Trading The Wyckoff Way

[40draws 10]

Today was the first day that my account balance is less than my base equity at the close. I had my worst intraday drawdown dues to three losses in a row for a total of -$494 even with commissions and fees. My fourth trade brought reduced the drawdown to $-39 even after commissions and fees.

 

I finished the day -39.00.

 

The good: I maintained my stop loss commitment, and in fact my three losses of $494 total means that my average loss remains at the $164/losing trade level that I managed during my first two weeks of trading. Also, I had no problem taking the fourth set up even after having lost on the first three.

 

The bad: The three losses can largely be attributed to the market in general having fallen into a strange choppy funk preceding the release of the Fed's Beige book. Why is that bad? Well, I do not follow news, and I did not know there was this "Beige book" announcement that would paralyze price action for the early afternoon. Had I known that the market behaves this way preceding Fed announcements, I would probably have refrained from trading until after the news was out. That may or may not be a good idea going forward. I will say that my profitable trade occurred after the news, and my three losses occurred prior to the news. Each time, I would enter long, and a few minutes later price would drift down and catch my stop.

 

The Ugly: Soon after the open, I identified a possible set up that I intened to trade if the price of this stock would move up out of this hinge shown in the chart below:

 

 

I then had to take a call from a customer on my cell phone. If you have been reading my posts, then you know that I chart and trade from my cell phone. After I ended the call, I flipped back to the chart of the stock I intended to trade, and I saw this:

 

 

"Wow," I thought, that thing really came apart quickly. I can't even see what I thought was a set up any longer."

 

Well, sometime later (as in hours) I went back to my list. That is when I realize that those two charts were of two different stocks with similar symbols. Sort of like my "Techniques in Tape Reading" and "Studies in Tape Reading" confusion from last night.

 

Here is what the first stock, the one I had intended to trade, did during the remainder of the session:

 

 

I noticed there was a thread called wouldashouldacoulda or something like that. This is definitely mine. And not the only one from today (I should have known what news was expected and investigated how the market might act before, I should have checked to make sure I had loaded the correct symbol on my chart). I count myself very fortunate that I am only down $39 given my carelesness today on multiple fronts. I need to amend my to do list tonight.

[DbPhoenix 42]

I am only on section 9 of Db's book, but I will say that it has been full of "A Ha" moments. It is like reading Wyckoff, but between the lines. There is probably a level of experience at which someone would get a lot more from Wyckoff than I am able to get starting from where I am (hence my reading and re-reading and re-reading him again).

 

Yes and no. Someone with more experience might get more out of it starting from where you are, but that doesn't mean that they'll get all there is to be got. Nowhere near. I've lost count of the number of times I've re-read Section 7. And I've read all the sections I've included in Wyckoff Lite far more than once. There are many layers in this material, which is why when somebody new tells me that he's read all the threads and the course in a couple of weeks and he's ready to go, I know that he's lying, either to me or to himself. This becomes obvious by the questions he asks. And he'll be asking a lot.

 

So there is a certain amount of reading and study that has to take place before one is ready to begin, but it never really stops. Just the other day I was reviewing a section of Part 2 to help me make better opening trades.

 

What is perhaps most difficult to put across is the difference between observing price movement in order to understand it and observing price movement in order to find an entry point for a trade. Few beginners get this. Actually, few traders get it. So they'll never understand it. And they'll never understand trading by price action. Fortunately, this is not my problem.

 

Db

[DbPhoenix 42]

I noticed there was a thread called wouldashouldacoulda or something like that. This is definitely mine. And not the only one from today (I should have known what news was expected and investigated how the market might act before, I should have checked to make sure I had loaded the correct symbol on my chart). I count myself very fortunate that I am only down $39 given my carelesness today on multiple fronts. I need to amend my to do list tonight.

