DbPhoenix

It's up to the individual trader to structure his trading environment. A large part of doing that is defining exactly what it is that he's looking for and determining in advance exactly what he's going to do if and when he sees it. "Picking the useful levels to trade" is part of that process. Today, price often found S at previous swings, such as 1616 at 10:23, and the TQ was particularly helpful in confirming most of the reversals. Unfortunately, it's not always that neat.

A breakout is the continuation of a move up to and through R or down to and through S. A reversal is a move in the opposite direction of a preceding move up to R or down to S. What you have in your first chart is a reversal off S (if you back up to the 0940 to 1000 period, you'll see where the support comes from). If you call any subsequent move upward as a "breakout", then any move up beyond the high of a previous bar or the crest of a previous wave is a breakout, and the term loses its usefulness. One could argue, of course, that none of these terms have any usefulness, but if you are to develop a trading strategy, you'll find that knowing what you're looking for is helpful, and having some sort of term for what you're looking for is also helpful. Keep in mind also that if you trade within the range, the moves generally are smaller and the targets nearer. This creates problems with regard to stops. This is why the term "breakout" is generally reserved for a break out of the range, and "reversal" is generally reserved for tests of the upper and lower limits of the range. These tend to have the most power behind them; thus staying with the move becomes important. Of course, if you're sensitive enough, you can ride these intrarange waves and SAR at just the right times, but this will mean a lot more trades, and, for most people, this practice does not bring about a relaxed trading environment.

And let's not forget 1930. Market rallied 50% off the lows. So far we've rallied only 40%.

Then there's this. Both Hulbert and Davis have been around for a long while. Secular bear, cyclical bull Commentary: Adviser says that we're in a secular bear market By Mark Hulbert, MarketWatch ANNANDALE, Va. (MarketWatch) -- Secular or cyclical? I'm referring, of course, to the debate over what kind of bull market began on March 9. If that day represented a once-in-a-generation stock market low -- such as the kind seen in December 1974, for example -- then we're in a secular bull market that can be expected to last for many years and which will eventually take the stock market averages to a final top that is several times current levels. Or did it mark a mere "cyclical" low, in which our expectations, both in terms of time as well as price, need to be far more modest? For guidance I turn to Ned Davis, the eponymous head of institutional research firm Ned Davis Research. In my daily readings of what's being posted in the investment arena, including emails from the nearly 200 newsletters monitored by the Hulbert Financial Digest, I consistently find Davis' comments to be among the best-reasoned, based on a cool and unsentimental assessment of hard data. I disagree with Davis at my peril, such as earlier this year when I -- but not he -- concluded that the sentiment data did not support a powerful rally. Now is a particularly good time to check in with Davis, since earlier this week he finished a seven-part series in which he compared the March 9 low with the famous secular lows of decades past. Davis was able to identify seven dimensions that he could use to compare the March 9 low to those past secular lows: "Monetarily, money should be cheap and amply available:" Neutral. You might think that this factor should be rated as "bullish," given how accommodative the Federal Reserve is currently. But Davis notes that banks are also significantly tightening their lending standards. Given the heavy load of debt under which both consumers as well as corporations suffer (see next criterion), banks are finding it "increasingly hard to find 'credit-worthy' borrowers." "Economically, the debt structure should be deflated." Bearish. This is the most negative of any of Davis' seven dimensions, since by no means is the debt structure deflated. On the contrary, Davis calculates that the total credit-market debt load right now is nearly four times the size of gross domestic product, and that it takes more than $6 of new debt for our country to produce just $1 of GDP growth. That's almost double the amount of debt required in the 1990s. "There should be a large pent-up demand for goods and services." Bearish. Davis acknowledges that there has been improvement along this dimension from where things stood at the beginning of the bear market. But he is particularly worried by the ratio of total Personal Consumption Expenditures to Non-Residential Fixed Investment, which currently stands at a record high. At the secular bear market low in 1982, in contrast, this ratio was at a record low. "Fundamentally, stocks should be clearly cheap based upon time-tested, absolute valuation measures." Neutral. Though the stock market "got undervalued at the March lows," it never became "dirt cheap." "Psychologically, investors should be deeply pessimistic, both in terms of the stock market and the economy." Bullish. Davis says that past secular market lows were accompanied by an extreme amount of pessimism, and his indicators show a similar extreme existed earlier this year. "Technically, major investor groups should have below-average stock holdings and large cash reserves." Neutral. While foreign investors have record-low stock holdings, according to Davis, household holdings -- while low -- are not nearly as low as they were at prior secular bear market lows. And institutional investors' stock holdings "are only down to an average weighting historically." "A fully oversold longer-term market condition in terms of normal trend growth and in terms of time." Neutral. Davis believes that, though many of the excesses of the real-estate bubble have been worked off, some still exist. That's particularly a problem, he says, given that the stock market bubble of the late 1990s never completely deflated either. "As we saw in Japan after 1990, a double-bubble in stocks and real estate leaves it difficult to put 'humpty dumpty' together again." The bottom line? Only one of the seven foundations of a secular bull market is in place. Three more are neutral, and the remaining three are bearish. Davis therefore concludes that we are more likely to be in a cyclical rather than secular bull market. This doesn't have to mean that the stock market will immediately go down from here, by the way. Davis believes that the cyclical bull market that began on March 9 still has more upside potential. But he doesn't foresee that upside potential being anything like what existed at past major bear-market lows, such as in December 1974.

