Real Time Price Action- Clue to Puzzle?

[Sledge 13]

After seeing a post regarding "Interpreting Bid/ask Spread" on this section I thought I may ask/discuss price action:

 

Basically, if you watch a 1 Min Chart and activity is high you can see a bar bounce up, drop, rocket back up etc all within that one bar for simplicity sake lets say this bar closes DOWN but on the middle of the bar.

 

My opinion (based on VSA) is that if you see a bull trend and catch a slight downturn, you may see the price drop on the bar, at the bottom of the bar you see buying and the bar comes back up to middle, you see it drop again and rise before your eyes. This is obviously absorbtion of the orders and buying on the low.

 

My question is that this doesn't happen all the time, you can see a bull trend and some of this absorbtion, but then the bar closes in the middle, and the trend continues downward.

 

Can anyone offer any insight on this? I would like to think that if you are watching price action and the bar closes in the middle that it is a strong buy signal (as the selling is being absorbed to make way for higher prices)

 

As I study VSA I find that I can learn more by watching the bars on a fast timeframe. Since I have no trades in- I can just watch as if I were watching a TV show- but this one is stumping me at the moment.

 

Thoughts?

Sledge

[DbPhoenix 42]

Consider, Sledge, that price is continuous, as is volume (that is, trading activity). Therefore, there is no "close", at least until everybody goes home and turns out the lights. What we perceive as a close is merely a function of whatever bar interval (time, range, constant volume, etc) we choose to display the movement of price and is entirely irrelevant to that flow. What matters more are the ebb and flow and their character: pace, extent, range, etc.

 

To better see this ebb and flow, you may want to use an even smaller interval. A tick chart may look like flies circling over poop, but something like a 5-second chart will enable you to see this ebb and flow without being distracted by the OHLC. Once you become attuned to this, you'll detect the flow even in an hourly or daily or weekly chart.

 

Some will object, of course, that whatever goes on in these teeny tiny timeframes is "noise" and is irrelevant to the larger, more "important" moves, but this is akin to saying that ocean currents are noise and irrelevant to the larger, more important moves. It all starts somewhere, and the trader who is attuned to these seemingly insignificant changes in price movement is going to be virtually shockproof when price suddenly starts hellbent in some new direction.

 

Db

[MC 10]

I'm always looking for more tape reading guides. Could someone PM me DB's guide? Thanks.

 

Looks like DB is a great addition here! Whether called "VSA" or another style of tape reading we all are looking for similar things.

 

Welcome aboard DB...I've not used T2W but of all the other sites I've used this is the most mature and skilled of boards and I'm glad to have another great member on board. I'm sure you'll like the crowd here.

 

Have a good weekend guys.

MC

[DbPhoenix 42]

Thanks for the welcome. Here's the link to the preview of the "book". I suggest you look it over before making any commitments.

 

http://www.trade2win.com/boards/313957-post.html

[DbPhoenix 42]

Thanks for the welcome. Here's the link to the preview of the "book". I suggest you look it over before making any commitments.

 

http://www.trade2win.com/boards/313957-post.html

 

It appears my editing window has closed. In lieu of providing so many offsite links, I've elected to open a blog. If it works the way I hope it will, everything will be in one place. To begin, I've uploaded the preview of the book to the blog. This may save at least some time for those who are interested in it.

 

Enjoy.

[smwinc 20]

Price action is "it". Everything else is secondary. Sounds simple, but its ridiculous how often it's forgotten. PPM - Price Pays Me. A rally on weak volume with no interest from buyers that hits resistance left right and center is STILL a rally that pays you if you were long, and gives you a loss if you were short.

 

Studying anything - VSA, tape reading, etc. - needs to be referenced in context to which MARKET we are talking about.

 

When you read the tape, you are analysing what other traders have DONE.

 

When you study the depth of market, you are studying what you THINK traders are ABOUT to do.

 

These are two different things, and are specific to different markets. Example:

 

The SGX Nikkei futures are very technical, but in my opinion useless as far as reading price action. You are trying to read the price action of Spreaders and funds Arbing the OSE-Nikkei.

 

The DAX has every man and his dog trading it - retail guys across Europe and America, big funds, automatic trading, the lot. In my opinion, it is a very good candidate for reading price action. I like to know my S&R levels, and then "live in the depth" of that market, and glance at the chart occassionally.

 

In the prop firm I work at, we do 10-20% of the volume in a particular futures market. This is my bread & butter market - if I am reading the depth of the market as I trade, I'm trading the other guys in the same ROOM as me. Clearly this changes the way you would trade a market.

