraces are done at point 2. It is
irrelevant whether PA will cross the barrier again or not –as in (ii) and (iv) in the
figure above.
Normally, a base forms in the farthest retrace point (point b); and then, PA continues
to move in the direction of the break (point 3).
FTRs are confirmed after the break of (H,L); which in turn occurs after the barrier
breaks (c). In fact, it is only after (c) breaks that we can say PA has failed to return.
So now, after FTR is made, we draw a rectangle in its base (b) and move it forward.
Now that we have studied the FTR diagrams, we can see some real life examples of
it in the chart:
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3. FTR after the Break of SUPPORT/RESISTANCE:
FTRs after the break of support and resistance zones are a common type of FTR.
They are everywhere on the chart and you will learn to find them.
Surely you know that there are minor and major support/resistance zones.
Support/resistance lines are the most significant lines that need to be assigned to the
formation of FTRs; so that FTRs can follow them.
Major S/R Lines:
Well, let’s start with the major type. I am going to assume that you already know
how to distinguish between the minor and major types. In the following chart, you
can see the brown resistance line. That is a major resistance line; which has been
respected several times in the past (not only in the two price touches you see in the
figure).
This resistance line has been broken recently. Is that a fakeout or a real break? How
can we know that? That’s right; we wait for the FTR to form.
And hooray! The astonishing FTR is made. After the formation of FTR, the price
frantically moves away from the resistance line. Now it’s getting interesting! Such
FTRs are very curious places for trades on the first meeting. The first meeting is held
almost after a week. And look at the reaction! The first meeting in FTR is called
FTB (first time back).
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Note 2: In the following figure, the price drops in a freefall immediately after the
return to FTR. Everyone jumps happily into the trend. Why? Because it’s going to
go on and on… But beware, hunters are patiently waiting for FTR LVL, and you
should do that too.
Now open your trading platform in Forex tester and see how this works.
Minor S/R:
It’s extremely important to realize that the FTRs we observed in the three charts
above are not the only types of FTR. Moreover, each time the price breaks a minor
S/R, fails to return, and continues on track, a new FTR is formed.
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In real life, the chart is rarely as neat and organized as this diagram; however, you
can see the above principle in a real chart (a descending trend) as below.
Please don’t rush and observe this chart very carefully. I have not illustrated all the
FTRs; because in that case, the chart would be very messy. Open a chart in your
platform and plot all FTRs. Practice. Mark a swing H/L and see where engulf occurs.
Then, find the FTR and repeat this for the next H/L.
Remember that the purpose of this article is not to tell you that all FTRs are tradeable.
It is to teach you how to take FTRs into consideration and how to mark them. Let
me repeat: this is of utmost importance.
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4. FTR after the Break of a FTR in the Opposite Direction:
FTRs form after the engulfing of a barrier. We know this. One of these barriers can
be another FTR in the opposite direction. Look at the diagram below. I believe it is
self-explanatory.
FTR d is engulfed and FTR 1 is formed, and so on.
And an example in real life:
Note 3:
FTR 1 is an excellent confirmation of a reversal. For more information on this, please
see my trading journal (post 304, page 13 – sweet FTRs).
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5. FTR after the Break of a PAZ Limit:
The limit of a PAZ is another price barrier. Magnificent FTRs form with the breaking
of these barriers. However, this is rather advanced and lies beyond the scope of this
article.
6. Conclusion:
In this article, I have tried to introduce to you one of the most important structures
of price action: FTR.
We have learned that FTRs are formed after the break of a price barrier. It is
extremely important to realize that FTRs are made in places where institutional
traders open or close their orders. This gives them ideal points to place their orders
or determine their goals. Even so, I emphasize that FTRs –on their own– are not
enough for trading. Engulfing is more important than any PA building block.
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Exercises:
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The following question is asked:
Can anyone tell me the difference between FTR and RBR, DBD? For me, they’re
both the same. But what is different between them that creates a new concept?
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Response from Mr. Rcmacf:
Hello dear friend. The easiest way to differentiate between the two is this: when
price forms a FTR, it should have already engulfed something specific. This is
demonstrated by the red line in the basic FTR article. RBRs and DBRs only engulf
themselves.
FTRs engulf something that tells you this is an imbalanced S/D; so it counts as a
good opportunity to return. On the other hand, RBRs/DBDs do not work this way;
so it is preferred that they are considered as targets, rather than entry points.
What I need to understand better now is that when we have a flag which is formed
after the break of an S/D zone, it acts more as a RBR/DBD than a FTR; and it is still
a good place to get an entry to return in the educational section (the Flag Limit
article). However, I believe that the formation of a flag before the break can be more
significant; because it also holds the decision point for the break of the S/D zone.
 Following that, Mr. LES_PUAL says:
If price breaks something and cannot return, a FTR has occurred.
Next, someone alters the figure above to be demonstrated as the following figure.
Mr. LES_PUAL says in response:
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Dear friend, I see in your green circle that the original H (resistance) has been
broken. The red line is a price barrier. This barrier needs to be broken (engulf must
occur); on the other hand, there is no FTR after the break. These are all explained in
the article.
After that, Mr. LES_PUAL suggests to first specify all major FTRs in the chart. By
doing that, you may achieve the concept of SOURCE OF ENG easier.
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The rest of the exercises:
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RCMACF’s response to a post by one of the traders:
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Another point to note is that a good FTR is not just a good entry point; but can also
count as an excellent exit point.
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And a response from someone else:
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Continuing with:
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DRSWING’s response:
Hello dear friend. FTR means failure to return to create a new H/L. In your example,
price has turned back to below the pink zone; but has failed to create a new L. Then,
it has entered your green zone and created a new H.
The next subject is the difference between FL (or Base Flag) and FTR. According
to HARRY and IF’s opinions, these two elements are the same and there is no
difference between them.
Following that:
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According to IF and Harry’s opinions, each FL is a FTR; but the opposite is not
necessarily true.
Regarding market dynamics, one of the casual traders says about ENG, FO: In my
opinion, if the previous SOURCE (which we call FTR on the chart) does not create
CAPS in its return, it is a FO. This is my opinion; but I have only been present in the
market for a short period of time.
Continuing:
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It is common that major traders always return to untested flags to fill the rest of their
orders; therefore, any untested flag can be a FTR. This is confirmed by IF.
Continuing:
Mr. Kanzler says:
This FTR is not broken. There are some small reactions occurring in it; but in
general, the price is very high in that zone. Therefore, the price breaks downward
after that small test (after which there is no order left).
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Next:
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Kanzler:
Is it important when a FTR engulfs another FTR or an S/D zone? I look at the
significance of that level and I see that the KEY LVL, SR FLIP is where we have an
Engulf in the entire Flag zone (above or below it). Note that whenever we have a
new Flag Limit (FTR), the previous one is broken. So I choose the FTR formed in
the big grey zone and I wait for the price to return to it.
The End
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