 

I disagree that your failure to check the news calendar -- or even to pay any attention to it -- was the reason for your poor performance. I wasn't even aware of the impending announcement until I read of it in your post and my trading went just fine, though I was bored to death by 1400EST. You may have chosen the wrong stocks. You may have chosen the wrong setups. You may have entered wrong. Or managed the trades wrong. Your focus was certainly not what it should have been. But instead of concerning yourself with news and the anticipation of news and the results of news, which will only make things worse, I suggest that you tighten things up. If you can't focus on your entries, don't make them. If you can't focus on your trades, get out of them. Otherwise, you will never reach your objectives and you'll end up with the choice of quitting or starting over. Slow down. Be deliberate. Be focused.

You need never read anything on the financial page of your newspaper except the table of stock prices and volumes.

 

You need pay no attention to the news, earnings, dividend rates or statements of corporations.

 

You need never study the financial or the business situation.

 

You need not understand railroad or industrial statistics, the money market, the crop situation, the bank statements, foreign trade or the political situation.

 

You can absolutely ignore all the thousands of tips, rumors, reports and especially the so-called inside information that flood Wall Street.

 

You can discard all of these completely and finally.

 

UNLESS YOU DO THIS YOU WILL BE UNABLE TO GET THE BEST RESULTS FROM YOUR MARKET OPERATIONS.

Db

[40draws 10]

I disagree that your failure to check the news calendar -- or even to pay any attention to it -- was the reason for your poor performance. I wasn't even aware of the impending announcement until I read of it in your post and my trading went just fine, though I was bored to death by 1400EST. Db

 

Gotcha! That has been my gut feeling about this from the beginning. I have read a few articles about day trading the news, and it hasn't struck me as a plannable way to trade.

 

Your focus was certainly not what it should have been... Slow down. Be deliberate. Be focused. Db

 

It was the same stock, over and over and over and on the fourth over I was rewarded. The fourth entry was the best of the four, and not because it was the profitable entry. Rather, it was the profitable entry because it was the best. If I were to be completely honest, and I see no reason not to be honest, I have to say that I was a bit miffed at having screwed up on that early opportunty due to having clicked the wrong symbol when bringing up a chart, that I was a bit too eager to make up for it.

 

My three losing entries were not so much bad, as they were early, and thus a departure from my usual entry style. As such, I should have entered once, with a more liberal stop, and waited. If I had used a 25 cent stop on my first purchase, I would have not been stopped out prior to the advance, and the trade would have put me ahead by $540 rather than finishing down -$39. In other words, my three entries ate up $494 in losses, equal to a 50 cent stop on my initial purchase! I need to come up with an adjusted loss cut method before I try adjusting my entry method.

[DbPhoenix 42]

It was the same stock, over and over and over and on the fourth over I was rewarded. The fourth entry was the best of the four, and not because it was the profitable entry. Rather, it was the profitable entry because it was the best.

 

You may want to add Livermore to your reading list:

A man can't spend years

at one thing and not acquire a habitual attitude towards it quite

unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets. The public has the dilettante's point of view toward his own effort. The ego obtrudes itself unduly and the thinking therefore is not deep or exhaustive. The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to.

My three losing entries were not so much bad, as they were early, and thus a departure from my usual entry style. As such, I should have entered once, with a more liberal stop, and waited. If I had used a 25 cent stop on my first purchase, I would have not been stopped out prior to the advance, and the trade would have put me ahead by $540 rather than finishing down -$39.

 

If you want, post charts of your first three trades and I might be able to make some suggestions.

 

Db

[goodoboy 10]

If there is something I want to do, I do it. I have devoted all time not committed to my business or my family to building a trading business. Its what I want to do, so I am doing it.

 

I am just about done with trading books. I have what I need. I am re-reading Wyckoff's Studies in Tape Reading this week in conjunction with Db's eBook, which I just got on Sunday. I liked Graifer's enough to keep it for another look down the road. I find myself thumbing back through Neill often.