“DAVE ROSENBERG IS AMONG the vanishing breed of die-hards (we confess, in case you haven’t guessed, to being another) who still cling to the notion that stocks’ explosive rise since March is perhaps the mother of all bear-market rallies, but nonetheless still a bear-market rally. The essence of his skepticism — which we happily second — is simply that the economy, contrary to Wall Street’s jubilant insistence, has yet to turn the corner. He wonders, moreover, whether the March 6 lows in the stock market were the real McCoy. Although, in contrast to us, Dave persists in keeping an open mind, he’s doubtful that they were. On March 6, he recounts, the market was trading at two times book, with a 13 times multiple on forward earnings and a P/E of 18 on trailing earnings, and a 3% dividend yield. Pretty rich valuations by all three measures of earnings, but pretty skimpy on yield, to rate as a true market low. And today, after a 45% rise, the metrics, to dip into the Street cliché, are positively mind-boggling. The dividend yield on the S&P 500, Dave notes, is a meager 2¾%, and payouts so far this year have lagged some 32% behind last year’s not-exactly-torrid pace. In a like astounding vein, he observes, the trailing P/E on operating earnings (adjusted, he explains, “to take out everything that is bad”) is now at 24 times, while — and if you have a queasy stomach you can skip this number — on trailing reported earnings, the multiple is a mere 760-plus! “Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ‘06.” Fascinating stuff . . . > Source: ALAN ABELSON Barron’s, August 3, 2009

Actually, yes. And while I'm not suggesting that anyone do what I do, most people look for some sort of starting point. Mine, which is no secret, is a 1m chart paired with a tick chart. The 1m chart gives me the context, but I don't use it for entry. For that I use the tick chart, which is what nearly all of my focus is on. After all, if you're going to follow the movement of price, you have to follow the movement of price. I now can't remember why I was ever intimidated by the tick chart. But you've been staring at this stuff for six months now, so perhaps it's the logical thing for you to do. If it isn't, you'll know real quick.

Not really, no. Hope you're not disappointed. I notice that this is your first post here, and you may not know that in Wyckoff's world, the trendline is intended largely to give you some idea of what he called "stride", i.e., the muscle or the momentum behind the move. If and when price begins to leave the trendline, something is up. In this case, the something was a collapse into November. Therefore, you should follow the course of price, and when it pops back up through your line, as it did here a couple of months later, that tells you that there's a change in the wind. What matters more is the swing low in March, which happens to coincide with the midpoint of the trading range that was created in September. These together suggest that a zone of 50 either side of 1700 is likely to prompt some activity. Notice here that when price breaks thru the first trendline in April, this represents a change in momentum. Price moves sideways for several months. Then, when the bottom falls out, the trendlines are fanned in to track the parabolic nature of the move. The first one to fan out, the blue one, tells you that there has been a change in momentum, and you can begin looking for a bottom. All of which is hindsight, of course, but it happens again and again. That's the nature of trend and trend change.