 

Price action is king across all markets, because it's the only thing that pays you. However, you can't take the same 'rules' you apply to one market, and apply it to others.

 

Master one market to trade, but in doing so, study the price action of all the markets that are relevant to it. Nothing moves in a vacuum, and often whichever market was leading yesterday, might not be leading today. You can do it with charts or Price Ladders, but you want to see the flow of money across interrelated markets.

 

It's like driving a car - when you are accelerating to take over someone on the highway, you have a smooth action - indicate, pull into the other lane, hit the accelerator to raise revolutions as you move your hand to the stick-shift, hit the clutch as you change gears and continue accelerating.

 

You might be sitting there trading Singapore, not much is going on. Hang Seng starts to lift bids with size, Jap Gov Bonds are coming off which sends the Nikkei up. The Aussie SPI & Taiwan are taking notice - that might happen in less than 10 seconds. You want to be hitting bids pronto.

 

At the end of the day, trading is a career, a business, a sport to some. It's not a simple activity. To consistently profit day in day out, you need to learn how to learn. Be dynamic. You don't want to be a jack of all markets, but you don't want to be a master with one tool either.

 

DBPhoenix, I enjoyed your preface - Nice clean charts.

 

SMW

Edited February 23, 2008 by smwinc
typo

[Sledge 13]

db-

Thank you for your post, I recently signed up over at the T2W board and spent a good part of Friday reading your work on this topic. Very impressed and very appreciative of your posts there and here.

 

Anyone who has not been over there- you want an answer on Price Action- LISTEN TO THIS MAN.. he knows his "schtuff"

Sledge

[Sledge 13]

 

What matters more are the ebb and flow and their character: pace, extent, range, etc.

 

Once you become attuned to this, you'll detect the flow even in an hourly or daily or weekly chart.

 

Db

 

DB-

Ok- see if I have this- If I watch a 1 min chart and try to ignore the Open and Close hash marks on a bar chart but try to be in tune with the "momentum" of the rally so to speak- is a better strategy?!

 

Let me try to explain myself- Ok a rally starts and I see a quick and fast movement upwards, about half way up I see it start to sputter or pause for a minute, towards the top- do I see MORE action on that bar or less when the rally is coming to an end?

(i.e. do I see more activity because the herd is snapping it up at the wrong time, or do I see less activity because it is stalling because it will go no further?)

 

Sort of like a model rocket, it shoots off its launching pad with vigor, and once it reaches its apex, the fuel has run out, the nose-cone turns over and down it comes? Or is it dependant upon other market factors?

 

I'm very intrigued by this concept and would like to hear some more!

Sledge

[DbPhoenix 42]

Well, the short answer is that you don't know. Aren't you glad you asked?

 

It depends on what you're trading and how vulnerable it is to support and resistance issues. You can't know it's the "top" until afterwards, which isn't going to do you any good. But if price reaches resistance of some sort and this stalling goes on, you're in a better position to understand what professional money -- or even other retail traders -- is up to (note I call it professional rather than "smart", because it isn't always).

 

It also depends on where the rally starts and what it starts from. If you're talking about a big-time accumulative base, then you've probably got legs. But if it's just a fart of some sort or other, then you very likely don't. What Wyckoff referred to as effort and result. Not much effort, not much result. Lots of effort, you ought to get lots of result. And if you don't, then something's up.

 

But if you know where R is and price is fast approaching and volume suddenly increases, then you're getting a lot of selling going on. If demand is able to absorb all this and push price higher anyway, fine. But if buyers are struggling under the weight, best know where the exits are.

 

So if you want to know what buyers and sellers are doing within that 1m bar, you're going to have to look inside it. If you can do that by watching price bob up and down along that 1m pole while also watching volume inch up, or not, that's fine. But I suggest you plot a 5s chart underneath so that you're not quite so separated from their activity.

 

I transferred the Springboard information from t2w to my blog here. It's not quite what you're referring to, but it does take a scalpel to the bar and opens up its insides for all to see. It may help you understand what I'm talking about, even though it may not specifically address your particular question.

 

Db

[DbPhoenix 42]

This doesn't specifically address your particular question either, but it does illustrate what I mean by "opening up the bar".

 

R here was at 1820 (still is, as far as that goes). Price hit that pre-market and slid down to this level from there. It ran into some trouble at 1814, then again at 1812. After the open, you got this big honking marubozu heading back to 1812 again, but that got reversed real quick (in a longer timeframe, those two bars would be "blended" to give you the inset result, a shooting star or gravestone or whatever you want to call it).