 

I am only on section 9 of Db's book, but I will say that it has been full of "A Ha" moments. It is like reading Wyckoff, but between the lines. There is probably a level of experience at which someone would get a lot more from Wyckoff than I am able to get starting from where I am (hence my reading and re-reading and re-reading him again).

 

Db's book is a kind of learning curve accelerator for me in that it makes more clear and concrete some of the more difficult to discern elements of Wyckoff (Wyckoff often implies much more than he makes explicit, which is why I find myself reading and re-reading him).. I will get through a first read of it this week, but I am making it a slow first read, and it will really be a study guide going forward.

 

If you want to read more, all you have to do is pick up a book, open the cover, and turn the page.

 

Speaking of learning curve, today was a doozy for me. I'll cover it in another post.

 

Thanks 40draws, I also plan to buy Db books as well. I read the Wycoff threads. Its actually fun reading this trading methodology of only trading price.

[goodoboy 10]

Had I known that the market behaves this way preceding Fed announcements, I would probably have refrained from trading until after the news was out. That may or may not be a good idea going forward. I will say that my profitable trade occurred after the news, and my three losses occurred prior to the news. Each time, I would enter long, and a few minutes later price would drift down and catch my stop.

 

 

Hello 40draws

 

I use Forex Factory to keep me updated on times of major news releases. The red means that this new release will move the market based on the outcome. I do not trade the news, just don't want to be stuck putting on a trade at 7:30 and Non farm payroll is about to be released.

 

I too, prevent trade before major news announcement and I have started to dis concern myself with a news websites, rumors, all that economic data for now, it only slows down the learning in front of me and messes with the emotions thinking. At least for me it does.

Edited August 30, 2012 by goodoboy

[DbPhoenix 42]

I posted this elsewhere this morning and ordinarily would just leave it there. But it was such a near-textbook (if there were a textbook) example of Wyckoff "setups" that I'm reproducing it here, with a chart. The annotations are the "real-time" posts that were made.

 

While others were in and out, short and long, all the Wyckoff trader had to do was follow price.

 

 

 

 

 

 

Context:

 

 

 

 

 

 

.

[goodoboy 10]

I posted this elsewhere this morning and ordinarily would just leave it there. But it was such a near-textbook (if there were a textbook) example of Wyckoff "setups" that I'm reproducing it here, with a chart. The annotations are the "real-time" posts that were made.

 

While others were in and out, short and long, all the Wyckoff trader had to do was follow price.

 

 

 

 

 

 

Context:

 

 

 

 

 

 

.

 

Thanks Db. Good to see. Can you post one on the ES if you feel like or just have free time?

[DbPhoenix 42]

Thanks Db. Good to see. Can you post one on the ES if you feel like or just have free time?

 

No. I've tried recently since so many people are inexplicably interested in it, or claim to be. But it's far more difficult to trade than the NQ, not nearly as profitable as the NQ, and it is stultifyingly boring. Those who love it probably also love lutefisk. And haggis. And I prefer to help make things easier for beginners than to feed their masochistic desires to trade what the "big boys" trade (who do they think is trading the NQ?).

 

But thanks for asking.

 

Db

[goodoboy 10]

But it's far more difficult to trade than the NQ, not nearly as profitable as the NQ, and it is stultifyingly boring. Those who love it probably also love lutefisk. And haggis. And I prefer to help make things easier for beginners than to feed their masochistic desires to trade what the "big boys" trade (who do they think is trading the NQ?).

 

But thanks for asking.

 

Db

 

Thanks Db, no problem at all. Good to know, as you stated before the NQ is a more profitable and easier to trade. Thats all I needed to know. This ES is boring and I love easy, so I put NQ on my screen so I can compare them. But your analysis on NQ did show a larger range. While the ES is just stuck in the smallest range giving the headache.

 

lol, never heard of lutefisk or haggis, but it sounds nasty.