If I may, working with a tick chart (and I assume everyone knows by now that by "tick chart" I mean a one-tick chart since to use multiple ticks would put one right back into bars) can be a big step for some, particularly if they've been brainwashed by the "anything under a 5m bar is noise" contingent. On the other hand, others can look at it and say "sure, why not?" What it comes down to is how close one wants to get to price action. And how curious he is. At some point, even those who use 15m bars may wonder what's going on inside that bar as that little notch on the right-hand side moves up and down while the volume bar gets higher and higher. Bars are analogous to exercise stations. Price runs in place, maybe back and forth, maybe up and down stairs, but in place. Then, after a certain interval, it jumps to the next station and repeats this behavior. Then, after the same interval, it jumps again. If one understands this continuous movement, using a smaller interval or even a tick chart seems perfectly natural. Otherwise, it's like being tossed into a washing machine set to Heavy Duty. So while I agree with Head regarding the bar and the end of the bar, there's no need to push it. Since you're doing this live, it will be much easier to develop a sense of this price movement and to pick up on its rhythm once traders have finally made up their minds and are moving with purpose one way or another. As for the TICK/Q chart itself, it should not consist of bars. It should be one tick. I prefer a line, but one could also plot it as dots. But the interval on the TICK/Q chart need not be the same as the price chart. Just overlay the TICK/Q chart on the price chart as is. Not that using a tick chart of any kind is at all necessary to learning how to trade breakouts, etc. But the subject was raised and at least for now is of interest.

Point of clarification, which I bring up again because the term "timeframe" is so often used to apply to more than just the timeframe. The timeframe extends from a given point in time to a later point in time. A year is a timeframe. A month is a timeframe. You've chosen to make a day your timeframe (except for one chart which sticks its butt into the previous day). Within that timeframe, you use three bar intervals: the 10K CVB, the 1m and the 15s (if you used a tick chart, there would be no bar, just a tick, but the same principle applies). And using just a day is fine, as long as we're stuck in this range (which began last week). But eventually we will exit this range and either return to one of the lower ranges or create a new range above. If the former, you would do well to expand your timeframe to include at least the two ranges below, just so you don't wind up having to find potential levels of S/R in the middle of the trading day. This would mean including June. Having done that, you can again narrow your focus until we approach the June highs (if we ever do so). Aside from all that, a very good beginning.

That's the difference between analyzing charts in hindsight and trading them in real time. It is important to distinguish what is under the influence of the trader and what is outside his control. The line at 92 is applied. Though price hits this level again and again, the line is not drawn by price. It comes from the mind and hand of the trader. The price action, on the other hand, is entirely independent of the trader. It will do what it will do whether he is there or not. For whatever reason, the trader chooses to focus on 92 (and if he didn't collect overnite data, he wouldn't even notice it). And when price begins to drop below 92, he looks at the volume. He sees that, except for the first bar at 0936, there's nothing remarkable about any of it. No plunges accompanied by price spikes. But then he sees an immediate bounce at 88 (again, if one is watching the bars form, particularly the price and volume bars forming together, the bounce is obvious; in hindsight, it's just bars). Volume increases slightly, and in the next bar, when price gets back to 92, volume is relatively low. Since price has moved up rather quickly, this tells him that sellers aren't particularly interested in this and buyers have what amounts to a free ride (if sellers were interested in impeding this, much less halting it, volume would be much higher). When price breaks through 92, volume expands, and buyers, in spite of sellers' activity, are able to push price even higher (yet again, one has to see the bars being formed in real time). Within this context, whether the retracement stops at 92 or 91.5 or 91 is not especially important. What is important is the push higher, which after all began at 88. The purpose of the post was not to provide a lesson in how to trade this. To try to do so with a static chart would be a waste of time. It must be done with a live chart, in real time. Rather the purpose of the post was to show that there are in fact retracements that can be used to enter what look like attractive long positions, if only one is looking at a small enough bar interval, or, smaller still, a tick chart.

