Identifying a top? How do you sense market weakness?

[stephens 10]

I am trying to work on reversal plays. How do you identify a possible reversal in play?

[Fxtrader06 10]

You can use a combination of indicators or look for divergences.

[Lisa 10]

The 10:00 am reversal is a common pattern.

[Soultrader 12]

I base my trading on pivots. If price is unable to remain above a pivot level, I will look for a reversal trade. For example, let's say my key resistance on a stock XYZ is $50.85. If prices trade to $50.80 and can not break above the $50.85 mark, I will look for a short setup. If there is a RSI divergence at a pivot level, that becomes further confirmation.

 

The 10:00 am reversal is also something I pay attention to as well. It doesnt happen 100% of the time, but is a fairly common pattern.

 

I focus on key pivot cluster levels as key support and resistance. I will look for prices to reverse around these levels by reading tape.

[stephens 10]

How about using trendlines and moving averages?

[Soultrader 12]

How about using trendlines and moving averages?

 

That could work too. Take a look at this thread.

 

It shows you a simple strategy using moving averages.

[Jesse 10]

The ADX is a good indicator to determine whether a trend is strong or about to end.

[Dr Who 10]

How about using trendlines and moving averages?

 

 

Try using TD lines!

 

They are used in Forex and can be used in other trading. They are OBJECTIVE trend lines with qualifiers to validate their signals - filtered trend lines. A trader can determine if a breakout is worth fading and if buying has been exhausted etc.

[stephens 10]

Try using TD lines!

 

They are used in Forex and can be used in other trading. They are OBJECTIVE trend lines with qualifiers to validate their signals - filtered trend lines. A trader can determine if a breakout is worth fading and if buying has been exhausted etc.

 

Sorry for the newbie question but are TD lines trendlines? Thanks

[Terry_I 10]

Hey James...hope this as good as place as any to ask.....when you are identifying clusters...are they simply monthly, weekly, daily, updated accordingly, or do you keep dailies for a week, weeklies for a month...monthlies for a year to get "mega" clusters over time? Thanks..

[Soultrader 12]

Hey James...hope this as good as place as any to ask.....when you are identifying clusters...are they simply monthly, weekly, daily, updated accordingly, or do you keep dailies for a week, weeklies for a month...monthlies for a year to get "mega" clusters over time? Thanks..

 

 

Hey Terry_I,

 

Mega clusters.. now that is interesting! Actually that would be too much horizontal lines going across your charts. I replace my daily pivots everyday, my weekly pivots every week, and my monthly pivots every month.

 

The trick to my methology using pivot clusters is identifying which pivots are significant and which are not. On top of just the pivots, I will look at valu high/low pivots, previous days high/low (also high/low for several days back), POC, and open gaps.

 

Plotting all these lines on your charts will give you a ton of price levels. This can easily lead to analysis paralysis. So its important you filter out the key price levels from the weaker ones. For example, if Support 1 is five YM points above the previous days low, I simply ignore S1 and use the previous days low.

 

Hope this gives you a better idea.

 

Regards,

 

James

[Dr Who 10]

Sorry for the newbie question but are TD lines trendlines? Thanks

 

They are a type of trend line but objective due to their application.

 

You can read bout them here: TD Line Qualifiers and potential filters @ Forex Factory

[feb2865 10]

They are a type of trend line but objective due to their application.

 

You can read bout them here: TD Line Qualifiers and potential filters @ Forex Factory

 

 

Trend qualifiers are a great weapon but they're more effective in short-shifted markets . Forex is suitable for it becuase takes longer to accumulate than any other market around, and it's cycles are short in comparrison to equities. As for intraday, it will give you many false signals. Unless you're a swing trader, I won't recomend their usage.

 

For market reversals, as many traders in this forum advice, try Pivot lines and S/R Levels.

 

I'll tel you why these levels are more effective on equities

 

Pit traders still put a lot of pressure on this market. It's better to follow their "collective state of mind" . A pit trader easily dumps millions of dollars in one trade at any given moment. Unless you have millions of dollars at your disposal to play with the market, I advice not to trade against them. Their weapon of choice: Pivot lines and S/R levels.

