Eiger

Since some were interested in how to use the 30-minute in combination with the smaller time frames such as the 5-minute in VSA analysis, here is a fairly detailed analysis of today's ES market action using the 30-Minute and 5-Minute charts. I hope you learn something from this. So, before starting this, a first good question might be: Why the 30-minute chart? Why not the 15 or 60-minute charts? Both of these charts are useful, but I still like the 30-minute best. I'll explain why. I first started out trading with Joe DiNapoli and his advanced Fib method. Joe is a master S&P trader and uses the 30-minute time frame as the "Key of the Day," indicating that meaningfiul changes in the intraday market are first (and best, according to Joe) seen on this time frame. In my experience, this is a pretty useful concept, and I have always found that careful analysis of the 30-minute chart is a very helpful practice for the S&Ps. OK, here is the analysis combining the 30-minute and 5-minute charts. I have used numbers for the 30-minute and letters for the 5-minute. The 30-minute numbers are also indicated on the 5-minute chart to make it a little easier for you read. AM Session: In the overnight session (not shown), the market dipped below yesterday's low and rallies nicely. The US open shows a gap up and then an inability to fall lower. Note the closes around A1 on the 5-min chart. A1 is a Test. The market rallies. The ralliy shows demand overcoming supply and a clear push into and above the 1244.75 area that represented the first resistance from yesterday's selling. Usually, the market will die out at yesterday afternoon's high after a trend day down (as was the case yesterday). But today, the 30-minute chart showed it would be otherwise. Wide spread up, closing on the high with strong volume on the first 30-minute bar indicated higher prices. You can see the higher prices and good volume at the bars marked A on the 5-minute chart. The market pushes above the 1245 area and above the 30-min Supply Line (red line), indicating that demand was clearly in control and dominating supply. At 1 on the 30-min, the market closes off the high. Some selling comes in. But, think carefully about the background: we've just rallied well, up and through old resistance at 1245 and through the 30-min Supply Line on expanding volume. Although a spike reversal is rather unusal, we have to listen to the chart and the chart is saying: absolutely bullish. 5-min chart: the high voilume at A is tested immediately at B, indicating a lack of supply. At C (or 1 on the 30-min), we get a nice Test and the market rallies, though it doesn't go very far. At D and the bar preceeding D (5-min), the volume comes in, there are closes off the high and the market reacts. Note the reaction. Not very much -- it is in what Wyckoff called a resting area. At E (5-min), there is a Hidden Test. Now, look at the 30-minute chart. At 2, the 30-min shows a Test. Hmmm. A 30-min Test after a good run up ... Now, back to the 5-minute. At F we have a No Demand after: a SOS on the 30-min chart a resting period on the 5-min chart a Hidden Test A No Demand on the 30-min a No Demand on the 5-min So, what else would you like to take that trade? Market rallies to G on the 5-min and shows volume coming in at G on a narrow spread, close in the middle. This is our cue to exit or take off some of the position (if trading the daily swing). After all, it's noontime. Noontime Break : Here is a bit of a digression: There tends to be three "inflection points" during the trading day in the S&Ps. The first comes around 10:00 AM. We often (not always) see a reverse at this time point. There are various theories about why this is so: news events cluster at this time, bigger traders come into the market now, those who are hung over from last night finally make it to their trading desks, etc -- regardless of the theory, the market does tend to turn around 10:00 AM. The second inflection point is around 12:00 noon. I guess everyone goes to lunch (except the professional traders/CM), and the market tends to rest or turn at this time point. The third inflection point is 3:00 PM. This is when the bonds close. S&P trades see what the bonds did during the day and act accordingly. This time period often (not always) produces a change in the direction of the S&Ps. OK, so here we see the market approaches noontime about G (5-min) or 3 (30-min), and the market stops going up. We normally expect a reaction. But on this day, the market holds its gains quite nicely (a very, very good indication of a continuation of a trend day - i.e., higher prices in the afternoon session). It reacts no more than 3.25 pts. The bar at H on the 5-min indicated in advance that the odds were low that the market would tank at this level. On the 30-minute chart at 4 there was buying. The market dipped below the previous bar and rallied to close above it. Bullish. On the 5-min chart at I, we have a low volume down bar close off the lows. While not quite a No Demand, this bar signaled a lack of supply at this level. The market rallies. PM Session: At 5 on the 30-min, there is a lack of demand. The market rallies and makes higher prices, but volume clearly is lacking, probably because the traders that matter are having a long lunch . At K on the 5-minute chart, we have a No Demand. Any longs taken around I would be closed out by now, if not sooner. The market reacts. Back to the 30-min chart: the market reacts and on the 30-min chart gives a Shake Out. We know this is a Shake Out for seveal reasons: the market is in a clear up trend there has been no buying climax the shake out is on average volume lower prices were rejected and the market closes mid-range The Shake-Out reaches it's low point on the 5-min chart at J. Three bars later, the S/O is tested at L - a perfect VSA long entry. And, the market rallies into the close. This is how I use the combination of the 30-minute and, in this case the 5-minute charts. As I hope you can see it is pretty potent VSA trading. Hope this is helpful Eiger PS - there was selling into the rally into this afternoon's close (look carefully at the 4:00 and 4:05 bars on the 5-min). If you have been following Sebastian's recent posts you will know what this means for the first hour or so tomorrow morning.