What thales does or does not "offer" is irrelevant to your quoting me as saying that what you want to do is possible, when my post in its entirety said that it was possible under a certain set of circumstances. I did not say that any other way was impossible.

You appear to have misunderstood my post. In its entirety, you asked if there was a way to tell if point A marked an intraday trend change. I provided a chart which showed support and where that support came from and how trading that support correctly would enable you to take advantage of the trend change. In other words, if you understand trend and consolidation, if you understand trading ranges, if you understand the support and resistance that result from these ranges, and if you understand how to read traders' behavior as they approach these levels of support and resistance, THEN it is possible that you will detect these reversals and trade them profitably. But none of this has anything to do with indicators or moving averages or anything that is in any way complex. It needn't even involve volume, though if you wanted to do so, I showed you how to do so in a follow-up post (#29). If you elect to go the indicator route instead, then the answer to your question is more likely no, it probably isn't possible.

Here's an example from this morning. As noted on Forrest's chart posted in the Foresight Trading thread, 1590 was and is a support level to pay attention to. And, as discussed in chat, 92 was a minor support level provided premkt (my chart is off by a minute; I neglected to correct it before the open). Price bounced off 88 and back up thru 90 fairly easily, then thru 92, the latter taking a little more effort, but the result was a break thru R. This tells you to look for an entry. The tick chart shows a brief retracement after the reversal and the subsequent break thru 92. This retracement is your entry, if your strategy calls for entering on retracements (if it instead focuses on reversals, your entry might be earlier). This can't be seen, of course, on even the 1m chart, much less a 5m chart. But there's your retracement.

Not independent of time frame but of bar interval. Otherwise, you're correct. Once the S & R have been determined, the bar interval is irrelevant, and there's no need to consult more than the entry chart.

You'll notice that the bulk of the trades over the last couple of days have been in the upper part of the range, and the range appears to be moving higher. The exploratory pokes above and below this range have not been inconsequential, but price does continue to return to this range. Being aware of this changes your midpoint to 95 (we mentioned this yesterday in chat). The more important levels of support and resistance become, then, 1590 and 1600, with the backup levels being 1582 and 1604 (+/-). Again, the levels in and of themselves are not signals to enter. What matters is how traders behave as they approach these levels.

I had to laugh when I saw this thread title. Teresa Lo said way back when that there were three types of strategies: breakouts, retracements, and reversals. Her credo was simplicity, and this was about as simple as it gets. Wyckoff, on the other hand, didn't like breakouts. He liked to enter inside the crest or the trough after testing support or resistance. His preferred entry -- though the most aggressive -- was to enter inside the crest or trough of the climax. Second favorite was to wait for the test and enter the same way. The least favorite was to enter on the break beyond the swing point inbetween. But there's nothing particularly intuitive about it. And it's a matter of preference only if the preference yields a profit. That is, one may "prefer" breakouts, but if he hasn't thought through the general strategy and the specific tactics, his preference is irrelevant. So breakouts are more or less off the table. The retracement after the breakout is preferred, partly because one avoids getting trapped by a fade (in case the breakout was nothing more than a thrust) and partly because the retracement gives the trader the opportunity to gauge genuine interest (if there isn't any, the "retracement" becomes a failed breakout). The problem here is that one must often work his way down to a pretty small interval in order to find a good retracement. Otherwise, price may seem to take off without ever giving him an opportunity to jump on board (this is yet another reason why I like the 1-tick chart). As for reversals, the best are most likely to take place at S or R, but we've been through that ad nauseum. One isn't always dead on when it comes to plotting S/R, but that's just a matter of practice and experience. Entry, on the other hand, is very flexible depending on how much risk the trader is willing to assume, and he needs to think about the three types of risk (information, price, and opportunity) very early on. If he doesn't, his stops are going to be in the wrong place and he's going to end up either with big losses or a lot of little stopouts that precede continuations that he'll miss because he got stopped out. BTW, the chart is gorgeous. When you remember what it's supposed to be about, let us know.