 

Now how would you know this was coming? And would you short? "Volume", after all, was less on the downbar than the upbar. And if you did short anyway, where? 1807?

 

 

 

 

Now let's pop the hood and see what's inside. Note that the big volume on the way up to 1812 results in bupkus. No progress at all. This is heavy selling (within context). And what happens to volume as price stretches toward R? And if you follow the TICKQ, you'd also note that it's been falling from 0930 all the way down to 0935.

 

 

 

 

So now where would you short?

 

 

 

 

 

.

[mister ed 10]

Db - firstly welcome, I am sure your contributions will be enormously appreciated here at TL.

 

Now a questiom, would using a Point and Figure chart with a smallish box size serve the same purpose in 'opening up the bar'? Advantage would be you don't have to specify a time-period for the bar the price will continue up or reverse depending on buying/selling pressure alone?

[DbPhoenix 42]

It might, but I dont do P&F. What matters most, though, is getting a great price and making money with as little risk as possible. If P&F helps you do that, go for it.

 

Db

[DbPhoenix 42]

It's easy to say that this or that bar is "no demand" or a "test" in hindsight. But when the market is open there can be conflicting signals and I don't yet completely understand how a trader can identify the right spikes in volume as demand/supply/etc, especially on such a low timeframe as the 1-min charts that have been posted here.

 

That's why I've come to rely more heavily on support and resistance and what happens there and pay less if any attention to what may or may not be signals that happen elsewhere. For a long time, I thought of the lower timeframes -- particularly the 1m and lower charts -- as being "noise" because everybody said so. And they certainly seemed so. But then I realized that they seemed to be noise only because those -- including me -- who thought so weren't listening (sort of like the alien languages on Star Trek that sound like white noise on a radio). Then someone -- I forget who -- stated that, as far as the markets were concerned, there was no such thing as noise. It all contained information. That one may not recognize it, or understand it, was beside the point.

 

If you're going to have important S/R on the weekly at 1800, it's going to be there in every other timeframe as well. Other S/R levels will reveal themselves as one travels down through the timeframes, but he isn't required to trade every last one of them.

 

Note that the selling climax does not exactly jump out at you. If you didn't have support drawn at 1765, you might not even notice it. But there or nearby is the place to enter, if you're going to enter at all.

In you chart from post #138, could you not draw resistance at 1778? It looks like there was a slight volume spike around 13:09 immediately followed by a downbar, isn't this a rejection? It looks like price found resistance on the previous day there too. And it is around that 'special' 1780 level that you've talked about too...

 

Sure. 1780 has been important for both S & R for some time now, as has 1800. But that wasn't germane to the question or to my answer, so I didn't get into it.

 

As to the rejection, there's another one at the far left, but I was already short, so I didn't particularly care. The short had taken its own sweet time to pay off that morning, so I mostly just wanted the trade to be over.

 

You'll find many of these rejections throughout a day, but are there enough traders involved to make the rejection important enough for you to profit from it, or are they just looking for something to do until Happy Hour?

 

Beginning at the end of the day on the 21st, then tested twice on the 25th. It didn't seem to be more than minor support for pre-planning, but price didn't think of it as minor when it was reached for the second time that day. That entire zone from 1760 to 1770 established on the 19th and 20th offered potential support, of course, but 1765 became a kind of fine-tuning.

But how do you know if support from a previous day or week will still be important? If you look at a chart and you can point out where support is, do you take note of that level? I mean the next day it might be breached and so you think it's incorrect. But the day after that it may be tested. Is support from two weeks ago as important as from two days ago? I find it hard to reconciliate all these different support levels from various days and various different timeframes... It looks like support (or resistance) is all over the place all of the time

 

Nobody said it was easy (except the people selling courses and software:)).

 

I start with the macro, as I show on p 50 and following in the PVSR pdf I posted to my Blog. Then I work my way down to the more minor S&R levels. On my chart, I use lines of three different thicknesses, the thickest being reserved for major S/R that's lasted for weeks or even months, the next for S/R that's not quite so important, then the thinnest for what has been S/R only now and then and hasn't been terribly reliable but has also provided some excellent entry/exit signals (most often I find that what looks like minor S/R is actually something more major that I just overlooked; if I go ahead and plot the line, I'll notice other consistent levels over past days that just never registered with me). I also use three different colors for support, resistance, and the midpoint (what Wyckoff calls the equilibrium level [similar to what MP calls the POC]). This may seem to others like unnecessary busy-ness, but it helps me to see at a glance where I am while also avoiding a double-think at a time when I don't need to be doing that.