I found this post on "Why Screen Time Is Important" interesting and have nominated it accordingly for "Topic Of The Month July, 2008"

Sorry for your loss - really. I have always had dogs, loved them dearly, and really grieved when they departed. It never changes, no matter how many dogs. But it is a part of life, isn't it. We are lucky we get to care for dogs, aren't we?. Be thankful you were graced by Patches. I think dogs are here to bring happiness to their "owners" -- did you ever see a truely unhappy, down-in-the-dumps depressed dog? OK, I know this will sound silly, and perhaps absolutely stupid, but what would Patches say to you now, if she could talk, I mean? I would bet it would be something like this: Hey, you were a terrific owner - we had many great times together. I'll miss you, but I'm quite OK. Time to get on with your life. Get back to trading, take the losses and the winners as they come, and start by Trading Small. And, oh yeah, watch out for the poodles, They bite. Well, I said it would sound stupid, and it is, but from one dog lover to another, you get what I mean. Eiger

There is a direct relationship between leverage, experience, and your trading psychology. It works like this: put on too many contracts before you are ready, and your ability to trade in a calm, mindful manner goes down the toilet. This is true for people just starting out as well as those who have been trading successfully for quite some time. Richard Wyckoff had this to say about starting out day trading in his Studies in Tape Reading, published under his nom de plume, "Rollo Tape" in 1908/1910: After a complete absorption of every available piece of educational writing bearing upon Tape Reading, it is best to commence trading in ten share lots, so as to aquire genuine trading experience. This may not suit some people with a propensity for gambling, and who look upon the ten-share trader as a piker. The average lamb with $10,000 wants to commence with 100 to 500-share lots--he wishes to start at the top and work down. It is only a question of time when he will have to trade in ten-share lots. To us it seems better to start at the bottom with ten shares. There is plenty of time in which to increase the unit if you are successful. ... Starting small, as Wyckoff advised, is a very wise thing. It demonstrates you are quite serious about your trading and that you look to model the experts. There is no shame in putting on a single contract in the S&P e-minis. There is also no shame in wanting to make $10,000 in the first week or two of trading - we have all been there (some of us more than once ) But Wyckoff's advise is sage: start very small and learn, regardless your account size. Learn about the market, price action, your indicators (if you use them), your own emotions as you trade day-to-day, etc. When successful for a period of time, increase your unit by another contract. See how that goes for a while. Then, if successful, add another, etc. Follow this path proven by the great traders and you are likely to make good progress in your trading. The very best of luck to you, Eiger

