YM, ES and DJIA Analysis

[brownsfan019 17]

FW - welcome to the thread. I like your analysis there and think that some basic candlestick analysis would actually just reinforce the trade you are looking at. While it may not be your prior method, there was a few things working with you from a candlestick perspective.

 

Here's how I see it:

In the chart below, we see a bigger view of the YM and some support/resistance areas:

 

 

 

Zooming in closer to recent price action and we see a few peculiar things happening here:

 

 

Throw some Bollinger Bands on it and bam - a picture perfect sell for anyone that follows BB's - went to the SMA, bounced and hit upper BB again:

 

And here we see some indicators I threw on also showing confirmation of the candle pattern as well:

 

 

 

And the kiss off the 200 SMA:

 

 

======================

 

The official candlestick sell occurred at the EOD 3 days ago (orange arrow above). That is referred to as a shooting star (or inverted hammer as I like to say b/c it looks like an upside down hammer).

 

Point is that VISUALLY that candle sell says that bulls tried to push it up and were unable to. In this particular example we then see from a technical standpoint:

 

1) Nice candlestick reversal signal

2) Double top

3) Many, many other 'confluences' of indicators going on here

 

I am a pure technical trader when it comes to day trading and short term positions. This was a beautiful setup that just had so much in it's favor, in particular that 200 SMA which I did not see till just now while I was on the stockcharts.com site. As you can see from the snapshot, you do not get many chances to use the 200 SMA in your trading on a daily basis.

 

So while the candlestick analysis was the main item to look for when considering a trade here, I personally would be looking at a few other items to confirm this trade. In your example, the candlestick sell could have just reinforced what you already were looking at and perhaps may have been able to get you in the trade sooner as well.

[firewalker 10]

FW - welcome to the thread. I like your analysis there and think that some basic candlestick analysis would actually just reinforce the trade you are looking at. While it may not be your prior method, there was a few things working with you from a candlestick perspective.

 

Thanks brownsfan. The SMA(200) is one I pay attention to as well, the SPX also rejected that one. The NDX is still above it though.

 

Anyway, I'm not an indicator man, but I find it amazing how many different elements all line up at once, pointing in the same direction...

[brownsfan019 17]

Thanks brownsfan. The SMA(200) is one I pay attention to as well, the SPX also rejected that one. The NDX is still above it though.

 

Anyway, I'm not an indicator man, but I find it amazing how many different elements all line up at once, pointing in the same direction...

 

Yeah I don't care for many indicators either, I was just clicking around quote.com and saw those. The 200 SMA was from stockcharts site and I was clicking there to provide a link about bearish candles. Kinda all fell together.

 

But there was serious, serious confluence there no matter what a trader may have been looking at. In hindsight, the more the merrier but you can also get bogged down w/ too much stuff on the chart as well.

[james_gsx 16]

For a while this thread was the only reason I came over to TL. I got that little e-mail everyday and that's what got me here. Now I feel like I'm only on TL to joke around.

 

A friend of mine was perplexed about the ES moving down today. I wasn't too surprised, but my reasoning sucked. My reasoning was the spinning top from several sessions ago was the signal to go long, and then price hit the 50% fib retracement and sold off. So aside from personal experience and seeing this setup before, I wasn't really sure what to tell him. Any ideas? The 8 EMA also displayed resistance, but that's not exactly the best reason either.

 

[firewalker 10]

For a while this thread was the only reason I came over to TL. I got that little e-mail everyday and that's what got me here. Now I feel like I'm only on TL to joke around.

 

A friend of mine was perplexed about the ES moving down today. I wasn't too surprised, but my reasoning sucked. My reasoning was the spinning top from several sessions ago was the signal to go long, and then price hit the 50% fib retracement and sold off. So aside from personal experience and seeing this setup before, I wasn't really sure what to tell him. Any ideas? The 8 EMA also displayed resistance, but that's not exactly the best reason either.

 

 

I'm not sure what to tell you, but if ever there was a day "screaming" to go short, it was yesterday for me.

 

First, you need context. I'm not going to repeat everything I posted before, but basically where you note "original candle to go long", you had potential support from in April. I've posted the applicable charts from the ES a week ago in the "How to end a trend" thread, post #27, see here.

