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[DbPhoenix 42]

For those who are following daily charts, the following may be helpful. The short and long are extrapolations of last week's charts.

 

Given what's been posted elsewhere recently about trading price action being "nonsense", these charts have more than one purpose, including the four years' worth posted in the Foresight thread.

 

Note that it is necessary to place the entry more than a point away from the trough or the peak of the RET unless one can afford a fairly wide stop.

[DbPhoenix 42]

For those who read only the most recent post, I should point out that if one had followed tomerok's tactics last Monday, he'd be 80pts in profit. See also the chart I posted on the 25th, post 567.

[DbPhoenix 42]

This is how the next morning looked from just before the open. If you can, read the chart from left to right, not in hindsight from right to left. And I'll note here that these charts are presented in their entirety because posting them section by section in order to prevent you from seeing "what happened next" would mean one hell of a lot of charts. And a lot of extra work for me. Which would be largely pointless since anyone who wanted to could just flip ahead to see how it all turned out. If you'd rather not know, just cover the chart with a sheet of paper and uncover it bar by bar. If you can. Betcha can't

 

You aren't going to learn how to trade price solely by studying these charts. In order to learn properly without jumping head first into real-time trading, you're going to have to find a charting program that provides "replay", which nowadays is not difficult to do. This will enable you to run old charts in whatever bar or line interval you like as fast as you like, though I suggest that you not run them faster than 2x. Otherwise you miss out on the boredom of it, which is something you'll have to deal with when you begin trading real time. By using replay, you won't know what happens next. All you've got is the "current" bar or line segment and what preceded it, a much more realistic simulation than what is presented here.

 

So.

 

 

 

 

The first step, then, is to bring forward the most pertinent support and resistance levels, in this case the resistance level at the top of the trading range shown in the previous post. And just in case you're wondering if all of this is worth the trouble (Oh no, not another thread on yet another approach), the win rate (the percentage of trades that were winners) for this series of charts was 79%. The profit percentage (the percentage of all points traded that were profitable) was 90%.

 

 

 

 

As noted earlier, the position of price in re the trading range in place prior to the open left the trader with both potential options of long or short. That it was at the top of the trading range (TR) meant that the Line Of Least Resistance (LOLR) was down, back to the bottom of the range (this is what price does in TRs, until it gets tired of it). On the other hand, the fact that it was behind the ES, the Nasdaq, and the S&P suggested that it might just take off and finally try to catch up.

 

At the open, price makes its choice. The trader who is convinced that the market is out to get him won't trust this choice, looking instead for all sorts of ulterior motives. This is a waste of time and energy. Trade what you see, not what you think (if I remember correctly, this phrase was coined by Joe Ross years ago, but it's been adopted so freely and circulated so widely, nobody remembers that, and Ross seems not to care one way or the other; in any case, it's an excellent adage and should be taped to the monitor).

 

Price drops immediately. What one thinks about this is beside the point. And there's no time to think about it anyway. The trader instead looks for the first retracement (RET) to go short. He doesn't have to. He could just jump in. But this tactic will result in a lot of small losses and breakeven trades. A lot. So he waits for that pause of indecision and sneaks his order in before the rabble sees what's going on and rushes in.

 

The short itself is placed slightly away from the crest of the RET. This is done to avoid the confusion that often takes place when price is about to change direction and also to force the market to come to him. If he's wrong and the market takes off in the opposite direction, his trade is never triggered and he suffers no loss (jumping into the opposite side of the trade is another matter, addressed later). A point is about right, though at least three ticks. Or discover the best distance for yourself through your own testing.

 

 

 

 

It is immediately clear, however, that buyers have something else in mind since they appear to reject 2811 soundly. But these things can be tricky, and price doesn't always take what appears to be the obvious course. So as quickly as possible the trader draws, mentally or physically, a "supply" line or "resistance" line (not to be confused with a lateral resistance level) since it is a breach of this line that will tell him to exit and re-assess.

 

 

 

 

Traders then sit around for three minutes examining their manicures before buyers decide they're heading north, and they do so. Decisively. Breaking the line. Which means you exit your short. Without even thinking about it. You just do it. No hope, no fear. Just do it. For a small loss. A tiny loss. This leaves you free and clear to look for a trade on the opposite side. Which means looking for the first RET on the buyside. The daylight side. This occurs three minutes later, and you go long in the same way as you went short.