 

And, yes, S/R is all over the place all the time. And a scalper is likely to be concerned about those minor levels because he wants a reliable entry that results in a quick profit. But I prefer to make one or two trades a day and ride them, so I wait for tests of the more important levels. If price never gets there, I don't trade that day.

 

I hesitate even to bring up S/R since the behavioral dynamic driving price here may not even lend itself to trading ranges, or at least not the pretty kind one finds in futures.

So are you saying that FX moves are less "clean" than those in futures? May I ask if there is any reason in particular you are trading the Nasdaq? Over at ET a lot of people are trading the S&P. Do you think the Nasdaq is less choppier?

 

I haven't studied FX so I don't understand it particularly well, nor do I understand the people who trade it. Without any of that, I'm flying blind, and why bother? And not having volume doesn't make things any easier. But if someone else wants to give it a shot, what business is it of mine?

 

As for the NQ, I played with the NQ, ES, YM and ER for quite a while, but I understood the NQ better. It appeared to provide more reliable S/R than the others, it had a wide enough range to offer decent trading opportunities (especially after the extraordinarily long dry spell of tight ranges in all the index futures), there was a lot of volume in it, and because of its constituents, it moved a little differently, often leading the others, generally acting independently. The ES has always reminded me of an old lady. The NQ is something more of a hell-raiser. The YM is something of a new guy who's trying to become one of the cool kids, but they haven't reached the point of letting him sit at their table at lunch. The ER is something of a toddler who can't make it from one end of the room to the other without banging into everything along the way.

 

I'm not ignoring you. I have a very difficult time dealing with all the layers and layers of overcomplication and nonsense jargon that have been laid over what are essentially basic and really very simple concepts. Wyckoff founded the SMI in Phoenix? Wyckoff died in 1934.

A final question, I looked at your "recommended literature", but there seems to be nothing relating to Wyckoff about it. I have already read the Day Traders Bible in the past, but to be honest it didn't really help me understand the markets better, there are little charts in it too. So perhaps somebody could point me in the right direction and tell me where to find all these Wyckoff gems?

 

Depends on what you mean by "related to Wyckoff". It's all related to Wyckoff's concepts in one way or another, but it's true that the meat of it all is Wyckoff's original course. Unfortunately, SMI holds the copyright and won't make the course available unless you plunk down $950 for the whole package, including the original course and all the mucking about they've done with it. Someone gave me the course as a thank-you for what he said he learned from me, and I took what to me was most pertinent to modern trading, added what I'd learned from others of similar mind and from my own trading, and created my own book.

 

Here's a simple, straightforward example. There are many others in the material in my blog.

 

Support is at 1800.

 

I doubt there's anything new here, whether one follows VSA or Wyckoff or SMI. But when I see the retest of support with far less trading activity, that says to me "We're done". And I know they're not lying because of what happens to price. Effort, result.

It certainly "looks" simple and easy, but one man's exit signal can be another man's entry signal. I mean why did you not go long where you closed out? You said support was at 1800, so would this not be a valid entry then?

 

Yes, it would be. I didn't because I was tired. When I get tired, I tend to do stupid things. I don't have to make the maximum number of points every time I trade. The market's there every day.

 

As for my "homepage", I don't have one. Home is wherever my stuff is, and at the moment, my stuff is here in my Blog. I'll look into whatever I posted in my profile, though.

Edited March 2, 2008 by DbPhoenix

[zeon 10]

Let me first say thank you for taking the time to reply to all my questions. I am definitely learning along the way. What you're saying about there being no noise in the markets is definitely making me think. For instance if price reverses, it usually does not do in mid-air. It's like the market is one big seemingly random chaos but once you find the key to decrypt that information everything becomes clear (or at least that's what we hope). But does this lead to believing that everything that happens in the markets happens for a reason? I particularly like your analogy to Star Trek, being a trekkie myself

 

If you're going to have important S/R on the weekly at 1800, it's going to be there in every other timeframe as well. Other S/R levels will reveal themselves as one travels down through the timeframes, but he isn't required to trade every last one of them.

 

And that's where my problem lies. How do I identify important support or resistance levels intraday? I often have no problem identifying support on a higher timeframe, but these "zones" are too wide to trade of really. Like you show on your chart in the PDF files there are macro levels which are relatively easy to identify. But these zones are extremely wide when you plot these lines on an intraday chart.