 

So, the initial idea in your head would be to buy the (potential) selling climax on support, if you were confident enough to buy when the trend is down. You would then notice, that there was a very strong rejection of resistance couple of days later, on June 17. I don't know much about Fibs, but since this coincides with your 50% retracement and I'd rather be short then long in a downtrending market.

 

The next day, we ended up right back at support. So what does this tell you? Background: strong rejection of resistance, the next day we landed on support again. If you move from resistance to support that fast, sellers are clearly in control. This still doesn't mean we will break support.

 

Then we had Thursday. A smaller ranging day where we ended about in the middle. Despite buying off support (twice), price had a lot of trouble overcoming 1342.50 intraday. Eventually it did, it managed to get back to the other end of the range, and we saw selling come in, again at resistance 1349 (see chart).

 

 

Friday, yesterday, we opened below support, but if you didn't short on the breakthrough, you could've entered when price turned support into resistance. After that price started falling sharply. Starting the night and the selling from 1349, we moved lower a lot and pre-market was very, very weak. When you see this kind of weakness approaching support for the 4th or 5th time, the odds are quite high it will give away. I didn't trade the ES yesterday, I shorted the DOW instead, but the principles are the same and the chart is very similar.

 

I'd like to think of it as a bouncing ball: the first time you throw it at the floor it has high enough energy to bounce back up. The second or third time it loses energy and bounces only inches up from the ground. Eventually there's no energy left and it stops. When there's no energy left from buyers coming in at support, price does not stop, but it falls through. Which is what happened yesterday.

[smwinc 20]

So aside from personal experience and seeing this setup before, I wasn't really sure what to tell him. Any ideas? The 8 EMA also displayed resistance, but that's not exactly the best reason either.

 

 

(I know this is the Candlestick thread, but I'm just answering the question honestly)

 

Tax Loss Selling Period

+

Quadruple Witching Day (Friday)

 

Quad witching day is one of the most reliable pay-days on the market calendar. Add in some Tax Loss Selling and the technical's of where the markets are make it a no-brainer.

 

Edit: I know there are a few people who treat fundementals like they are a disease, but bluntly these two things were marked out for you literally a year in advance. I too ignore most fundementals analysts pull out after the action, but when it's a specific event, you gotta take the freebies the market throws at you.

[brownsfan019 17]

James,

Just a few quick notes on your chart:

 

 

 

Some notes:

 

> Purple circles represent pull back type trades. If using MA's, I would consider pull back trades.

 

> I'm curious why you'd consider a long at either of those points, other than there's a possible candle pattern there (the 1st one almost looks bearish to me).

[brownsfan019 17]

It's amazing how the picture can change when alter or add/delete something, doesn't it?

 

 

 

 

 

That's a daily ES chart w/ Bollinger Bands. All the "I hate indicators" guys can glance over this post.

 

My point is that I just through up some standard BB's on quote.com charts and look what you see here. That doesn't look too terribly bad in my eyes if you pay attention to extremes (upper/lower BB) and the mid-point line for possible resistance and/or trade setups. And again, depending on entry method being used, you can avoid some false reversals.

 

I know it's en vogue to give your allegiance to the non-indicator belief system, but if you study and know what you are using, it can be beneficial. If nothing else, the BB's here provide a road map of when to consider using a candlestick signal and when to avoid one. In the candlestick world, this makes perfect sense. Nison has often said that you cannot use candlesticks on their own - you need something else to help that signal. Here, I've chosen BB's. I happen to like BB's from a volatility stand point on a daily chart (intra-day is a completely different animal).

 

And as we all know, just getting a decent entry system together is half the battle. Next step is deciding how and where to exit. Most of the above shown trades in green lines made money. Some quite a bit and some others not so much. So it just depends on how you exit as to whether the above shown screenshot makes money or not. I cannot possibly say if it made money or not in real-time.

 

*********** *********** ***********

 

AND FOR ANYONE THINKING OF USING THIS AS A SYSTEM - I HIGHLY RECOMMEND YOU DO YOUR OWN HOMEWORK FIRST. IF YOU LIKE BOLLINGERS, GO STRAIGHT TO THE SOURCE AND LEARN ABOUT THEM.