 

 

 

This looks pretty good, except that you note that price is approaching the resistance level created by that TR from previous weeks (see first post). Sellers might take a stand here, so you draw a "demand" line or "support" line (not to be confused with a lateral support level), either mentally or physically, to remind you when and where to exit your long if necessary.

 

 

 

 

And, lo and behold, price finds R (resistance) just where you though it might and breaks your line. And you're out. Again. At breakeven or with another small loss. A tiny loss. A loss not worth thinking about. Not even a depressing loss. It's only two losses in a row, after all. Man up.

 

Now you're faced with some interesting choices, and these do require a little thought. Not much. But some.

 

The first RET technically is not an opportunity to enter short since it occurs just a hair inside your support/demand line. But given the undeniable rejection of that resistance level and given that this little RET also represents a failed effort to try again at that higher high, you may just decide to take it, being prepared and more than willing to exit immediately if everything goes wrong and price makes a higher high anyway. And even though the RET occurs on the upside of your line, the entry will be made below it. This approaches rationalization, but it's a legitimate consideration. All of this, of course, takes seconds to consider when you're trading it in real time.

 

If, on the other hand, you're not that aggressive, you can wait for the next RET. You won't make as much, but it is a bit safer, and perhaps you need that. If even that isn't safe enough, you can choose to wait further, remembering that there may not be another RET and you will have missed the opportunity to be in the short at all (generally speaking, the longer you wait, the more likely you are to be stopped out, assuming you get filled at all).

 

 

 

 

And now we separate the traders from the hobbyists.

 

By now you've drawn your supply/resistance line and it gets broken just 5m later. If you took the first RET, you may be intrigued, but if you took the second one, you're underwater and may not be thinking clearly.

 

But if you can sit tight for a moment, just a moment, you'll see that the first break barely qualifies as one. You may after all have drawn your line -- if you actually drew it -- a bit off. So you wait, and the second bar barely registers. So you wait a bit longer, and though the third bar most definitely is outside your line and appears to be heading north, it can't make a higher high than the bar two previous. So you decide to take the chance, being the proficient price action reader that you are, and continue to wait it out. And it is at that point that price drops back below your supply/resistance line.

 

 

 

 

Now we have a separate issue. If you waited this long to enter, your chances of being stopped out are that much greater, as mentioned above. In this case, however, you get lucky. Sort of. Because if you enter even a short distance below either of the RETs, you'll be entering at 2812. And unless you're lucky, your fill is going to be terrible. If you enter with the usual stoplimit order, you likely won't get filled at all. If you're crazy enough to enter with a market order, God help you. All of which are more reasons to enter your short as early as possible, in this case no later than the second opportunity ten bars back.

 

Now. Unless you're plagued with hope, which in areas outside trading is usually a plus but in trading is a curse, you know that parabolic moves not only don't last but also reverse quickly. Even though a supply/resistance line is drawn here, it's superfluous. If you're riding this, you know full well what's happening to you. But if you can set aside the glee for a moment, you can take full advantage of this move and not get stuck dithering about what you ought to do about it, like everybody else.

 

Once this line is broken, you're out. Even if you wait until the following bar, you still have captured as much of the move as one can reasonably expect.

 

 

 

 

So now what?

 

There is a rally, of course, what Wyckoff calls a "technical" rally, meaning that it isn't prompted by mobs of people just desperate to own whatever it is but rather by short-covering. And since short-covering isn't a real "buy", i.e., something that you're going to possess after you've bought it, the rally doesn't last. But, for the time being, you don't know how far it's going to go, so you have to trade it as if it were real, even though it isn't, if that makes sense. If it doesn't, don't think about it for now.

 

It does last long enough for you to draw a support/demand line, which is broken six minutes later. The routine is to wait for a RET after this break so that you can re-enter your short. However, the short is never triggered because price decides instead to resume its trip north. Technically you shouldn't go long here because your support/demand line was broken. But the short side was rejected. So you decide to go ahead and chance the long anyway.

 

 

 

 

Unfortunately the long doesn't get very far. How come?

 

It is an odd but unusually reliable maxim (as opposed to law) that price that can't retrace at least 50% of the immediately preceding rally or decline shows weakness, or strength, depending on the direction. Here, for example, price just barely retraces 50% of the preceding decline. This suggest weakness. And sure enough . . .

