Eiger

Thanks to Forrest for taking a shot at the chart. Here’s how I look at this chart: SPYs have been in an uptrend since early March as have the other major indices. The uptrend has been quite strong. Even in the correction during May, the S&Ps gained nearly 5%. The last correction held gains well. I see the larger background as quite bullish. We’ve just broken up and through the supply area of the recent congestion. We did so with healthy volume and wide spreads. There have been four up days in a row. Monday’s (6/1) price bar closed in the middle, indicating some level of supply – perhaps profit-taking. Tuesday’s (6/2) price bar also closed mid-range. The spread narrowed and the volume fell off. Volume is less than the previous two bars and is a No Demand bar. Four consecutive up days is a pretty good run for the SPYs, especially the near vertical rise we’ve had since May 28. Yesterday (6/2) made little further progress above the high of Monday. The daily thrust is shortening. The two mid-range closes suggest demand is pulling back, as does the lack of volume yesterday. The indications from the daily chart point to a reaction of some degree. We often see a testing after a breakout to check for any residual supply, and this would seem to be taking place here. If the market trades near the highs of yesterday I would look for a short. If it trades lower overnight, then I would be looking to short rallies. I would anticipate the market at least trading down to and testing the lows of Monday/highs of Friday over the next couple of days. Keep in mind that the market is overall very bullish. So, I would expect that any reaction at this point would be minor before we begin to rally again. If the market holds above yesterday’s close or rallies above yesterday’s high, I would be very quick to change my assessment Hope this is helpful, Eiger

Re: BF's post: Going beyond a few posts on this question brought us into psychology more than the method. Both, of course, are crucial. But, let's return this thread to a constructive one .... Here is the current chart of the daily SPY. I like to look at the SPYs because the volume is so clear. Let's discuss what you see. What is the background here and how might this inform our trading for tomorrow? Just look at this logically. What is occuring overall in the market and what has happened recently? What does you analysis suggest for tomorrow?

You (by your statement, I don't mean you personally) are basically telling me that you want to put your preferences ahead of the market. Not a prudent idea. The background will help you assess what type of trade is likely to work. Let the market tell you what to do, not the other way around. Eiger

Chart for last post ..............

Well, you are missing the key piece if you don't understand the background. Focusing only on the last few bars will only cause you to contribute your trading account to the market paticipants who do understand the background. At the point you took a short, they would have been happy to buy it from you. VSA is all about understanding the background first, then applying the VSA signals. The attached chart is a 60-minute chart of the ES. It shows data going back into late April. You can see there was an uptrend that stalled on May 7 & 8. the uptrend had been in place since March 9 and, by anyone's standards, has been a strong trend, moving about 35% off the bottom. Throughout May, the market has been in a trading range. There had been no indication of significant supply coming into the market. Instead, the market held the gains it made off the March lows quite well. We discussed this on the VSA III thread last week. Overall, the market has been bullish and remains so. Friday afternoon, the market began to rally on good volume and wide spread, but stalled at the top of the range and at the May 7 highs. On Monday morning, the market rallied further pushing some 21 points above Friday's close by 10:30 AM. The Friday - Monday rally is seen at A. This is known in VSA as Pushing Through Supply. It is a vigorous move up and out of a trading range, the top of which is a supply or resistance area. It signals that higher prices can be expected. What you thought was a buying climax is the one exception to the high volume rule in VSA. You would only know that this exception was occuring by looking at the background first. So, looking at the background first would answer your question about whether or not this was a good short. The answer is no, because the background was exceptionally bullish. Hope this is helpful, Eiger

The most important question to ask for this trade which will answer your question about whether or not it was a "good short" is this question: What was the background? Forrestang, can you show us what the background conditions were prior to this trade? Eiger

Let's make this a group discussion where we can all learn. I have already suggested one indication that this is more likely to be reaccumulation than distribution: we are in a strong uptrend and thus far, this last 15-day trading range has held the gains made from the rally off the March lows (Note, though, that Friday's price action put us into a potential UT position, which takes some of the chips off the bullish side). If others participate, we all have the opportunity to have insights from things we didn't see. Eiger

Whoops! I moved this to the wrong forum and I have no moderating ability on this forum. Perhaps one of the mods here can kindly move this to the right place (Technical Analysis) Thanks

No worries. At Tam's request I'll move over to the coding forum a little later today.