Sure. As i mentioned, I look to the higher time frame for structure and path of least resistance. We'll look at a few good trades using the 30 and 3-minute charts from yesterday. I use a "Top - Down" approach, and start with the higher time frame. So, to start, at the end of the day on 24 July, there was Stopping Volume on the 30-min chart. This put the market up slightly, but only slightly. It went into what Wyckoff called a "resting area," which is a consolidation that is fairly narrow and shows no ability to rally. Coming into yesterday morning (28 Jul), weakness was apparent on the first two 30-min bars. I labeld this area as A. The first (marked "SEL") was an up bar on above average spread close in the middle with high volume. The next bar tried to rally, but closed in the middle as an UT. This showed weakness was present in the market. The 3-minute chart between 9:30 and 110:30 AM also showed lots of weakness, as well. Selling was evident off the open with high volume, narrow range bars ("SEL"), UTs, and declining volume as the market tried to rally above the opening highs, but failed. The first acceptable trade location came at 10:21, marked as 1. This was a No Demnad bar, and was a bit aggressive as it made a higher high. A much better entry was at 2 - No Demand in a clear downtrend. Consutling the higher time frame chart showed that by 11:30 the opposition (support) area along the 1251 line was breached and a down trend in place. The 30-min chart was showing high odds that the market would continue to the downside. At 3, there was another ND, but now we are in a small uptrend, and so this is not a choice entry. Patience is a virtue, even in good trending conditions. Much better to wait for 5 when the market has resumed its selling. Stops can be placed a couple of ticks above the high of the previous one or two bars, or at an absolute number of points away from entry. You need to give the trade some room to work. It is best to paper trade stops and figure out what works best for you. Hope this is helpful Eiger

Here is a simple way to keep track of the higher Time Frames in VSA. This is the 30-minute chart of the ES over the past several days through this AM. I use a simple annotation system (described below) that I leave on the chart and add to as it progresses through time. I also color-code for indications of weakness and strength. I use the higher time frame to lay out the recent market structure (areas of ease of movement and areas of opposition) and show the path of least resistance. I personally like using the 30-minute VSA indications in conjunction with the 5 or 3-minute indications. It can be pretty powerful. Codes: BC - Buying Climax ND - No Demand UT - UpThrust S/D - Supply dominating Demand LD - Lack of Demand (like ND, but doesn't quite meet the criteria) LH/LL - Lower Highs/Lower Lows SV - Stopping Volume T - Test LS - Lack of Supppply (like a T, but doesn't quite meet the criteria) Annotating different time frames and comparing them with one another is a useful way to train yourself in VSA and in developing good tape reading skills. Hope this is helpful Eiger

Winnie - It is not hard work! I do this every night and find it quite enjoyable. This is what you need to do to hone and keep your chart reading skills, along with studying available material and practicing with bar replay. After bar B is an up bar, but the volume is above average, so it is still fairly high volume. An axiom of VSA and Wyckoff is that markets do not like high volume on up bars with the exception of breaking through the opposition at support or resistance. High volume on an up bar says there was a lot of buying (because the bar is up), but there is also a lot of selling (because the volume is high). We become cautious with high volume up bars and look for testing of some sort to indicate supply has dried up. Nice examples of the high volume and testing were evident again this AM on the 5-min ES chart: A - the market rallies after dipping below yesterday's close. The rally is on wide spread and high volume. Markets do not like high volume on up bars and the market reacts. How it reacts is always important, and we see that the wave or leg down is on narrower spreads (compared to the wide spread up bars to A) and volume receds on the reaction (orange lines). Price comes back into the high volume area (red line) on relatively lighter volume and makes a higher low. B - The market begins to rally and B offers a choice Test and a good location for a long entry. C - The market rallies to C, but again on wide spread, ultra high volume. The next bar is down and the volume remains high. Note that for all that volume, there was not that much progress from A to C. D - At D, we have an UpThrust. Note the volume was unable to match the previous rally volumes at A and at C. Markets are highly unlikely to break through the opposition of resistance on lower volume. You can also see that the advance from A to C to D has become progressively shorter. This is known as Shortening of the Thrust and is depicted on the blue line graph to the left. E - No Demand after weakness has appeared and the second good location for a trade. Wyckoff in his book, Studies in Tape Reading , said, "The study of responses is one of the most valuable in the Tape Readers education. It is an almost unerring guide to the technical position of the market" (italics added). I think this is very true and something I strive to follow. Eiger