 

I don't know about the NQ but on the ES for example I see zones as wide as 7 points that offer support. Often I see price reacting to these levels during the day, but sometimes it's on the upper boundary of the zone, other times it's on the lower boundary. But using stops that are wide enough to compensate (> 7 points, so around 10 points) on the ES isn't very useful when the market on a daily basis moves around 20 points. What happens to me a lot is that I take a long trade from support on decent volume, only to get taken out because price finds support 15 minutes later 3 points lower and then reverses.

 

Other times it looks as if I got the entry near-perfect on the lower boundary of a support zone, but price breaks support and immediately travels back into the range. A false break in a matter of speaking. When I look on a higher timeframe (30minutes or so) then I see a nice hammer-like formation forming. But on a 3 or 5-minute timeframe (which are the ones I use most of the time) this isn't visible, let alone on a 1-minute timeframe.

 

 

I start with the macro, as I show on p 50 and following in the PVSR pdf I posted to my Blog. Then I work my way down to the more minor S&R levels. On my chart, I use lines of three different thicknesses, the thickest being reserved for major S/R that's lasted for weeks or even months, the next for S/R that's not quite so important, then the thinnest for what has been S/R only now and then and hasn't been terribly reliable but has also provided some excellent entry/exit signals (most often I find that what looks like minor S/R is actually something more major that I just overlooked; if I go ahead and plot the line, I'll notice other consistent levels over past days that just never registered with me). I also use three different colors for support, resistance, and the midpoint (what Wyckoff calls the equilibrium level [similar to what MP calls the POC]). This may seem to others like unnecessary busy-ness, but it helps me to see at a glance where I am while also avoiding a double-think at a time when I don't need to be doing that.

If you plot these three different kinds of S/R, don't you have lines drawn all over your chart? :\ In some of your earlier posts on ET you had charts with "important" levels such as the previous day high, low and close... If I understand correctly you've changed your stand on some things you posted in the past. Does this include things like PDH? In my own trading, I used to draw lines around the PDH and PDL ànd use S/R from a higher time frame, say an hourly chart. Sometimes I'd get really nice trades off these levels from the previous day, but my frustration comes from not knowing what or how to do when I have a line drawn on say 1358 from the previous day but also two lines that identify support between 1345 and 1355 where important support is.

 

And, yes, S/R is all over the place all the time. And a scalper is likely to be concerned about those minor levels because he wants a reliable entry that results in a quick profit. But I prefer to make one or two trades a day and ride them, so I wait for tests of the more important levels. If price never gets there, I don't trade that day.

 

You're hitting the nail on the head here. S/R is all over the place all the time, and that's exactly what's causing me a lot of frustration. :doh: No one knows when what level will be important. Price seems to "forget" about support too a lot of the time. I think I've come to understand the basics after studying charts for a couple of years, but despite some occasional success in my trading, I have yet to get consistent in my results.

 

I haven't studied FX so I don't understand it particularly well, nor do I understand the people who trade it. Without any of that, I'm flying blind, and why bother? And not having volume doesn't make things any easier. But if someone else wants to give it a shot, what business is it of mine?

I'm not particulary interested in FX, but I do want to know what I can do to understand the people who are trading an instrument. What do you mean by that? Getting to know actual traders? Are people that trade the ES different than those who trade the NQ like yourself?

 

The ES has always reminded me of an old lady. The NQ is something more of a hell-raiser. The YM is something of a new guy who's trying to become one of the cool kids, but they haven't reached the point of letting him sit at their table at lunch. The ER is something of a toddler who can't make it from one end of the room to the other without banging into everything along the way.

I don't know if I understand your analogy completely. With an old lady do you mean it moves slowly? Because when I look at charts, there seems to be a striking similarity between the ES and the YM a whole lot of the time. The NQ and Russell seem to follow a path of their own. Anyway, I've focused my efforts on the S&P, but I take it you see the market a trader picks irrelevant as the same principles would be valid amongst all markets, right?

 

Yes, it would be. I didn't because I was tired. When I get tired, I tend to do stupid things. I don't have to make the maximum number of points every time I trade. The market's there every day.

 

Isn't that an emotional reaction to trading? You say the trade would be valid but you didn't take it because you were tired. I'm convinced you know what you are doing, but how does a trader know when to quit? Should he quit after the first winning trade? The next three days he might have all losing trades. If you can make it a winner the first trade of the day, than that's fine I guess. But most of us probably don't manage to do that.