[DbPhoenix 42]

But your analysis on NQ did show a larger range. While the ES is just stuck in the smallest range giving the headache.

 

Whatever range one sees on any given day must be adjusted due to the differences in tick size.

 

However, tick size isn't all there is to it. One must also consider how much overlap there is among bars, how quickly and decisively price moves out of congestions, how easily stops are tripped if the beginner is too aggressive/fearful, how likely stops are to be unexpectedly tripped if the beginner loses his focus, what the MAEs are on RETS, etc.

 

All told, I find the NQ much easier for beginners to handle.

 

Db

[DbPhoenix 42]

From my PV Practicum:

 

In order to profit from trading price and volume alone, one must forget nearly all of what he thought was true, and that presents an insurmountable obstacle to a great many people.

 

If, for example, one insists on focusing on how he can make it "work" with mathematically-derived indicators (stochastics, MACD, CCI, OBV, blah blah blah), then he blocks the process through which he would otherwise understand it and profit from it.

 

If he focuses on where and how to make mechanical entries and exits rather than understand the dynamics of demand and supply, then he blocks the process through which he would otherwise understand it and profit from it.

 

If he focuses on setups and patterns as gimmicks rather than as manifestations of changes in the balance of buying and selling pressure, then he blocks the process through which he would otherwise understand it and profit from it.

Hire yourself to do a job

 

The job is just to sit there and watch the bars form, to watch the buying and selling waves, the pokes and prods and feelers cast by buyers and sellers looking for a trade, not to create or test a strategy, not to make money, not to learn the "secrets" or the "tricks", just to develop a sensitivity to buying and selling pressure. No indicators, no MAs, no nothing but price bars/points and volume bars.

 

 

Make notes of what you see and what you think you see

 

Don't rush to draw conclusions. Throw away your crutches and focus on what the auction market is really all about. The market is not out to get you. The market is not out to trick you. Buying pressure is buying pressure. It lasts as long as it lasts according to who wants what. Ditto for selling pressure. Rather than focusing on avoiding getting screwed, focus on the pressures and the imbalances between them. Don't trade. Don't conclude. Just watch.

 

When you get tired, stop. Come back. Begin again. When you're done, review your notes. Look for those areas in which change took place. Formulate some hypotheses as to why those changes took place in those areas and not others. Don't force the Ah-Ha. Just let it come.

 

Begin with what appears to apply to whatever market you're trading. If it's in a trend, focus on retracements and continuations (a continuation being the logical result of a successful retracement). If it's in a trading range, focus on reversals. And so on. Develop the strategy thoroughly, with all the accompanying tactics. Test it. Learn it. Get comfortable with it.

Trade it

 

But understand always that whatever you're doing may not apply to every trading day. If you decide to focus on breakouts, for example, and the entire day is range-bound, then you're very likely going to have nothing to do. This is not your problem. Use the time for something else. But don't force trades. Don't see what isn't there (many novices fall into this trap when they've been working on reversals and insist on seeing reversal setups where none exist, e.g., on trend days). In time, you'll have a variety of strategies to cover most situations. But the key words here are "in time".

 

There is no inconsistency between tuning in to the buying/selling dynamic and defining setups with specific entry and exit points. A lower high, for example, says something about the balance of buying and selling pressure. Now at what point does the probability of a reversal become sufficiently higher than that of a continuation that the trader will go short instead of long (or vice-versa)? A drop of so many ticks? A break of a TL? A break of an MA of some sort? And once one has determined that, how far does he allow the price to go against him -- if it does -- before he bails? And what is a reasonable target? And where is my pastrami on rye?

