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DbPhoenix
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Everything posted by DbPhoenix
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For those who follow the ES, note that it never even made it to the previous day's midpoint, much less establish a trend. The fact that it could not do so suggests weakness. The red lines are the midpoints of the respective moves. The dotted line is both a support and a resistance line, depending on where price is in relation to it during this period. The black line is, of course, the midpoint of the post 4/18 trading range.
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One who understands how to interpret charts correctly can usually decide whether the whole market, or any single stock, or group of stocks, is most likely to advance, decline or stand still. Every market and every stock is always in a bullish, bearisn or neutral position. The person who can determine, with a high percentage of accuracy, the position in which the market, or a group, or a certain stock stands, holds the key to success in trading and investing. Richard Wyckoff
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Thereafter, price reverses at 1966, though there’s no way of knowing that it will, and volume does not provide a clue until price hits this level a second time, after lunch. Whether one closes his short and goes long here depends on how confident he is that support is to be found in this area. But the point of this is not to find trading opportunities per se; it is rather to gauge the relative strength of bulls and bears. So far, the bulls are in control as shown by the higher lows. Price thereafter makes a higher high, again “overbought”, followed by a higher low. If one is going to trade this, volume does provide clues at turning points, but a central and perhaps more important concern is just how far bulls can push price. If it cannot reach the previous day’s midpoint, this suggests weakness. On the other hand, if it can get past the midpoint, this suggests strength, either of which carries implications for the following day’s trading. This second higher high at 1400 does push past the midpoint, suggesting strength. And it appears to make a higher low a half hour later. However, price now drops below the demand line and is unable to push back through it for more than a couple of points for more than a few minutes. This represents a change in the dynamic between bulls and bears which, again, is the point of plotting these lines and monitoring the relationship of price to them and to the support represented by the previous day’s low and the resistance represented by the midpoint of the previous day’s downmove. Again, one can trade this and, yes, one can make money with it. But, according to Wyckoff, the likelihood of doing so is enhanced by being sensitive to this push and pull between demand and supply and being able to place all of it in the right context. Otherwise, one is more likely to be making random trades, i.e., gambling. Here, again, the supply line is drawn first, then a parallel line is plotted underneath to track demand.
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Shortly after 1100, price does approach, then push through, this line, becoming “overbought” by virtue of having pushed through the line. A few minutes later, it pushes further to the midpoint of Wednesday’s downmove. If the trader were long, should he exit here? Should he go short? That depends on the trader. But this is where the bears gain the upper hand and turn price back, not out of the blue, but at the confluence of these two important levels (compare the time chart to the CVB chart).
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Whether or not one buys the higher low that occurs between 1045 and 1100, one can now draw a demand line underneath that low, beginning with the previous day’s low. Note that this is a demand line, not a trend line. It tracks those levels at which demand enters the market and stops or turns price. Therefore, whether 17 hours’ worth of time bars are included or not is irrelevant. One can use P&F or, as here, he can use CVBs. Since only two “points” are needed, the line can be extended toward the EOD. Once this line is plotted, it can be copied and another, parallel line placed at what has so far been the swing high. This is also extended toward the EOD so that the trader can monitor the behavior of price if and when it approaches this line.
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As one might expect after a trend day, particularly one worth so many points and which represented a substantial failure on the part of bulls, Thursday would not be and was not about drama. But assuming that one had no bias toward the day, he would note first that the market was going to open (the red vertical bar) at or about the midpoint of the 5/1 upmove (1962). This, in and of itself, would be of secondary importance or less. The fact that that midpoint was on the same level as the low of the day on 5/6 might help to account for the level at which Thursday opens, but, again, it’s not all that important. What is more important is that price does not retest 1950 and ricochet off 1962, nor does it punch through 1962, test that, then rocket higher. Rather it just sits there, for an hour and a half, on moderately high but unremarkable and relatively featureless volume. Therefore, unless the trader wants to manufacture a trade, there’s really nothing to do unless and until support is tested on the one hand, or the nearest resistance at the midpoint of the previous day’s downmove (1978) is tested on the other. The trader, after all, must remember that the proper entry here was at or near 1950 the previous day. Whether he took the entry or not is irrelevant. The market doesn’t care whether he took it or not. It only knows where he should have taken it. If he didn’t take it, he has to keep in mind that any other entry is second-best, if not third or worse. If he has a strategy for pyramiding, this may be the time to implement it. If he doesn’t, his choices are limited: wait and gauge the relative strengths of the bulls and bears or go ahead and buy with a very wide stop.
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Now to the next level of potential support, and we're running out of time. Price hits 1950, again on "climactic" volume, breaks the supply line and breaches the previous swing high. This attempt fails, but, this time, price makes a higher low, tries again, and holds above the previous swing high. Whether a trader goes long at the test of 1950, at the break of the supply line, at the breach of the previous swing high, at the higher low, at the second breach of the previous swing high, or anywhere else inbetween is not Wyckoff's problem. It's up to the trader to decide based on his sensitivity to and analysis of market forces, on his risk tolerance, and on his skill. In any case, this is how we begin today (which I'll get to later).
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We now get to the next level of potential support, and volume is again "climactic". But even though price breaks the newest supply line, it does not reach the previous swing high, nor does it break the prior supply line. The effort becomes a new -- though not higher -- swing high and the previous supply line is extended. Price continues its decline.