VSA Analysis for Tuesday, 15 July 5-Minute ES The market opend gap down under yesterday's lows indicating weakness (overnight data omitted) A - No Demand. Expect lower prices with the background weakness. B - Selling Climax. Note the acceleration to the downside, wide spreads, ultra high volume over two bars, and the strong close on B. Next bar is up but on fairly high volume indicating that there is still some supply in the market. Market rallies, painting higher highs, higher lows, and higher closes. Note the volume is not in keeping with the rally, however. This tells us in advance that this rally will not get very far until the professional money tests the ultra high volume seen on the Selling Climax. C - The market goes back down into the area of high volume and is unable to draw any significant supply. Next bar is up and market rallies, as expected. D - Down bar on narrow spread and low volume. Not a true Test as this bar's volume is slightly higher than the previous two bars, but there is no supply drawn out as the professionals sell it down a bit in this nice uptrend. On the 3-minute chart, there was a nice Test shortly before D. E - Ultra high volume, close in the middle on a wide spread as we come into the resistance area of yesterday's lows. F - No Demand and the next bar is down. Note that on this reaction down to G that the volume does not expand to the downside, but instead remains light and tends to dry up the lower we go. Compare this to the volume on the rally from C to E. This tells us in advance to expect another rally. G - Test, followed by a Hidden Test and the market rallies nicely. H - Some supply enters as we reach the old top at E, but the background at this point is strong. We have had a Selling Climax that was tested (at C and again at D), a rally with volume expanding to the upside (to E), then a reaction on light volume (to G), and now the rally up off G was vigorous. All of this told us in advance that the opposition at E would likely be broken. Next bar is up. I - A sudden increase in volume on a relatively wide spread bar, closing in the middle into a congestion area from yesterday. Next bar is a No Demand-like bar (volume slightly higher than the previous two bars, but indicates no demand, just the same). It's 1:00, we've been rallying for 3 hours, and the professional money is signalling that it's time for lunch! J - This technically is a Test, but it comes at the wrong place. We now have supply in the background, not strength, so this is a bar we ignore. K - Market drops to K where some buying comes in (note close, spread and volume). Next bar is a Test L - The market rallies and there are two tests. The first L is a Test-like bar (spread a bit wide, volume a bit high, but it still indicates there is little supply at this level). The second L is an ideal Test. M - Volume suddenly increases to ultra high (on a relative basis) on a fairly wide spread, close near the middle. This is followed by a No Demand bar, which is followed by a Top Reversal. The combination indicates significant weakness has entered the market. Also note the volume on the rally from K. Compare this volume with the rallies from G to I and from C to E. There was an overall level of no demand on this last rally. Professional money was signalling that it was no longer interested in higher prices. After M, the market falls, making lower lows and lower highs virtually the entire way down. Note how the volume increases as the market moves lower. Compare this with the reactions to G and to K. There was a No Demand at N, and other No Demands on the 3-minute chart. In VSA, we pay a lot of attention to the individual bars and volume, but we also look at how the market is moving on the rally and reaction waves. This is a good day to study these characteristics for future trading. Hope this is helpful, Eiger

I found this post on "I Look Back Now and Wonder" interesting and have nominated it accordingly for "Topic Of The Month July, 2008"

Hi Jasont, I think Soultrader is right, you want to be sure that your concern is performance based and not due to a lack of trading skill. If you are lacking the appropriate skill set, then trading will naturally produce anxiety. Hone your skills and the anxiety should become a non-issue. Note also that you don't necessarily need psychotherapy. If anxiety were affecting your life in many different areas (not just when you put on a trade), you might have a clinical issue you would want to deal with. If, for example, anxiety were affecting your ability to have a close relationship, hold down a job, and participate in everyday recreational activities (i.e., you could identify anxiety as significantly restricting your life), then you probably have a problem and would want to seek professional help. On the other hand, performance anxiety not due to lack of trading skill could be helped by a person skilled in human performance psychology (trading psychologist). If you decide you would benefit from a performance psychologist, there are a few things you might want to consider. First, they should understand a little about trading. They don't have to trade, but must at least be familiar with the context and what a trader is likely to experience, including some of the recent work related to individual traders in behavioral finance. Otherwise, you are not going to be communicating well with one another and you will spend a lot of time educating him or her in the issues of trading. The psychologist should also understand how to help with performance issues. When you really think about it, there are only three areas in which a psychologist can be of true help to a trader (or athlete, musician, or other elite performer). They can best help a trader in the psychological side of 1) how they prepare for trading, 2) how they execute and manage trades, and 3) how they deal with their results to understand strengths and current limitations and develop strategies for further improvement. Now, admittedly, these are broad areas, but if you were interviewing a psychologist, this is the kind of framework you would be looking for. You should also be aware that there has been almost a seismic shift in psychology over the last decade or so. Approaches and techniques thought to be valid only a few years ago are now viewed as less effective. New approaches supported by a strong line of research focus on mindfulness, acceptance of emotion (rather than attempting to control or avoid it), and other experiential methods rather than disputing thoughts or endlessly processing emotions. This is being applied both in clinical and in performance psychologies with very positive results. Unfortunately, many do not keep up with the literature or orient themselves to a non-empirically based form of psychology and are unaware of the significant new advances. You should also check out credentials and be comfortable with those. It is sad, but true that there is a lot of snake oil selling out there. Finally, the job of a good trading psychologist, in part, is to help you develop the knowledge, skills, and abilities to become your own trading psychologist. You don't want to become dependent; you want to be taught how to self-adjust. Hope this is helpful, Eiger