I don't know if it will be tomorrow that we leave this trading range, but soon as the swings are getting narrower. That looks like buying to me, as well. Also, looking at the SPY daily chart, you can see that the gains off the early March lows are being held. There is no sign of distribution here, which would indicate higher prices. Eiger

Since this thread has nothing to do with VSA and it also adds little to our general trading knowledge, I'd like to delete it. Any objections?

Last night, another trader and i were reviewing the background and structure of the ES market on the 60-minute time frame. On the 60-minute, we noted that the market had been trending, but entered a trading range in early May which has now gone on for three weeks (fifteen trading days). Although the low of the range has been tested a few times, we noted an axis line (blue line on the 60-minute chart) at about 895 that the market has been rotating around for the past two weeks. Yesterday, the market closed near this line after trading lower through the afternoon. There were indications that buying was once again coming into the market at this level, and so we were anticipating that the market would trade higher today. After selling off back into yesterday's lows and testing that area, we had several nice VSA indications occur on the 5-minute chart leading to good long trades. Even more were seen on the 3-minute time frame. This is just another example of how understanding the background and structure of the market can help us anticipate how the market may trade tomorrow and the levels at which trades can set up. Right now, we are begining to see a potential apex form on the 60-minute chart, indicating that the 3-week range may be coming to an end in the next day or so. We will look to be guided by this unless, of course, another development becomes clear. Hope this is helpful, Eiger

The Investors Business Daily IBD 100 and IBD 200 lists are good momentum stocks that are excellent candidates for long swing trading. Read Bill O'Neil's book on trading stocks via the CANSLIM method. I forget the name of the book, but the method he uses to select stocks is a very sound one. This is the basis of the IBD lists.

A lot of traders do well in the AM session only to give it all back in the afternoon. It is stressful and very tiring to sit in front of the screen all day long. When tired, our thinking ability begins to erode pretty quickly. Add in a little stress and it goes right down the toilet. Here are a couple of ideas you can experiment with: 1) trade only in the AM and forget the afternoon. 2) take several breaks during the day, especially during the usual downtimes for your market (e.g., emini S&Ps are typically quiet 12:00 to 1:30/2:00 EDT). Take more breaks than just this one. You might, for example, take a 15-minute break after each trade. Also, get out of the trading room and get your mind off the market when on a break. See if either of these make a difference. This, of course, means you have an edge. If you don't have a reliable edge, then breaks won't help you. Developing a sound trading edge would then be the first place to go. In this regard, make sure your "shorter term trades" really do have an edge. Hope this is helpful, Eiger

I think you would like either and both Talent is Overrated gets into how to apply deliberate practice in an organizational setting in the second half, but has some very good info in the first half on how an individual can apply the basic principles. Both this book and Talent Code have some great examples that are quite enlightening, especially if you haven't heard or read much about deep practice before. I like how both organize the principles of deep practice in ways that are meaningful for all of us. My guess is that if you read one, you will want to read the other. I am pretty familiar with the basic research on deliberate practice (i.e., the principles derived from the academic articles and books) and both reflect this body of work well without being academic. In other words, it's practical, useful stuff. They are both great reads. FWIW: When I think about deliberate practice, I also think about the probablistic nature of trading and how process (i.e., making high quality trading decisions) is so important. Most traders focus on each individual trade and its outcome (i.e., did I make money or lose money on this trade) rather than on a large sample of trades and the process used to enter, manage, and exit the trade. The focus on outcomes causes all kinds of erratic trading behavior (everything from overtrading to cutting winners short). I think it is a major cause for why so many traders ultimately fail at trading -- they never develop a sound process. Deliberate practice is all about developing a strong process through sustained effort. In my judgement, having a good grasp on deliberate practice and how to apply it is really valuable for the trader. Both books are useful in this regard. What is the Al Brooks book? Eiger

Snowball and Talent is Overrated are both excellent. Deliberate practice or "deep practice" is important to understand for success in any endeavor, including trading. Another terrrific book in this regard just published 2-3 weeks ago is Talent Code. As reflected in these books, the basic understanding reached after over 30 years of focused study on what makes people successful is that it has nothing to do with genes, DNA, IQ, family background, or innate ability and everything to do with sustained, hard work. Eiger

Thank you for those thoughts, Rigel. Let's now please bring this back to VSA rather than rehashing old ground.