[MC 10]

 

I called for a pullback test back on April 18th. I never thought it would have went this way and taken so long, but here is our test finally. :o

 

Macd and macd histogram divergence on last weeks close, which is lower than the prior closes. 200ma is double support backing this trendline as well.

 

Could get interesting on any hint of a rally.

JMHO

[MC 10]

 

The bigger picture, why can it be important to not solely focus on micro levels and step back sometimes?

 

In addition to my micro level chart we can now see a more defined channel. Plus much more is visible that is acting as support now. So, we have the downtrend broken and testing (from prior chart), 200ma and a now an added swing high as support. How about a trendline from all the way back to October 2004? CHECK!

 

This is a crucial but fairly low risk level to get long IMO. If it fails to hold though look out, we could hit 11k fairly quickly if this stuff gives way.

 

As always JMHO.

[firewalker 10]

200ma is double support backing this trendline as well.

 

Could get interesting on any hint of a rally.

JMHO

 

In addition to my micro level chart we can now see a more defined channel. Plus much more is visible that is acting as support now. So, we have the downtrend broken and testing (from prior chart), 200ma and a now an added swing high as support. How about a trendline from all the way back to October 2004? CHECK!

 

This is a crucial but fairly low risk level to get long IMO. If it fails to hold though look out, we could hit 11k fairly quickly if this stuff gives way.

 

Hi MC, this is not an attack, just some healthy criticism, but...

 

(a) your channel lines aren't exactly parallel, you seem to adjust the lines to fit price

(b) why October 2004 and not -for example- October 2005? you seem to pick the level where to draw line looking for the right of the chart back to the left instead of the other way around

© yes the downtrendline is broken, but the line should not cross price if you connect the first two swings high. In fact, you are drawing another diagonal line on this chart than you did on the previous chart posted.

(d) I see you opted to use the weekly 200 SMA instead of the more frequently used daily one... the daily one paints another picture though:

 

 

I'm not discounting the fact that this level might provide support. But if it does, it will be more likely because of the March lows then because of a subjective line... There are just some inconsistencies in your charts. All imho obviously and no offense meant

[MC 10]

Hi MC, this is not an attack, just some healthy criticism, but...

 

(a) your channel lines aren't exactly parallel, you seem to adjust the lines to fit price

(b) why October 2004 and not -for example- October 2005? you seem to pick the level where to draw line looking for the right of the chart back to the left instead of the other way around

© yes the downtrendline is broken, but the line should not cross price if you connect the first two swings high. In fact, you are drawing another diagonal line on this chart than you did on the previous chart posted.

(d) I see you opted to use the weekly 200 SMA instead of the more frequently used daily one... the daily one paints another picture though:

 

 

I'm not discounting the fact that this level might provide support. But if it does, it will be more likely because of the March lows then because of a subjective line... There are just some inconsistencies in your charts. All imho obviously and no offense meant

 

TA is an art, not textbook. So yes I'm using my eyes and instinct to put the lines where I think they fit and where the market participants are looking.

 

Weekly 200ma is what I use and others have as well...the market bounced there 2 times already. I use weekly as a way to filter the daily noise personally.

 

It's worked for me many times thusfar, so I guess we'll need to wait and see.

[firewalker 10]

TA is an art, not textbook. So yes I'm using my eyes and instinct to put the lines where I think they fit and where the market participants are looking.

 

Weekly 200ma is what I use and others have as well...the market bounced there 2 times already. I use weekly as a way to filter the daily noise personally.

 

It's worked for me many times thusfar, so I guess we'll need to wait and see.

 

No problem at all. Who am I to say this or that one is better, since I don't use MA's, other than just glance at them occasionally.

 

But even if you just use your eyes, I think you need to be consistent in the way you draw your lines. You can't define a channel and then have the lines not parallel next to each other... that's all I'm saying.

 

If you draw a trendline different on the big picture than on the micro-level, it's more likely you are looking for price bars to touch your line and support your hypothesis, rather than let price prove you right... I make mistakes too in these things, being to sloppy, especially if they are hand-drawn lines. But it's just something I thought was worth pointing out.