 

 

 

 

But lest this go on too long (too late), let's wrap this up since by now you have at least a general acquaintanceship with the routine.

 

The long, of course, is exited. Since price made a higher high after the long was initiated, the support/demand line can be "fanned" in order to give a better approximation of where support lies. It doesn't do any good in this case due to the 50% barrier, but it's a habit worth acquiring regardless.

 

 

 

 

There is no doubt, however, that there is no more support, at least for the time being, and even though the RET is above the line, the short entry, if taken, is below. Again, this may seem like quibbling, but our ducks don't always line up in a nice row, and chances can sometimes be justified.

 

If taken, the short is exited shortly thereafter and you look for a long entry. Given that there is no RET until price works its way all the way back to the 50% barrier, one could decide to pass. However, there's no way of knowing whether or not price will bust through this level. If it does, you're long while everybody else is scrambling. On the other hand, you can wait for the breakthrough, if it happens, then take the next RET up. Trader's choice.

 

Whether one takes it or not is of course of no concern to the market, and a short opportunity occurs almost instantly, another case of the RET taking place above the line while the entry takes place below. There is also the matter of price by now having formed a trading range, narrow though it may be. With a trading range, one rarely has the luxury of waiting for RETs because even if they occur they rarely do so until price is nearly at the opposite side of the range, and by that time one has to consider making a U-turn and heading off into the opposite direction.

 

Therefore, in a case like this, particularly when price meets resistance at exactly the same level, one can justify jumping in at the first sign of rejection and riding price down to the bottom of the range.

 

Here, though, it pays not to exit too abruptly when the bottom of the range is reached. A long at the bottom would not be triggered if set up as usual, and that signal would prompt the quick-thinking trader to re-enter the short. And if he misses it, there's another opportunity four minutes later.

 

Price eventually reached 2972 before breaking the supply/resistance line.

Edited May 3, 2013 by DbPhoenix

[DbPhoenix 42]

The following charts led up to this point:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We are now within a hair of the top of the trend channel. Time to start looking for weakness:

 

 

 

 

Update 5/13: Price stalled at the top of the trend channel for several days but is now driving ahead. Trade now worth in excess of 200pts.

 

 

.

Edited May 13, 2013 by DbPhoenix

[DbPhoenix 42]

Re the above post, price continues to move higher. The sideways move at the top of the trend channel enables us to fan the demand line which slightly alters the exit trigger.

 

The attached chart illustrates all this, along with the entry point (in green). Since those who are interested in this know where to exit, no further updates will be made.

[Niko 10]

Db, what an excellent addition to the SLAAMT collection. It has all the questions tha a newbie doesnt know how to ask and the way to start the observation phase with a purpose.

 

Thanks

[Niko 10]

In the Apendix E PDF, Db talks about "The dynamics of fear"

 

"...dynamics of fear (fear of making the wrong decision, fear of losing money, fear of missing

out, fear of holding too long, fear of not holding long enough, fear of being tricked, fear of

being trapped, fear of being blind-sided, etc, etc, etc)..."

 

Regarding this, I would like to start a discussion about the way fear shows itself in the charts, as I realized there is not really much understanding (at least from my side) about how to read fear in RT.

 

If there is no reply, I will assume I am the only one interested and therefore move on on my own.

 

For starters, today is as good as any day to start.

 

What were traders afraid of during the first 90 mins of trading?. What motivated them to avoid committing and paying higher prices or receiving lower prices, what happened at 10:15 that prompted that strong up wave, was it bears afraid of being in the wrong side, was it bulls afraid of missing out?

[BlueHorseshoe 10]

In the Apendix E PDF, Db talks about "The dynamics of fear"

 

"...dynamics of fear (fear of making the wrong decision, fear of losing money, fear of missing

out, fear of holding too long, fear of not holding long enough, fear of being tricked, fear of

being trapped, fear of being blind-sided, etc, etc, etc)..."

 

Regarding this, I would like to start a discussion about the way fear shows itself in the charts, as I realized there is not really much understanding (at least from my side) about how to read fear in RT.

 

If there is no reply, I will assume I am the only one interested and therefore move on on my own.

 

For starters, today is as good as any day to start.