I used the 5s chart for quite some time, but eventually moved on to the 1t because the whole point was to track price, and the 5s and 10t, small as they may be, are bars. Granted the 1t doesn't provide much context, but that's what the accompanying charts are for. It takes some getting used to, but once one has, the idea of waiting around for a bar to "close" makes less and less sense.

I found this post on "Re: What Would Have Been a Good Way to Trade Today (monday 7/27)" interesting and have nominated it accordingly for "Topic Of The Month July, 2009"

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This hinge was the subject of some discussion this morning in chat. Price reversed at 1600 as anticipated, but while most of us were waiting for price to find support at 75, price had other ideas. Rather than 75, it found support at 79, the midpoint of Friday's hinge. Moral? Don't overlook these little suckers when doing prep for the coming day.

Well, it's about time. Jesus Christ. About the blog. You may want to open up a thread if you want comments. If you don't, the blog will more likely be up your alley.

As we pointed out repeatedly in the links I provided earlier, it's all price action since everything is derived from price movement. But then one must decide just how many filters he wants and how far from the source -- or the "territory" -- he wants to be. I've found greater success by focusing on the continuous tick by tick movement of price, but others may prefer to be further separated from that, either by using summary bars or candles 5m, 15m, 244 tick, CVB, etc) or by using indicators or by focusing on patterns or by some other means. So is someone who's trading 15m candles with an 8p EMA trading price action? Yes. Is he seeing the same thing as one who is following the continuous tick by tick movement of price? No. Most of the latter is in fact invisible to him. Trader's choice.

Yes, as I said, "note that when price revisits 63, there's practically no volume at all; sellers are literally done". As for "buying pressure" not coming in to retard or halt the decline, if it didn't, then price would continue to decline. As for low volume or high volume, volume is nothing more than a record of participation. What matters is price movement. If the trader couldn't care less about the extent of participation in the move, then there's no reason for him to pay any attention to volume/trading activity at all. As to how helpful it can be in real time, one has to view it in real time, when the price and volume bars are moving together in concert.

Volume cannot be meaningless unless one also argues that trader behavior is meaningless (which some people do). On the other hand, it can be "meaningless" in the sense that a foreign language is meaningless to one who doesn't understand the language. Is it "necessary"? Of course not. But then neither is a price plot. If one views volume and volume "bars" as indicators, he will likely not have much success with it/them and may as well not plot it at all. If, however, he uses it to ferret out traders' motives, it will at the least serve as confirmation for what he already suspects may be true. For example, using the chart I provided in my first post to the thread (#2), I've plotted the same support level. Until one gets there, the volume is of no particular trading significance, showing only that trading is active rather than dull. However, as price approaches support, buyers step up to the plate in larger numbers in order to retard or even halt the decline (the first set of arrows). How does one know that the buying pressure is greater than the selling pressure? Price stops falling, at least for the time being. Sellers then continue the pressure, though not as heavily (price resumes its decline though on lighter volume). Buyers on their side continue to attempt to support price at this level, though they don't have to try as hard (again, volume is lighter here), and they finally succeed in halting the decline. At this point, sellers have pretty much sold what they wanted to sell (otherwise, volume would be higher and the push-pull would continue). When this level is tested again at 1100, volume is lighter still, though buyers have the upper hand, evidenced by their ability to turn price and subsequently advance it with relatively little effort (note that when price revisits 63, there's practically no volume at all; sellers are literally done). Does one have to know all this or understand what's happening in order to make a successful entry? Maybe not. But is it helpful? To those who are interested in it, yes, and they are generally able to make an earlier entry with a tighter stop and assume less risk in the bargain.

I agree. Thanks for participating and for posting this in advance.