[ammo 10]

firewalker and mc,since u are discussing lines ,when drawing lines on dailys and hourlys,i sometimes use the candlesticks and draw lines on the body tops/bottoms and not use the small extensions where there was no volume,it sounds dumb, but a lot of times when a mrket turns above or below your line u will see the line they saw when drawing on candles, just food for thought

[firewalker 10]

firewalker and mc,since u are discussing lines ,when drawing lines on dailys and hourlys,i sometimes use the candlesticks and draw lines on the body tops/bottoms and not use the small extensions where there was no volume,it sounds dumb, but a lot of times when a mrket turns above or below your line u will see the line they saw when drawing on candles, just food for thought

 

You mean you draw your lines where the bodies of the candles close instead of the spikes?

[MC 10]

You mean you draw your lines where the bodies of the candles close instead of the spikes?

 

I do. If you think about it, the wicks are often noise fueled by emotion. Quite often the extremes are just the retail suckers range. P&F is based on close alone, as are line on close charts. Many people I've met look at close only based on my few years in the market. I try and mesh the 2 styles to something that fits my mentality.

 

It's not unreasonable in the market to think outside the box or the textbook. I'm trying to feel the markets psychology when I draw lines. And because of this I often will ignore wild wicks that were irrational blips on the screen. I try to find the rational action, and then mark where it seems to almost act magnetic and suck prices to the same level over and over. It works for me, and I don't expect anyone to accept nor follow my input. I simply put my opinion out there as food for thought.

 

All IMHO, and I'm always open to hearing any thoughts on why what I do is not a sound practice. But if it's textbook chatter I will either dispute or ignore it. I only want to discuss personal thoughts from experience, not "because I read" stuff.

(I'm not saying thats what your doing FW, I want to hear more of your experiences)

 

MC

[firewalker 10]

I do. If you think about it, the wicks are often noise fueled by emotion. Quite often the extremes are just the retail suckers range. P&F is based on close alone, as are line on close charts. Many people I've met look at close only based on my few years in the market. I try and mesh the 2 styles to something that fits my mentality.

 

It's not unreasonable in the market to think outside the box or the textbook. I'm trying to feel the markets psychology when I draw lines. And because of this I often will ignore wild wicks that were irrational blips on the screen. I try to find the rational action, and then mark where it seems to almost act magnetic and suck prices to the same level over and over. It works for me, and I don't expect anyone to accept nor follow my input. I simply put my opinion out there as food for thought.

 

All IMHO, and I'm always open to hearing any thoughts on why what I do is not a sound practice. But if it's textbook chatter I will either dispute or ignore it. I only want to discuss personal thoughts from experience, not "because I read" stuff.

(I'm not saying thats what your doing FW, I want to hear more of your experiences)

 

MC

 

I understand your point. Basically I draw my trendlines through price extremes, like Sperandeo (sorry, textbook reference!). Empirically I've found this is the best way to draw them too -for me- because price bars crossing a diagonal line don't necessarily mean something. When drawing horizontal lines (support and resistance) I look where the majority of price action takes place and if those are large spikes I don't consider them to have much importance. However those lines have a different function for me, since I trade off them and I don't trade off those diagonal ones.

 

I agree with your comment about the rational action, however spikes are often effective to see whether your interpretation of the chart is correct. If it is, you'll often see tests (as we are in the candlestick corner I can say "shooting star" or "hammer") near or on those levels.

 

To be honest, whatever works for you is fine... I wasn't so much commenting on the way you draw your lines, than on the fact that you weren't consistent in your approach. If you use the bodies all the time, that's fine. Who am I to say that is not "sound practice"? But if you switch between one method and the other, to "fit" the chart, I think you risk "creating" elements which might make you see things that aren't really there. And thàt is not sound practice, all in my very humble opinion obviously

[MC 10]

I understand your point. Basically I draw my trendlines through price extremes, like Sperandeo (sorry, textbook reference!). Empirically I've found this is the best way to draw them too -for me- because price bars crossing a diagonal line don't necessarily mean something. When drawing horizontal lines (support and resistance) I look where the majority of price action takes place and if those are large spikes I don't consider them to have much importance. However those lines have a different function for me, since I trade off them and I don't trade off those diagonal ones.

 

I agree with your comment about the rational action, however spikes are often effective to see whether your interpretation of the chart is correct. If it is, you'll often see tests (as we are in the candlestick corner I can say "shooting star" or "hammer") near or on those levels.