 

What were traders afraid of during the first 90 mins of trading?. What motivated them to avoid committing and paying higher prices or receiving lower prices, what happened at 10:15 that prompted that strong up wave, was it bears afraid of being in the wrong side, was it bulls afraid of missing out?

 

Hi Niko,

 

You seem to be talking about two different types of fear: fear of missing out (greed) and fear of losing money and being wrong. Not sure how helpful the distinction is, but they may result in different behaviour?

 

In the extreme instances, poor traders may chase a market that is running away without them, and run away from a market that is moving adversely against them (the old "I'll just move my stop and give it another couple of ticks" routine).

 

As soon as you break volume down into trades at bid and ask, you can see a glimpse of what might be going on there (both these types of traders are likely to use market orders to enter and exit), but you can never be certain whether those trades are mostly establishing or liquidating positions.

 

Hope some of those thoughts are helpful to you.

 

Regards,

 

BlueHorseshoe

[Niko 10]

Hi Niko,

 

You seem to be talking about two different types of fear: fear of missing out (greed) and fear of losing money and being wrong. Not sure how helpful the distinction is, but they may result in different behaviour?

 

In the extreme instances, poor traders may chase a market that is running away without them, and run away from a market that is moving adversely against them (the old "I'll just move my stop and give it another couple of ticks" routine).

 

As soon as you break volume down into trades at bid and ask, you can see a glimpse of what might be going on there (both these types of traders are likely to use market orders to enter and exit), but you can never be certain whether those trades are mostly establishing or liquidating positions.

 

Hope some of those thoughts are helpful to you.

 

Regards,

 

BlueHorseshoe

 

First of all, thanks for participating. What I meant was that the fact why the market (NQ) did not go anywhere today could be explained via fear.

 

I mean, those who are betting on price to fall (bears) did not commit (sold) more and did not drive prices down. The question is then, why, what were they afraid of. They might be waiting for FOMC and they are not going to commit their funds until they have that information or afraid of something else, I am not sure what it was therefore the post.

 

In the other hand, those who are betting on price to rise (bulls) did not commit either, at least until 11:00, what are they afraid of, why dont they commit and join the party.

 

At 10:15 one can see a strong move to the upside when prices reach 35, what was that, why shorts just covered so fast, why buyers rushed in and paid the ask. What were they afraid of.

 

That is what the post is about.

[fxpaulm 10]

I have a question about the SLA and parabolic moves. I've attached a chart and would like to know if anyone sees something that I missed. Also, would it be wise to try and snug a line on that move up from 3/27 starting around 101.2 to a little over 104. I've drawn how it would look with a black dotted line.

[fxpaulm 10]

I have a question about the SLA and parabolic moves. I've attached a chart and would like to know if anyone sees something that I missed. Also, would it be wise to try and snug a line on that move up from 3/27 starting around 101.2 to a little over 104. I've drawn how it would look with a black dotted line.

[Niko 10]

I have a question about the SLA and parabolic moves. I've attached a chart and would like to know if anyone sees something that I missed. Also, would it be wise to try and snug a line on that move up from 3/27 starting around 101.2 to a little over 104. I've drawn how it would look with a black dotted line.

 

Remember that you need a LL or HH to fan a line. Also, did you trace these in real time or over the chart in hindsight ?

[Niko 10]

I have a question about the SLA and parabolic moves. I've attached a chart and would like to know if anyone sees something that I missed. Also, would it be wise to try and snug a line on that move up from 3/27 starting around 101.2 to a little over 104. I've drawn how it would look with a black dotted line.

 

Remember that you need a LL or HH to fan a line. Also, did you trace these in real time or over the chart in hindsight ?

[fxpaulm 10]

That helps, I lost sight of the HH/HL or LH/LL. Most of those lines were done in RT, I was just having trouble with that move, but I see it now. The last green line would be the valid signal to exit the long. Don't see any way that one could of seen the precipitous drop, but I'm still taking it all in.

[fxpaulm 10]

That helps, I lost sight of the HH/HL or LH/LL. Most of those lines were done in RT, I was just having trouble with that move, but I see it now. The last green line would be the valid signal to exit the long. Don't see any way that one could of seen the precipitous drop, but I'm still taking it all in.