 

Changes in the balance between buying and selling pressure manifest themselves in recognizable and repeated ways, e.g., double bottoms, lower highs, bull/bear spikes (hammers et al), but whether any of these are worth taking will depend on the context, what one wants, what one is willing to settle for, how much risk he's willing to assume, whether or not he's willing and ready to fade himself, etc. Sometimes the changes in balance are so rapid and so violent that the trader might think that only a loon would get involved. And sometimes the changes are so subtle and so quiet that waiting for the trade to resolve itself would put most people to sleep. Therefore, the trader has to decide under what conditions he's going to trade and during what portions of the day (or year) -- if not the entire day (or year) -- he's going to trade.

 

Which may be why so many beginners prefer just to buy when the green line crosses the red line and sell when the red line crosses the green line.

 

The degree to which one experiences anxiety before and during the trade is in direct inverse proportion to the amount of preparation he has done; in other words, the less prepared you are, the more anxious you will be (many people start the day anxious and stay that way until the final bell).

 

Trading according to buying and selling pressure entails looking for those areas which are most likely to attract attention and activity, which is why understanding the nature of support and resistance is important. Those areas where the most people traded the most shares/whatever in the past are most likely to ignite activity because all those people have something to gain or lose at those levels.

 

Again, there are several levels or areas or zones to look at, the most obvious of which are the previous day's (week's, month's, year's) high and low, and if one does nothing but sit idly by until those areas are tested, he will likely save himself a lot of money.

 

The opening high and low can also be a rich source of opportunity. I say "can" because one must also consider volume: if there's lots of activity, there's likely to be lots of opportunity. Targeting these opportunities in advance is simple. Sitting on your hands until the opportunities actually present themselves is considerably more difficult. But if one knows well in advance what he's going to do and where he's going to do it, and has some understanding of the nature of probability, he has nothing to be anxious about.

A good friend of mine, Julian Snyder, wrote a book for traders called

The Way of the Hunter Warrior

. Recently I asked him about the use of such a metaphor for trading, and he conceded that it's total nonsense in the light of what he now knows. "You have to trade without ego, and any contest elevates ego," he said.

 

I like to think of trading as sailing. Here you harness the forces that are there. You take into account the wind direction and velocity, the currents, and your destination. You've got your charts to guide you and you constantly adjust to nature's forces, sometimes pointing into the wind, sometimes running before the wind, sometimes tacking, but always in partnership with your boat, your crew, the wind, and the currents. Sure, storms can come up, but you can always let down the sail and anchor and wait out the storm. You work with the forces that are there, the forces that are much bigger than you, but you enjoy the journey, the day, the sport, and you're confident you can get to your destination, your port, your safe harbor.

Ruth Barrons Roosevelt

 

 

How Long Does It Take?

Realistically, how long do you think it would take a beginner to go through the steps you suggest to study the principles, tactics, and develop/test a trading plan and acquire the correct mindset?

 

I know this'll be variable, but from your experience what's the least amount of time someone has picked all this up in ?

 

It's been said before that it takes 1,000 hours to learn something, maybe 5,000-10,000 to master it.

 

What do you think, could a complete novice pick this up in 6 months spending around 8 hours a day ???

 

There are too many variables involved to provide anything approaching a satisfactory answer. If, for example, the novice were literally complete, had nothing to unlearn, had no preconceptions, was able to work without investing his ego in it, was curious, was able to concentrate, was reasonably intelligent, then he would be able to get it far faster than someone who was or had the opposite.

 

But if you're asking in your heart of hearts how long it would will should ought to take you to "pick this up", that depends on how willing you are to focus on application rather than theory (since you registered more than two years ago, you very likely have had more than enough theory).

 

Some members tire of my continually encouraging newcomers to this subject to open journals. But there's only so much theory. This thread, for example, has over 1000 posts (which is around 950 too many). The "theory" just isn't that complicated.

 

When it seems so, the reason is more likely that whoever is trying to understand it is focusing on something else entirely (so and so says, or I read somewhere that, or I took this seminar once that, or this book said, or but the ADX says). Therefore, the sooner one begins looking at real charts, the sooner he is likely to "get it".