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Now we approach the next potential support level, the midpoint of the upmove on the 1st, and the trader begins paying attention to volume again. Here the angle of decline increases again and a new supply line is drawn (the experienced trader knows that as these angles become more acute, the probability of their being broken increases), but even though volume becomes increasingly "climactic", price doesn't break the supply line, much less reach the previous swing high. A new element is a general increase in volume throughout.
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Price now reaches the next potential support level at 1970. Since the angle of decline is greater, an additional, more form-fitting supply line is drawn. Volume is again "climactic" and the "test" is on lighter volume, a seeming classic buy signal given that all of this is taking place at potential support. However, even though price breaks this new supply line, it breaches the previous, minor swing high by only a couple of ticks, and there's no "bullish push". The experienced Wyckoff trader takes note of all of this and exits his long, if he had taken it at all.
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Price continues its decline and volume is again "climactic". Even more so. But, again, price doesn't even come near the supply line, much less the previous swing point:
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Price then resumes its decline and volume becomes climactic. However, even though price breaks the newly-extended supply line, it does not break the previous swing high. Nor is price anywhere near the next potential support level of 1970. All of this constitutes continued weakness.
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Price eventually breaks the supply line, but there's nothing remarkable about the volume, and price doesn't come anywhere near approaching the previous swing high, much less breaking it:
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When price resumes its decline, volume rises on the downmoves, but even when the first level of potential support is reached, the volume doesn't even approach climactic. In the meantime, the supply line can be extended:
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The when and where and how to short has been addressed. What is presented here addresses what is required as a prelude to today's trading. Once one has taken the short, there's no need to do anything else other than wait for a test of support, unless of course the short is stopped out, but, again, that is not the subject here. Volume can be ignored because without any sort of test, it's irrelevant (as Bearbull explained so well earlier). Once the first "counter-wave" has completed itself, a supply line can be drawn:
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First, an overview of yesterday's move and what had been the various potential support levels:
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Very nice, Bearbull. I find myself wondering whether anybody is getting this or not and then you provide such a well-thought-out analysis. Today provided (and is providing) excellent examples of having to modify one's approach according to traders' zigs and zags rather than glue oneself to mechanical trade-by-number. I'll post something later if I have time.
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To those who are interested, there's a first edition of Schabacker up for bid at eBay: Schabacker There's a reserve that has not yet been met, but don't pay more than $30.
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Incidentally, Bearbull, nice analysis. You've been doing your homework. There are times, however, when SAR is called for, particularly when there's a flat-out reversal signal. Waiting for a break of the demand line may entail a stop that's uncomfortably wide and the trader may decline to pull the trigger. But all this will come as you continue the work. What matters at the beginning is understanding the price movement and how it relates to the volume. What to do about it comes later.
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Res ipsa loquitur.
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In my experience, volume just as "robust" as it ever was. However, few people take the time to understand it, much less to apply it, particularly if they are mechanically-inclined. In order to understand volume and its relationship to price, one must be interested and value the effect of trader behavior on price movement. There is an enormous class of traders who has no interest in that. Since they have no interest in it, they don't bother to try to understand it. Which is fine as far as that goes. But many of them go on to claim that none of it matters simply because it doesn't matter to them. And this position overreaches the facts. It takes more than a weekend seminar to learn how to trade via price and volume. And regardless of time served, many people just aren't suited for the task.
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. The forest:
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Ten Core Ideas of Trading Psychology by Brett Steenbarger 1) We are most likely to behave in inhibited or impulsive ways, violating trading rules and plans, when we perceive events to be threatening; 2) What we perceive to be threatening is a joint function of events themselves and how we think about those events; 3) A key to gaining control over trading and maintaining consistency is to be able to reduce the threat associated with market events and process adverse outcomes in normal, routine ways; 4) We can reduce the threat associated with adverse market events through proper money management (position sizing) and through proper risk management (limits on losses per position); 5) We can reduce the threat associated with adverse market events by training ourselves to respond calmly to adverse outcomes (exposure methods) and by restructuring how we think about those outcomes (cognitive methods); 6) Optimal skill development in trading will occur in non-threatening environments in which learners can sustain concentration, optimism, and motivation; 7) A proper mindset is therefore necessary to the development of trading skills, but does not substitute for such development; 8) The cultivation of trading expertise is a function of the amount of time and effort devoted to learning and the proper structuring of that time and effort[emphasis mine]; 9) Proper structuring of learning involves the setting of specific, doable, cumulative goals and the provision of rapid feedback and correction regarding the achievement of those goals; 10) Practice does not make perfect in trading or anything else; perfect practice makes perfect[emphasis mine]. Training must gradually build competencies and correct deficiencies in a manner that sustains a positive mindset and optimal concentration and motivation. more.....
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That depends on what one includes in the window. In any case, processing a digital display is not quite the same as processing an analog display. I suppose the kids might get used to it, but I imagine it would make for a long day.
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His post had to do with the action at midday. I addressed that within the context of the trend day. With a different context, I would have addressed it differently. That's what "context" means. If you ever get around to study and practice, all of this will eventually become clear. However, as long as you continue to avoid doing the work, you'll also continue to ask the same questions.