 

To be honest, whatever works for you is fine... I wasn't so much commenting on the way you draw your lines, than on the fact that you weren't consistent in your approach. If you use the bodies all the time, that's fine. Who am I to say that is not "sound practice"? But if you switch between one method and the other, to "fit" the chart, I think you risk "creating" elements which might make you see things that aren't really there. And thàt is not sound practice, all in my very humble opinion obviously

 

I do the same thing on each chart, so I'm consistent in my approach to trendlines and what I call channels. To me a channel has nothing to do with a perfect parallel line or certain angle etc... I just want price to respect a range on 2 ends of the market and repeat enough to tilt odds that that range will hold up at the extreme ends of my "channel".

 

I don't go looking to make lines fit my bias, I look for the levels where I feel most people are watching based on repeated bouncing AND closings at the same level. On macro and micro charts it's often going to appear I'm fitting when in reality its the charts shift that makes things look tweaked out. The confluent levels are the ones to pay attention to IMO. Multiple timeframes matching means more eyes on the same things.

 

As for the hammers and candles at extremes...I find those incredibly useful on intraday. Daily at times yes, but less often. Daily and weekly I find it hard to trust the candles individually so I feel more free to improvise on them or do use groupings. I heavily rely on horizontal support and use diagonal to provide additional backing if it fits with no pressure. No square peg in a round hole for me.

 

To expect perfect textbook examples with millions of opinions at work is forcing things IMO. I'm a simpleton, or at least I try to be. I don't want to make something thats psychology driven all about mathematical angles and parallels on the dot. I'm a rookie still so wtf do I know.

 

BTW...nice volume kick on the DIA IB range extension.

 

Who's ready for FOMC???

[james_gsx 16]

I do think we'll get a bounce soon to the 8 EMA, by then it will probably be around the 50% fib retracement level. My next short target is 1275.

 

Notice how yesterday that wick hit new resistance and was rejected? That was a great signal to go short into today.

 

[ammo 10]

gsx,we hit your 1275,do we bounce or drop

[OAC 10]

gsx,we hit your 1275,do we bounce or drop

Hey, he is definitely buying a bunch of call options here. The market is more over-sold and the bounce back to the 8ema has more potential than ever before. Plus he bought a whole bunch of put options last Wednesday when ES was 1338. He is just going to play with market's money now. Plus he can afford to blow it. James is already driving a Benz, so why would he need to drive a second one ? :o

[james_gsx 16]

Hey, he is definitely buying a bunch of call options here. The market is more over-sold and the bounce back to the 8ema has more potential than ever before. Plus he bought a whole bunch of put options last Wednesday when ES was 1338. He is just going to play with market's money now. Plus he can afford to blow it. James is already driving a Benz, so why would he need to drive a second one ? :o

 

Because I can't fit enough girls in the first one :rofl:

 

The overall picture of the market looks bad. I sold my short term put position on Friday, and then loaded up with calls to hedge the longer term position. I think we'll move into the 8 EMA where I'll be more willing to add onto that long term short position if the right signals are in place. But I do think in the next few weeks that 1250 level will be tested.

 

We're only 20pts from the 8 EMA, so that really isn't a huge move at all with the recent volatility.

[OAC 10]

Because I can't fit enough girls in the first one :rofl:

.

 

I thought you have been studying hard on MarketProfile with Ammo and getting all sick and tired of all the nips and cleaves ?

[james_gsx 16]

I thought you have been studying hard on MarketProfile with Ammo and getting all sick and tired of all the nips and cleaves ?

 

The c***k wants what it wants :rofl:

 

And yes, I stole that from Weeds (most ridiculous show ever, but funny)

 

Back on topic..

 

Here is why I think we can move sideways, or bounce back to the 8 EMA. Nice spinning top at support with nice volume.

 

[ammo 10]

on a 2 year june 06-june 08 we are at the lower portion of drew cary's boob ,1210- 20 is the single bottom print on this weekly letter chart, there is a small cleavage at 1290-1300,that we should fill with any rally,a small ledge under 1320, a nip at 1330-40.another cleave at 1350-60 and the big nip range is 1385-1435