 

Yet again, a long post and I hope you don't mind all these questions. It just looks as if there's a new door opening and I've found some new motivation at exactly the right time to continue my quest in becoming a better trader.

[DbPhoenix 42]

If you're going to have important S/R on the weekly at 1800, it's going to be there in every other timeframe as well. Other S/R levels will reveal themselves as one travels down through the timeframes, but he isn't required to trade every last one of them.

How do I identify important support or resistance levels intraday? I often have no problem identifying support on a higher timeframe, but these "zones" are too wide to trade of really. Like you show on your chart in the PDF files there are macro levels which are relatively easy to identify. But these zones are extremely wide when you plot these lines on an intraday chart.

 

I don't know about the NQ but on the ES for example I see zones as wide as 7 points that offer support. Often I see price reacting to these levels during the day, but sometimes it's on the upper boundary of the zone, other times it's on the lower boundary. But using stops that are wide enough to compensate (> 7 points, so around 10 points) on the ES isn't very useful when the market on a daily basis moves around 20 points. What happens to me a lot is that I take a long trade from support on decent volume, only to get taken out because price finds support 15 minutes later 3 points lower and then reverses.

 

Other times it looks as if I got the entry near-perfect on the lower boundary of a support zone, but price breaks support and immediately travels back into the range. A false break in a matter of speaking. When I look on a higher timeframe (30minutes or so) then I see a nice hammer-like formation forming. But on a 3 or 5-minute timeframe (which are the ones I use most of the time) this isn't visible, let alone on a 1-minute timeframe.

 

If the macro S/R forms a range that is consistent enough and wide enough to trade, then you'll have S/R also within that range (see my Blog post on Support & Resistance and Trading Trend). Sometimes price will, for example, drop to a previous support zone and bounce nice and clean, creating those lovely swing points that always wind up in books and articles and video presentations. But it is the nature of support zones that they are created by previous buying. When price returns there, it wants to know if that demand is still there. This usually takes time. And sometimes it means probing around in there to find that demand, like probing the hole in your mouth where your wisdom tooth used to be. This is where the lower the bar interval, the better, so that you can see the push and pull directly and not in summary. But that's not something I can explain to you in a message board post. Perhaps someone more talented and skilled than I can. In the meantime, you just have to put in the screen time.

 

I start with the macro, as I show on p 50 and following in the PVSR pdf I posted to my Blog. Then I work my way down to the more minor S&R levels. On my chart, I use lines of three different thicknesses, the thickest being reserved for major S/R that's lasted for weeks or even months, the next for S/R that's not quite so important, then the thinnest for what has been S/R only now and then and hasn't been terribly reliable but has also provided some excellent entry/exit signals (most often I find that what looks like minor S/R is actually something more major that I just overlooked; if I go ahead and plot the line, I'll notice other consistent levels over past days that just never registered with me). I also use three different colors for support, resistance, and the midpoint (what Wyckoff calls the equilibrium level [similar to what MP calls the POC]). This may seem to others like unnecessary busy-ness, but it helps me to see at a glance where I am while also avoiding a double-think at a time when I don't need to be doing that.

If you plot these three different kinds of S/R, don't you have lines drawn all over your chart? :\ In some of your earlier posts on ET you had charts with "important" levels such as the previous day high, low and close... If I understand correctly you've changed your stand on some things you posted in the past. Does this include things like PDH? In my own trading, I used to draw lines around the PDH and PDL ànd use S/R from a higher time frame, say an hourly chart. Sometimes I'd get really nice trades off these levels from the previous day, but my frustration comes from not knowing what or how to do when I have a line drawn on say 1358 from the previous day but also two lines that identify support between 1345 and 1355 where important support is.

 

Back in those days, nearly everyone traded stocks, and the PDH and PDL and PDC can be and often are important. Stocks also often gap between the PDC and the open. But nowadays, a great many people trade things that don't close (unless the market literally shuts down) and often make their highs and lows outside RTH. Therefore, "day" begins to lose its meaning, and one can't rely as much on those swing points as he used to, anymore than he can rely on the "trading clock" or that mid-lunch reversal that was so dependable for so long.

 

But as for the number of lines, yes, it can get out of hand when we're stuck in a hinge as we have been in all the major averages for the past six weeks. And sometimes price reacts against an S/R level that you didn't anticipate. But that's trading. The only guarantees are those provided in courses and seminars.

