firewalker

The purpose of this thread is not only to discuss theoretical concepts, but to illustrate with practical examples too. The first example serves to show that the market often tricks the public into buying on good news. Unless a technically important level (like support or resistance) is breached, the market often returns to it's previous trading level after the news. I know of traders who specialize in trading these 'news reversals'. The important however, is determining the odds that price will not reverse. The third rule I suggest is that you scale out or exit your position if price moves in the desired direction on news. Scaling out gives you the opportunity to lock in profits quickly in case the news turns out to create a sharp spike. By leaving a part of your position open, you open yourself to the possibility that price continues even further. The attached charts all illustrate this concept. The huge volume peak is where the news came out. Notice how in each DAX chart price returns to it's previous trading level and continues as if nothing was going on. I'll provide more recent charts in the following charts. These are some observations from in my early days. The two charts look very similar, but I can assure you they are from a different date and different context.

There is one important element still missing from the previous post, and that is "time". Good news is omnipresent near the end of the bull market phase, usually characterized by a parabolic rise in price. This is one of the rare occasions that buying on good news might lead to profits, because price tends to continue in that direction in this phase of the market cycle. Bad news, and "catastrophic news" comes out near bottoms. Selling on bad news usually means you'll be selling too late. This is not to say that prices can't go lower, but when bad news is released, the market already knows about it. Therefore the first important rule here, if you want to play it safe, is to avoid trading the news. There are too many variables in play to determine what will happen seconds before the report or on the moment of the release itself. However, if you're in a position already, I'll show you there are a number of elements that have a high probability of assessing the initial reaction of the market. The second rule is to pay attention to the reaction to the news and play that reaction technically, with complete disregard to the economical indicator, be it better or worse than forecast.

Some traders are very anxious on the lookout of news, be it earnings season, rate cuts, important economic indicators, non-farm employment... Before we talk about the effect news can have on the market, we'll enumerate four different possibilities: (1) Good news comes out but the market fails to go higher: consider this to be warning signal. (2) Good news comes out and the market rallies: could be positive, but buying on good news is often a risky thing to do, because smart money will try to unload when the public is buying in a frenzy. (3) Bad news comes out, the market plunges: this often leads to a short lived down move. The public dumps the stock and believes the state of the business (or the economy in general) is getting increasingly worse. Smart money can easily pick up shares at low prices without driving price higher. (4) Bad news comes out, the market doesn't drop: consider this to be a sign of strength. If the market fails to go lower on bad news, it means the worst is usually over and the news has already been fully discounted in the prices of shares.

In this thread I'll discuss why traders don't need to study anything other than a chart. I will try to illustrate that every news item, corporate report, monetary decision, in short anything fundamentally related to the economic situation of a stock or market, is printed on the chart first, long before the public becomes aware of it. "The tape tells the news minutes, hours and days before the news tickers, or newspapers, and before it can become gossip. Everything from a foreign war to the passing of a dividend; from a Supreme Court decision to the ravages of the boll-weevil is reflected primarily on the tape." -- Richard Wyckoff Undoubtedly people will tell me this can't be true, otherwise why would we have market analysts? Why would the newspapers print financial pages? The purpose of this thread is to inform, not to convince any disbelievers. All you need, is painted in the chart. Several concrete examples will be shown to support my case. The topic is open for discussion, but I hope this thread can become more than an evocation of "this is my opinion" posts. If you feel strongly about something, back up your point of view with some arguments. Here's to the wonders of the chart

This is my first post on TL and I hope it will be start of something refreshing. I've been a member of T2W, having learnt a lot over there, but recent turnoil and lack of interesting discussion made me leave that site. I won't be posting as much as I did over there :missy:, I'll focus on developing my own blog instead and will hope to learn something more along the way. I would like to continue one thread, which I started two weeks ago, but unfortunately got derailed so many times that ultimately there was no point in doing so. From what I've seen, the odds of this happening here are next to zero, thankfully.