LOL. Thnks for the education

I am pretty tied up with other things today, so can't post much. Sebastian did a brilliant explanation of Tests in this week's TradeGuider Chart Of The Week. It is quite worth careful study and should answer questions. You can view it here: http://www.tradeguider.com/cotw/cotw.wmv

James, FWIW: I had a similar problem using multiple monitors and Vista driven with an NVIDIA graphics card. I finally called in a computer guy to fix it, which he did. He did something with the bios -- flushed it or something like that. Exactly what he did to the bios, I don't know, but it did fix the problem and I haven't had any issues with it since.

Volume is most important. A close in the middle or below adds to the No Demand, but isn't necessary. Successive lower highs on the No Demand and the bar preceding the No Demand (i.e., a small downtrend) work best; the reverse for Tests/No Supply.

And we are up 8 points in the overnight, 4 hours before the US open

In the above post, both O (5-min chart) and R (3-min chart) are mis-labled as No Demand. That's incorrect. The correct lable is Test. Sorry, it was late, I was tired, and I had been working on another project that focused on the No Demand bar, so that was on my mind ... The edit function seems to be missing?

Great VSA trading yesterday and today. Here is a quick analysis of today's market: A - Top Reversal near the 10:00 inflection point B - No Demand C - Some buying enters here. Note the volume and the close in the middle D - But the market is not quite ready to rally with the UpThrust and the market falls back near the lows of yesterday where buying drove the market upward E - Down bar on above average spread close near the lows on an increase in volume. This could be bearish, but the next bar dips lower and closes up. Note also the volume difference between E and C. In the background, we are in the support area of yesterday's lows. F - Bottom Reversal. This bar dips lower than the previous bar reverses and closes on its high. G - low volume down bar indicating no supply H - a small shake out that closes on its highs indicating upward prices I - Supply enters (increased volume, mid-range close) as we approach the old top at A-B-D. This weakness was only temporary as the market goes sideways holding its gains in a fairly tight range K - Hidden Test L - Test bars M - A sudden increase in volume, fairly narrow spread, poor close. Professional traders capped the market here. N - The rally back up to the weakness seen at M is on low volume, narrow spreads indicating low odds of rallying past the weakness at M. The market declines. O - The decline halts at O where we have No Demand on the 5-min chart. This area is better read on the 3-min chart P - 3-min chart - Increased volume and strong closes after the market had been declining for an hour indicates stopping volume and buying Q - 3-min chart - Compare the volume between Q and PP. Note the close on Q. Strength has come into the market R - A No Demand after strength and the market rallies, as it should. S - 5-min chart - Compare the bars and volume at S with the bars and volume at N. Can you see why at S the market signaled it would break through the oppositon formed by the old top at M-N and at N it signaled it wouldn't?