[green.green 10]

I'm very new to this approach. I took at look at USD/JPY for the first time in over a year. I think the weekly says a lot about where you are right now. This is all in hindsight obviously. I hope this helps.

 

EDIT - charts didn't post at first.

Edited April 10, 2014 by green.green

[green.green 10]

I'm very new to this approach. I took at look at USD/JPY for the first time in over a year. I think the weekly says a lot about where you are right now. This is all in hindsight obviously. I hope this helps.

 

EDIT - charts didn't post at first.

[Niko 10]

That helps, I lost sight of the HH/HL or LH/LL. Most of those lines were done in RT, I was just having trouble with that move, but I see it now. The last green line would be the valid signal to exit the long. Don't see any way that one could of seen the precipitous drop, but I'm still taking it all in.

 

In order to learn SLA and have a discussion with the rest of the people learning it why don you give NQ a try.

 

I dont really have much more to say about USDJPY.

[Niko 10]

That helps, I lost sight of the HH/HL or LH/LL. Most of those lines were done in RT, I was just having trouble with that move, but I see it now. The last green line would be the valid signal to exit the long. Don't see any way that one could of seen the precipitous drop, but I'm still taking it all in.

 

In order to learn SLA and have a discussion with the rest of the people learning it why don you give NQ a try.

 

I dont really have much more to say about USDJPY.

[fxpaulm 10]

I've been in the fx market for +15 years and enjoyed most of it. I strongly believe that these concepts are applicable to any market, including forex. Now I know that most everyone here does not trade it, but the same concepts apply regardless of the instrument being traded or the timeframe one chooses to trade.

 

That being said, if I have questions it is about the concept, not a particular market. The Law of Supply and Demand is very much alive in the forex market and I love the simplicity of the SLA and AMT. Thanks for the information and I look forward to learning more and honing my price reading skills.

[fxpaulm 10]

I've been in the fx market for +15 years and enjoyed most of it. I strongly believe that these concepts are applicable to any market, including forex. Now I know that most everyone here does not trade it, but the same concepts apply regardless of the instrument being traded or the timeframe one chooses to trade.

 

That being said, if I have questions it is about the concept, not a particular market. The Law of Supply and Demand is very much alive in the forex market and I love the simplicity of the SLA and AMT. Thanks for the information and I look forward to learning more and honing my price reading skills.

[green.green 10]

Test - seeing if I can post yet...

[Niko 10]

I've been in the fx market for +15 years and enjoyed most of it. I strongly believe that these concepts are applicable to any market, including forex. Now I know that most everyone here does not trade it, but the same concepts apply regardless of the instrument being traded or the timeframe one chooses to trade.

 

That being said, if I have questions it is about the concept, not a particular market. The Law of Supply and Demand is very much alive in the forex market and I love the simplicity of the SLA and AMT. Thanks for the information and I look forward to learning more and honing my price reading skills.

 

Ok, having read what you just posted, and what you said in your previous post, all I can say is that the plunge could have been traded via SLA, if you consider that the last poke above LSH was just a poke, then it could count as a RET (a failure more precisely), but that is the kind of thing you have to define via backtesting, and as I have not done backtesting to USDJPY I didnt think it was responsible to say such a thing before (information risk )

[Niko 10]

I've been in the fx market for +15 years and enjoyed most of it. I strongly believe that these concepts are applicable to any market, including forex. Now I know that most everyone here does not trade it, but the same concepts apply regardless of the instrument being traded or the timeframe one chooses to trade.

 

That being said, if I have questions it is about the concept, not a particular market. The Law of Supply and Demand is very much alive in the forex market and I love the simplicity of the SLA and AMT. Thanks for the information and I look forward to learning more and honing my price reading skills.

 

Ok, having read what you just posted, and what you said in your previous post, all I can say is that the plunge could have been traded via SLA, if you consider that the last poke above LSH was just a poke, then it could count as a RET (a failure more precisely), but that is the kind of thing you have to define via backtesting, and as I have not done backtesting to USDJPY I didnt think it was responsible to say such a thing before (information risk )

[fxpaulm 10]

That was not something that I saw, I believe that the best entry came from the last green line break and then the slight retrace to 103.38. That would still lead to over a 100 pip profit.

 

I will have to look deeper to see what you saw with the LSH, but I agree that the SLA worked great, really should not be too surprised though.