You are rigth David, that bar had significance, but it was really the subsequent bars that were telling. Many times we will see a bar like this show up in an uptrend and the market will pause or have a small reaction as it does indicate some level of supply has entered the market and the market will respond to it. But, on it's own, it isn't all that significant. It is more the combination of several price bar and volume events that all add up together to indicate a change in the market, as in the case we've been talking about. When these price bar and volume events occur at important technical areas like S/R or a trendline, it paints a more compelling picture. The background really isn't defined by some number of bars or how far the lookback. It is more about support/resistance levels, areas of high volume, trend channels, and higher time frame market behavior. Take a look at the pure VSA thread. There is a pretty good discussion on the background there. Hope this is helpful, Eiger

FWIW: Sebastian was never kicked out and still works with TG. In fact, he did an advanced chart reading/live trading session in Chicago this past weekend at the request of some of TG's customers.

Hi David, I assume you are referring to bar #3 as the 'doji' type bar (circled). I don't think in terms of candlesticks, but many do. In any event, volume did increase on that bar and, unable to rally higher, it closed on it's low and below the low of the previous bar. The combination of an increased volume, narrower spread, close, and location of the bar in an overbought position in the trend channel is a clear sign supply has taken control. Because this market was in an overbought position in the trend channel, it was quite vulnerable to supply at that point and made this indication meaningful. Had this bar shown up elsewhere in the up trend, it might not have had such significance. Background always dominates the individual bars. When the bar reflects the background as in this case, it becomes significant. Typically, when significant indications of weakness appear as in this case, the market will tend to give us even more 'supporting evidence' as it unfolds. The small hidden upthrust three bars after bar #3 was one. Another is the widespread down bar closing on its low on an increase in volume (white arrows). This is a clear change in behavior since the uptrend began -- all other reactions were on light volume and narrower spread. This told us in advance that the demand line of the uptrend channel would likely break, which it did, and was further evidence of a more sizable reaction. This was followed by a weak rally (further evidence of change in behavior as rallies heretofore were on increasing volume, wide spreads, and stong closes), etc. Keep comparing current bars and conditions with the background. Hope this is helpful, Eiger

Background Last night, another trader and I were looking at the background conditions of the S&P emini's and SPYs. Here is what we saw. On the 60-minute ES, the market fell yesterday into an oversold position outside the Demand (lower) Line. It did so on receding volume indicating supply was tiring. A last push to the downside yesterday afternoon drew the heaviest volume of the day for that hourly period (double arrow). We identified this as buying since the heavy volume (effort) did not result in further downside progress. On the daily chart, the SPYs reached the Demand Line of the up trend channel. So, the background said higher prices today, which occurred. We looked for price to potentially trade into the resistance zone of 894 - 898. The Supply line comes in around the 900 level, which would be the probable upper cap to the upside, at least for today. All of this is seen on the 60-minute chart.

Very useful - especially when traveling. Thanks.

LOL! Congrats, BF

It's amazing how they view emini futures vs. stock. I guess they must be (over) worried about the corporate risk in the equities. One way around the poor leverage is long, deep ITM options. This is a better solution for swing traders as you can day trade only a very limited number of option contracts at the moment. But more and more are becoming tradable on the intraday especially over the last 2-3 years. Something to keep an eye on. Really nice work Thales - great to see the high quality thinking in your trading. Eiger

Simple, straightforward, and elegant in its own way. I like how Thales is very focused on a limited number of things. Good lessons for us all. Thanks for making this a separate post, BF. Eiger