Hi JW, As human beings, we never stop having thoughts, emotions and sensations. Current psychological research is showing that trying to turn off thoughts & feelings leads to more problems than it solves, epecially in performance arenas like trading. Those who stay in contact with their emotions (positive, negative, or otherwise) and use the emotion in a useful way (as information, for example), while at the same time stay focused on the task at hand (trading, for example), will typically perform well. This is generally known as Emotional Intelligence. Paradoxically, when we try to inhibit emotions (i.e., try to get rid of the negative emotion in some way) we typically produce the opposite and actually amplify the distress. Naturally, this affects our trading (or whatever else we are doing). Ditto for thoughts. State-of-the-art psychology is finding that it is not the frequency or the intensity of negative thoughts that causes the problem, but whether we take them as a true representation of reality and act on them as such. Jumping on a thought and riding it as truth is what causes problems, not having the negative thoughts. Mindfulness practice is very helpful in this regard. It promotes a mindful response rather than a mindless reacting. Mindfulness also promotes a focus on what is occuring (in the trading environment, for example) rather than a focus internal thoughts and feelings, and thus promotes greater flexibility in how we act and respond. Take the issue of cutting winners short, as an example. Once in a trade that has produced some profit, scary thoughts and feelings may start to emerge. The trader may be saying to him/herself, "If I don't book profits now, the market is likely to turn back and give me a loss." If you mindlessly focus on these thoughts and feelings, you will cut your winning trade short. Why? Because you believe what you are saying to yourself as reality and you believe in your feelings over what the market is doing. Your focus is internal, not on the task at hand (managing the trade). What is worse is that reality is distorted by our thoughts and feelings and we are totally ignoring the market action. We are no longer managing the trade, but trying to manage (i.e., get rid of) our emotions. We cut the trade short and experience immediate relief, which is quite reinforcing. Because it is so reinforcing, the pattern is likely to occur over and over again until the pattern is broken or the trader quits trading. Developing skills in mindfulness would allow us to say, "OK, I feel the anxiety and don't want a loss, but the market is acting well here. It is telling me higher prices are likely. I certainly do feel the anxiety, but I can also stay in this trade a little longer. I just need to be ready to exit if I see trouble." In this way we may still have negative thoughts and feelings, but we are chosing to focus on the task at hand and not to act on the thoughts and feelings. Hope this is helpful, Eiger

You are describing what is known as the "disposition effect." For traders, it generally means cutting winners short and letting losers run. It was first described by cognitive psychologists in the 1970s. There has been a fair amount of work done on this, especially in behavioral finance, which you can google and find some of it. We actually may be "hard wired" like this. It has to do with risk aversion, though we wind up losing and/or taking on much more risk, despite our intentions. When our emotions (usually some sort of fear) get involved, the disposition effect becomes amplified and it can seem like it can't be solved. This is mainly due to the way the brain functions. When fear is ignited, it rapidly draws blood away from the decision-making center of the brain. We literally lose our ability to think clearly. Normal problem-solving doesn't work with this, so it seems impossible to alter. I think trading is about having an edge and also about changing behavior. As most of us quickly learn, what works in the everyday world doesn't work very well in trading. You really do have to think and behave differently; this is a different kind of edge. You can start to help yourself with this by fully understanding what is driving the behavior. What are you thinking (saying to yourself) while in the trade that is affecting your behavior? You need to get very specific with this. Also, what are you feeling? It is likely to be fear of some sort, but everyoone is different and there can be a mix of emotions, so again, specificity is important. Note physical sensations, too. What is happening in your stomach, face, shoulders, legs, etc. Keep a log on this for a week or two. Just as you log your trades, log your thoughts, feelings, sensations, and anything else you notice that is contributing. See what the pattern is. Is there more than one? Once your particular pattern is known, there are many different ways to alter it. But, you must know what you are trying to change before you can change it. Eiger

Maybe there are different stages of development in a trader's life. Perhaps a beginning trader has different needs and different questions than someone who has some experience and may be thought of as an itentermediate-level trader. I would think, too, that an intermediate-level trader has different needs and different questions than a trader we might consider to be advanced, who will have different questions and differnt needs than others. If there are different levels of students, might there be different levels of mentors, or at least mentors who understand that there are different levels of information to be taught depending on the level of the student? Try not to disparage beginners. Beginners are at the level of beginning. There is nothing wrong with this; it is simply a level, no better or worse than any other level. One Zen monk said that there is high value in beginner's mind -- something we can all strive for. Eiger