 

This search for instructions as to where EXACTLY to draw the line is in large part what makes Pivots and Fib and Gann and MAs and so forth so seductive. One doesn't have to think about just where it is that price (traders) really react. All the trader has to do is draw the calculated lines. This search for exactitude also motivates the search for the EXACT stop and exact TYPE of stop that the trader should use, along with the EXACT trigger and the EXACT target. But if it were all that simple, one could package it into a kit and sell it (wait a minute . . . ).

 

Many people can't get this. Maybe most people can't get it. They simply cannot trade without indicators, they can't trade without patterns, they can't trade without candlesticks, etc. And if they make money doing whatever they're doing, who's to say they're not right to do it. However, a lot of people also struggle with all of that and can't make money at it. They find instead that focusing on price is best for them.

 

Unfortunately, by the time they reach that point, they have to unlearn an extraordinary amount of what for them is generally -- or entirely -- useless information (I've read that . . . People say that . . . I've been told that . . . ). This state of affairs makes learning to trade by price vastly more difficult than it would have been had the trader learned how to do it outright in the first place. But there's no going back, this side of amnesia, so wanting to is simply wishful thinking.

 

The Go With the Force, Luke stuff only goes so far, true as it may be. But the individual who's willing to backtrack and learn a new or at least different way of looking at charts and price action may -- not will -- find that when he's looking at his umpteenth chart, the light suddenly goes on and he understands all those back and forth pressures which are propelling price one way or the other. All the babble about pace and momentum and trend and chop and all the rest of it will make sense.

 

But there's no shortcut. One may have to look at hundreds of charts. Maybe thousands. And he may never get it. Which is why people continue to spend so much money on 4x Made Easy and Weekend Seminar (lunch included) and Profits R Us.

 

The average man does not like uncertainties. He is not trained to cope with them. He will try to “sweep them under the rug.” He will use any device that will make it possible for him to feel “more sure,” for he is not willing to accept a “maybe” or an “I don’t know” as an answer.

 

And so he will resort to averages, to market indicators, to complicated charts of intersecting lines designed to prove that “it” is either a Bull Market or a Bear Market. He will accept almost any kind of nonsense if it is stated with

enough assurance. He will buy horoscopes to determine the trend of the market by the position of the planets. If all else fails, he will look for some authority who will relieve him of using his own intelligence, by making the either/or decisions for him. But he must have a straight, simple answer; otherwise it means nothing to him.

 

Do you see how this way of looking at things is out of line with the facts? Do you see how it leads, inevitably, to frustration, anxiety, and demoralization?

It is asking too much of reality. It is setting up a make-believe world, and then crying if the world isn’t exactly like the make-believe.

 

We know, for instance, that trees “in general” are round. But you have seen

tree trunks distorted by a cramped location, or by the trunks of adjacent trees, that are not round at all. It is useful to know that “tree trunks are round,” only so long as we understand that this is an abstraction, and the reality in any particular case has to be looked at, and if it is not round, that is that; the territory is the final answer, not our “map.”

 

John Magee

Edited September 1, 2012 by DbPhoenix
Link added

[johnw 10]

gm DbP,

 

Well you have excelled yourself with the post above.

 

It is the best post I have ever read here on TL and I congratulate you for taking the time to write it.

 

I have a small number of brief articles and each day I read one or two as my machine opens up.

They only take a minute or two to read and although I know them almost by heart, I try to read each one as though it was the first time.

 

I would like to add your post to my little library.

 

cheers

[TradeRunner 10]

 

Is the second long too early?

[DbPhoenix 42]

Is the second long too early?

 

In what way too early?

 

Db

[TradeRunner 10]

In what way too early?

Db

 

 

Edited September 2, 2012 by TradeRunner

[DbPhoenix 42]

 

 

 

[joshdance 10]

"Multiple failures to make a new high"? The market slammed higher hard and fast, and it tried one time after a couple of minutes and it's a failure? No, I do not think so. It has to breathe a little after such a move up off the open... failure does not even come close to describing that, IMO.