 

I suggest plot Pivot lines and S/R leves and just watch how the market react on these levels. Look for periods of consolidation and how the market fires back up/down from there. Supply and demand at it's finest. Depending on market conditions and the overall health, it wil either accept(and break) the price or reject( and bounce off) the price on these levels, more often than not. Usually after a period of consolidation.

 

Your job is to be prepared ahead of time on whatever the market will do. Or stay flat.

 

Spotting market reversals is something that takes time and practice. Just relax and observe the market from time to time without trading. You'll get the hang of it.

 

Regards

 

Raul

[Soultrader 12]

Great post Raul. I never found trendlines too useful in my trading. I use it on my daily charts analysis but in intraday trading, a trend will travel towards the next line of pivot. Then its up to market internals to decide whether price will travel higher or reverse. Therefore, relying on just pivots and S&R levels seem to do the job just fine. I think new traders still struggle in identifying the appropiate S&R levels. Every line of support/resistance seems like a key level to them. Its very hard to trade this way.

 

stephens: We are trading against other traders. Try to picture what the pro's are watching.

 

Channels work on the TICK's fairly well. I like watching TICK's break a channel and I would enter on the next pullback on the TICK.

[feb2865 10]

Thank you James

 

Tick is one of my favorites indicators as well as Trin. They're indicators based on "real time" as oppose to mathemaical indicators based on history. I also watch the $prem (I don't know how it goes on tradestation) to check on fair value(not the CNBC fair value that has no sense to me whatsoever) and program buying/selling. I don't like the "Ticki"as it behaves like a chihuahua stoned in caffeine - too fast for me.

 

I would like to point out that S/R levels, pivot lines, Fibos, etc everything that's foward thinking requires certian level of expericence in order to see how the market is going to behave on these levels. That's why I strongly advice any new trader or trader to be to begin watching the market in real time. To look on what happens when the market reach these levels.

 

 

I notice than many traders have this tendency to pull the triger too fast on these levels. In my experience, I look on how fast/slow the market is approaching to the line . If it loses steam, I wait on the sidelines looking for a fade play(or whatever happens next). Sometimes is moving @ the speed of sound and you have no choice but to get in or stay flat.

 

These are just guidelines. They're not carved in stone. Sometimes the market "violate" these levels and then reverses. I tend to look more into a possible area around the level The good thing about it is that no matter what song the market will play, you're going to be prepared to dance with it. Or just sit in your hands and do nothing.

 

Identifing a top/how to sense weakness...My advice to you, don't pay attention to that. Trade what you see. Be in constant alert and dance with the market accordingly. Don't let the market put you in a play mode. You're the trader so you're calling the shots. If the market is acting weird or is putting your stake at risk, just get out, preserve your capital and re-think your strategy(taking in consideration primarily how much capital you're risking and what risk/reward ratio you're using, hoping is not the infamous 3:1).

 

Like James said, your're trading against other traders. This is a war my friend.

 

Regards

 

Raul

[Soultrader 12]

I have found that instead of rushing into a trade as price reaches a key pivot point.... price tends to violate the pivot by a a tick or two before it reverses.

 

Therefore it pays to wait a few more seconds even with the urge of entry. You can still get it a few points after the reversal from the pivot which in my opinion is a better entry point than entering as price is testing it.

 

For example: lets say price is declining to a pivot. If you enter 2-3 ticks above the pivot on the decline, it is very likely you will go through heat. Heat = stress to me. I try to minimze heat as much as possible. What has worked for me is to wait a few more seconds and let price violate the pivot and bounce above the pivot by a few ticks. This has worked better for me.

 

Tick is one of my favorites indicators as well as Trin. They're indicators based on "real time" as oppose to mathemaical indicators based on history. I also watch the $prem (I don't know how it goes on tradestation) to check on fair value(not the CNBC fair value that has no sense to me whatsoever) and program buying/selling. I don't like the "Ticki"as it behaves like a chihuahua stoned in caffeine - too fast for me.

 

I love the TRIN... although its been acting weird lately. I no longer use the TIKI. I also find it useless now. $prem is a wonderful tool as well. I use it to confirm my position or possible breakouts on buy/sell programs.