 

I haven't studied FX so I don't understand it particularly well, nor do I understand the people who trade it. Without any of that, I'm flying blind, and why bother? And not having volume doesn't make things any easier. But if someone else wants to give it a shot, what business is it of mine?

I'm not particulary interested in FX, but I do want to know what I can do to understand the people who are trading an instrument. What do you mean by that? Getting to know actual traders? Are people that trade the ES different than those who trade the NQ like yourself?

 

Not actual traders but the thinking behind the trades of those who choose a particular instrument. YM traders, for example, seem to like it because they think it's cheap, and they think they can use tight stops and lose less. Of course, none of this has anything to do with how much money one makes trading the YM, or even whether or not he makes any money at all. But these things crop in posts I read that are written by one trader or another.

 

The ES has always reminded me of an old lady. The NQ is something more of a hell-raiser. The YM is something of a new guy who's trying to become one of the cool kids, but they haven't reached the point of letting him sit at their table at lunch. The ER is something of a toddler who can't make it from one end of the room to the other without banging into everything along the way.

I don't know if I understand your analogy completely. With an old lady do you mean it moves slowly? Because when I look at charts, there seems to be a striking similarity between the ES and the YM a whole lot of the time. The NQ and Russell seem to follow a path of their own. Anyway, I've focused my efforts on the S&P, but I take it you see the market a trader picks irrelevant as the same principles would be valid amongst all markets, right?

 

The same principles apply to all auction markets, but that doesn't mean that all markets are the same. The same principles apply to all home construction, but not all homes are alike.

 

Yes, it would be. I didn't because I was tired. When I get tired, I tend to do stupid things. I don't have to make the maximum number of points every time I trade. The market's there every day.

Isn't that an emotional reaction to trading? You say the trade would be valid but you didn't take it because you were tired. I'm convinced you know what you are doing, but how does a trader know when to quit? Should he quit after the first winning trade? The next three days he might have all losing trades. If you can make it a winner the first trade of the day, than that's fine I guess. But most of us probably don't manage to do that.

 

Being tired is no more an emotional response than a headache. And a trader stops trading when he can no longer trade his plan properly.

[DbPhoenix 42]

I don't want to revisit this in the VSA thread since it was arguably OT in the first place, but the chart I attached to post 209 over there has been corrected, below. The "bad tick" at 1400 (highlighted in green) has been removed. The volume during the "rally" off S is now more reasonable.

 

[zeon 10]

I don't want to revisit this in the VSA thread since it was arguably OT in the first place, but the chart I attached to post 209 over there has been corrected, below. The "bad tick" at 1400 (highlighted in green) has been removed. The volume during the "rally" off S is now more reasonable.

 

What is the cause of these "bad ticks"? Do you mean to say that the volume from our feed isn't reliable at times? hmm how are we expect to make any reliable analysis then if we don't have a reliable source I have seen extraordinary volume spikes, like last Friday about 15 minutes or so before the close. I wonder if these are a true representation...

[CandleWhisperer 10]

I don't want to revisit this in the VSA thread since it was arguably OT in the first place, but the chart I attached to post 209 over there has been corrected, below. The "bad tick" at 1400 (highlighted in green) has been removed. The volume during the "rally" off S is now more reasonable.

 

 

LOL. DB when I posted your pick in the real VSA thread, before it was closed, I said we had an up bar closing in the middle on Utlra High Volume: a transfer of ownership type bar signaling weakness.

 

Your revised pic shows an up bar closing in the middle on volume less than the previous two bars- no demand and thus weakness.

 

net net.

[DbPhoenix 42]

Yes, it's taken me a while to get around to fixing it. I would have preferred adding the edited chart to our discussion, but by then the thread was closed (and I wouldn't have been able to edit the response anyway).

 

Not that there's been a huge amount of interest in this chart. I posted it mostly as a matter of housekeeping.

[email 10]

Hello To all,

 

I am just trying to get something cleared in my head and making sure I am on the right track;

I look at the Bid Volume/ Ask Volume on a one minute chart ( I am going to start looking at the 5 second, thanks DB), if I see a down bar and a line three times bigger (Green, way more positive volume) do I assume that allot of professionals are buying on the way down and that the fall is being slowed down.

 

Many Thanks to all,

email

[DbPhoenix 42]

I posted this chart yesterday to provide context for the movements that the market has been making over the past few weeks, though I had not extended the demand and supply lines all the way to the right edge.