[DbPhoenix 42]

BTW, for those who like to hang out in this thread, I re-wrote post #2. I suggest that everyone check it out.

 

Db

[TradeRunner 10]

Thanks for the reply and the rewrite. I have replayed all the charts you have posted in this thread.

 

I guess my problem with (just) this chart is the switch from short to long. At what point do you start thinking long rather than short? Could you be thinking long even earlier than the entry(sorry):

 

[goodoboy 10]

Unfortunately, by the time they reach that point, they have to unlearn an extraordinary amount of what for them is generally -- or entirely -- useless information (I've read that . . . People say that . . . I've been told that . . . ). This state of affairs makes learning to trade by price vastly more difficult than it would have been had the trader learned how to do it outright in the first place. But there's no going back, this side of amnesia, so wanting to is simply wishful thinking.

 

The Go With the Force, Luke stuff only goes so far, true as it may be. But the individual who's willing to backtrack and learn a new or at least different way of looking at charts and price action may -- not will -- find that when he's looking at his umpteenth chart, the light suddenly goes on and he understands all those back and forth pressures which are propelling price one way or the other. All the babble about pace and momentum and trend and chop and all the rest of it will make sense.

 

But there's no shortcut. One may have to look at hundreds of charts. Maybe thousands. And he may never get it. Which is why people continue to spend so much money on 4x Made Easy and Weekend Seminar (lunch included) and Profits R Us.

 

The average man does not like uncertainties. He is not trained to cope with them. He will try to “sweep them under the rug.” He will use any device that will make it possible for him to feel “more sure,” for he is not willing to accept a “maybe” or an “I don’t know” as an answer.

 

And so he will resort to averages, to market indicators, to complicated charts of intersecting lines designed to prove that “it” is either a Bull Market or a Bear Market. He will accept almost any kind of nonsense if it is stated with

enough assurance. He will buy horoscopes to determine the trend of the market by the position of the planets. If all else fails, he will look for some authority who will relieve him of using his own intelligence, by making the either/or decisions for him. But he must have a straight, simple answer; otherwise it means nothing to him.

 

Do you see how this way of looking at things is out of line with the facts? Do you see how it leads, inevitably, to frustration, anxiety, and demoralization?

It is asking too much of reality. It is setting up a make-believe world, and then crying if the world isn’t exactly like the make-believe.

 

We know, for instance, that trees “in general” are round. But you have seen

tree trunks distorted by a cramped location, or by the trunks of adjacent trees, that are not round at all. It is useful to know that “tree trunks are round,” only so long as we understand that this is an abstraction, and the reality in any particular case has to be looked at, and if it is not round, that is that; the territory is the final answer, not our “map.”

 

John Magee

 

Excellent post and good read and good grounding for there is far too much stuff out there for the beginner like myself to stay focus on one learning path.

[DbPhoenix 42]

Thanks for the reply and the rewrite. I have replayed all the charts you have posted in this thread.

 

I guess my problem with (just) this chart is the switch from short to long. At what point do you start thinking long rather than short? Could you be thinking long even earlier than the entry(sorry):

 

Nothing to be sorry about. I don't know anything about you or about the extent of your experience or knowledge, so I don't quite know how to respond. I doubt you're looking for a lengthy exposition on support and resistance and so on. If so, that's all here, only elsewhere. But if we're going to focus on just this chart, then you have obviously heard of support and know what it implies. So let's keep it specific.

 

"Lack of progress...". Yes, this is what one would expect as one approaches true S or R bec buyers (or sellers) are coming in, retarding the progress of the movement. If they weren't, then price would not be impeded, and what you thought was S or R probably wasn't or isn't or won't be.