It takes a little more than large volume on a 5-min chart to turn a trend. In VSA, we view ultra high volume on up bars as dangerous to bulls. The high volume indicates supply present in the market. You can see this clearly on the weekly chart attached. The highest volume on the chart occured on an up bar in May. We know that there was heavy supply on that bar because the next bar tried to rally higher, but failed and fell well into the spread of the high volume bar, closing on its lows and in the middle of the range of the high volume bar. We call this an UpThrust. The market then tried to rally the next week, but the volume was very light, indicating there was No Demand from the large, professional traders. So this combination of events is quite bearish, and the market falls. The current downtrend on the daily chart has accelerated over the last two days, and is taking the market into a steeper stride or angle of decline. The 50 level has a confluence of support. There is a weekly Demand Line (green), a support level around which price had been stopped in late Feb/early march, then supported in late April (purple), the Demand line of the downtrend channel (red), and also the 1/2 - way point from the rally low at about 41 to its high at about 60. Given that the daily is accelerating with widening spread and volume is starting to rise, I would look to see if this market will find support around this level. If it does, the subsequent rally will tell you whether this has been a shakeout and new highs can be expexted, or lower prices will prevail and perhaps a trading range from the low at 41 to the resistance area between 56 - 60 will form.

It is a very good book that talks in a practical way about meditation and disciplined practice. You might also be interested in this book: http://www.amazon.com/Get-Your-Mind-Into-Life/dp/1572244259 It is written for the layperson as a workbook, but it is cutting-edge work from psychology using mindfulness and acceptance of emotions. It has good application to trading.

I find it very helpful to watch higher time frames during the trading day, even though my trades are taken mostly off the 5 & 3-min charts. If I saw a Test on the 30 or 60-min chart, for example, and there were other indications of higher time frame strength in the backrgound, it would give me more confidence to take a long trade on the 5-min chart (say a Test in a Rising Market) and then trail the stop and play for a larger gain than if I were trading solely off the lower time frame. Usually, if i am trading off the lower time frame, I will play to the next level of resistance. If there were good indications on the 60-min chart, though, I would generally be encouraged to hold at least part of the position on a trailing stop. Just some thoughts ... Eiger

Hi Tawe, That's generally true. We do want to see confirmation following the Test with an upbar (but not a No Demand bar). I will usually take a trade on the close of the test bar (assuming my other trade criteria are met), but will look to bail if the market does not act right.

I got a question via PM from another trader who asked about tests in a recent chart. I thought the question was a good one, and a topic in which other traders might also be interested. Thus, I thought it was worth posting. Here is this trader's question: ... I have a question about the 2 N 's [as] tests. I am confused with your second N test. I don't understand how you identify the second N [as a] test and What it is trying to test ... Here is the response: ... The Ns. Test bars always test supply in the background. In this chart, there is testing of the supply at D and at K. Even though both of those bars (D & K) closed well off their lows, the volume and also the wide spreads (especially on D, but also on K) showed very heavy activity. Much of that activity was supply. There had to be supply to generate that much volume and those wide spreads. Because the bars closed in the middle, we know that there was more buying than selling on those bars. Nevertheless, there was still supply. This is what is being tested by the N bars. Tests are always down bars (i.e., close below the previous bar's close). Ideal Tests have narrow spreads (compared to recent bars), have volume less than the previous two bars, and close in the middle or the high. In this chart, the ideal Test is seen on bar P. Bar P is a down bar, narrow spread, close above the middle, and volume is less than the previous two bars. We don't always get the ideal, unfortunately. The first N, for example, is a down bar, volume is less than the previous two bars, but the spread is rather wide. The close is also on the low, but the close is the least important feature of a Test. It is nice when the close occurs in the middle or high, but not an absolute requirement. Many excellent Tests (meeting all the other criteria) close on the low. Although this first N is definitely a Test and shows supply is drying up, the spread is still rather wide. Spread relates to activity, so there was still a lot of activity on the bar, even though the volume was low, meaning that it is unclear whether or not supply has been fully mopped up. This is why the market was tested again at the second N. The Second N is more conclusive, even though the volume is not quite less than the previous two bars. It is more conclusive because: 1) there is an uptrend occurring (higher lows, this is very bullish - always pay attention to a Test in an uptrend), 2) spread has narrowed, 3) volume is very low on a down bar into the area of D & K where high volume (supply) had occurred before. Even though this does not absolutely meet the criteria of volume less than the previous two, the bar is showing by its spread and low volume in the area of high volume of D & K while in an uptrend that supply had completely dried up. And, higher prices naturally commence after this bar. Thanks for your question, ___; its a good one! Hope this is helpful, Eiger P.S. To BlowFish. I am working on the videos