 

 

However, the zone can easily be expanded to include the band just above. Whether we actually make it that far is to be seen. But it is certainly within the realm of possibility. In that event, the midpoint will of course be raised.

 

 

I also posted this chart as a response to a question about where to locate S/R. I look, in order of importance, to zones, then levels, then points. It's interesting that price rallied to 1760 overnight.

 

 

The relevance to RT trading, of course, is that one must first find those areas or levels where traders are most likely to get excited and perhaps prompt a reversal or continuation. Today that area would appear to be 1750/60.

Edited March 5, 2008 by DbPhoenix

[zeon 10]

I also posted this chart as a response to a question about where to locate S/R. I look, in order of importance, to zones, then levels, then points. It's interesting that price rallied to 1760 overnight.

 

 

I'm trying to understand a bit better all those lines drawn on your chart, but they are still confusing. I thought I had a reasonable idea to identify support and resistance, but now I'm not so sure anymore. I only trade the ES, but I had a look at the NDX recently because all of your charts are that market and I'd like to understand the concepts better.

 

So here is my question: if I look at last couple of weeks it seems 1765-1770 is more important. That level was "tested" (hope I'm using the right terms here) twice on the 25th and another time on the 26th where it started to rally big time. Then on the 29th it seemed to find support there, but then fell through.

 

Then today (just now) we seemed to find resistance around 1765, which coincides with the earlier levels.

 

The relevance to RT trading, of course, is that one must first find those areas or levels where traders are most likely to get excited and perhaps prompt a reversal or continuation. Today that area would appear to be 1750/60.

 

That's another question I have. Last couple of days you said something in the line of "today that seems to be...". So this is confusing me, how can you make real time decisions if price is finding support at different levels each time? 1750-1760 is 10 points wide, and although I haven't really a good idea about how wide a stop should be no the NDX, this seems like an awful wide zone to trade from. 5 points on the ES is already wide for my risk threshold:\

 

Btw, how do you manage to show those images inline in the post?

Edited March 5, 2008 by zeon

[DbPhoenix 42]

I'm trying to understand a bit better all those lines drawn on your chart, but they are still confusing. I thought I had a reasonable idea to identify support and resistance, but now I'm not so sure anymore. I only trade the ES, but I had a look at the NDX recently because all of your charts are that market and I'd like to understand the concepts better.

 

So here is my question: if I look at last couple of weeks it seems 1765-1770 is more important. That level was "tested" (hope I'm using the right terms here) twice on the 25th and another time on the 26th where it started to rally big time. Then on the 29th it seemed to find support there, but then fell through.

 

Then today (just now) we seemed to find resistance around 1765, which coincides with the earlier levels.

 

As I explain in the "Springboard" post to my Blog, the "zone" is found by determining the greatest quantity of trading activity over the period under consideration. It's general, forming what is more or less a bell curve. One can narrow this down to get an equilibrium level, or widen it to find the limits at that time for support and resistance. The entire zone, however, provides its own support or resistance once price leaves it.

 

Within the outer edges of this zone, there will be "levels" (see above chart) where tests have occurred. These aren't as important as the zone in its entirety because they don't represent much trading activity. The more these levels are tested, of course, the more trading activity. The more trading activity, the more potential S/R. What matters is not that they guarantee turning points but that you're aware of them before trading activity reaches them again.

 

 

That's another question I have. Last couple of days you said something in the line of "today that seems to be...". So this is confusing me, how can you make real time decisions if price is finding support at different levels each time? 1750-1760 is 10 points wide, and although I haven't really a good idea about how wide a stop should be no the NDX, this seems like an awful wide zone to trade from. 5 points on the ES is already wide for my risk threshold:\

 

Locate the most likely S/R zones and levels ahead of time, then study what happens to the trading activity if and when the zones or levels are reached. These zones and levels and points are not guaranteed. That's the purpose of trading RT rather than putting in your orders and going to the movies.

 

Btw, how do you manage to show those images inline in the post?

 

Use the image icon in your toolbar and supply the url of the image you've uploaded.

[DbPhoenix 42]

Zeroing in further . . .

 

 

to a daily EOD chart

 

[DbPhoenix 42]

This particular chart is not derived directly from the two charts above it that are included in the same post (#21). Its purpose is to show three types of S/R, not to illustrate a "zoom in".

 

At the time I drew it, the bulk of the trading activity was between 1760 and 1800, within the hinge, with the midpoint, or greatest number of trades, at 1780. Now, however, with so much trading activity between 1760 and 1710 over the past few days, the volume is more evenly spread across a wider zone.