 

"Price fails..." Yes, it would. But you're looking at a 5s chart, and if you're not used to that and trading off it, I suggest caution. The process I've been suggesting to beginners lately is to go ahead and take the entry that meets all one's requirements but to exit as soon as the trade breaks the SL or DL (supply line/demand line), then re-enter if price resumes its previous course. This provides a great deal of relief from the damage that fear can do. Thus, in your example, I'd go along with your suggestion, but only if you'd be willing to exit when the DL is broken at about 65.75. After that, there are no more long ops until after the next test (there are no short ops bec S is never broken). If you then re-enter around 63, you'd then exit at the subsequent break at about the same level. Finally, you'd try a third time at the third test. At that point, you'd be home free. The alternative is to stay in and hope for the best. Or trade in the opposite -- and incorrect -- direction. Yes, this means more trades, but not only are they relatively risk-free, you can make more by exiting and re-entering at a lower level. Sort of like being able to go back in time.

 

"Price rushes..." Not necessarily. It may be just the market's way of saying "Boo!" But since you're not in the trade, you have the luxury of sitting back and watching everybody else scramble. And while they're dealing with their fear, you're able to judge what's going on without any fear at all. After all, you have to wait only a few seconds to see the quick recovery.

 

"Why isn't this..." It is. If you're looking only at the last two minutes and you're scalping. If you were, you might make two points. But to me, that's a waste of time, and is largely the refuge of people who are terrified of what's happening in front of their eyes.

 

"Again prices..." So would a lot of other people. And they'd chicken out. Which may be one of the chief reasons why price reverses so quickly and easily: (1) there are fewer sellers in the market (they just sold) and (2) many or most of those who just sold are scrambling to get back in.

 

At various points in various threads, I've asked participants to get past the movements of price up and down in bars (or candles) and focus on the story. Instead of focusing on price, think about the traders who are making these transactions. What are their objectives? Are they reaching them? How agitated are they? How unsure? How many of them are shooting themselves in the foot? How easily are they faked out? Are they getting a free ride or are they thwarted at every opportunity? How long is it going to last? What are the first signs that the engine is running out of gas?

 

It's a lot more interesting than just watching a dot bounce up and down.

 

Db

 

Edit: One other thing about this quick exit tactic. Too many beginners think that once they've finally got off the pot and made their entry, that's it. It's all up to the market now, and they have nothing more to say or do about it. This is, of course, nonsense. The market may be in complete control of price movement, but the trader is in complete control of what he does about it. If he chooses to do nothing about it beyond pushing the Transmit button and heading off to lunch, then he shouldn't be daytrading at all. Daytrading is about management. If one isn't into that, he should be trading EOD. Or buying funds.

 

Db

 

Edit (again): One other thing. Making judgments about price and price movement in RT is a hell of a lot different than making them in hindsight. If one is watching price move, it's not nearly as difficult to figure out what traders have in mind, particularly if one is watching a tick chart. Therefore, if one is wondering "how can you possibly know that?" (not referring to you but to the many others who've asked this question in the past), then he probably is not watching price move in real time but is trading during coffee breaks. One cannot learn this trading at work. Or during class. It requires full attention. If one cannot devote that attention, he should go back to indicators or trade EOD.

 

Db

Edited September 2, 2012 by DbPhoenix

[tupapa 10]

On the Macro, we notice we are auctioning in a 3 year range, between 3000 and 2000 and price is currently testing the midpoint of this range, around 2500.

 

The 2 year chart shows a resistance level at 2600 and support around 2400, that so far is holding.

 

In the daily chart the more recent trading ranges and levels can be appreciated;

 

The first box to the left goes from 2450 to 2550, with a midpoint at 2500.

 

The second box to the right of the chart is the most recent box, with an upper limit of 2450 and a lower limit of 2440.

 

So Potential Longs would be:

 

Break above 2450 on a retest, and watch how price reacts at next Resistance, 2500.

Break above 2500 on a retest, and watch how price reacts at 2550.

[DbPhoenix 42]

How long have you been watching this?

 

Db