Reading Charts in Real Time

[taq 10]

One pattern is made in S&P daily index.

 

Let us see how it will unfold.

 

Yesterday

 

 

Updated

 

 

Regards,

TAQ

[Kiwi 16]

IMO, if this is the beginning of the second leg of the big bear market then it will have nothing to do with the 123. Just go back and see how many 123s have already happened in this rise.

 

I have enjoyed the number of tops called in this sucker over at ET. Its not until people stop calling them that they actually happen - but you've only got to be right once (or have a short memory like Prechter).

 

I really like the 123 except for one thing - it seduces people with the call of the countertrend.

[Gabe2004 10]

The following is from the blog of Dr. Wish dated Nov-26-2009

 

Wishing Wealth Blog - Stock Market Technical Analysis Trading

 

Wishing Wealth Blog

Stock Market Technical Analysis Trading General Market Index (GMI) table My Favorite Posts Nicolas Darvas Tutorial

About Contact Disclaimer Post Archives

 

My Trading Philosophy and Why I Use Technical Analysis

As a tribute to the Thanksgiving Holiday, I thought I would share with my readers the trading philosophy I have developed over the years. It is based on my 40+ years of experience in the market and the insights achieved from my voracious reading about the market during that period. My philosophy is based on my interpretation of such great market seers as Darvas, Weinstein, O’Neil, The Turtles, and of course, the greatest trader, Jesse Livermore. (The books written by or about these persons appear in the lower section of my blog). Anyway, I hope you find these propositions useful and would value your additions and comments. A version of these remarks was published under the pseudonym Sir Silent Knight, as part of the Worden TC2007 daily journal.

 

 

Dr. Wish’s (Sir Silent Knight’s) Trading Philosophy

 

Proposition 1. The stock market and stocks are unpredictable

 

No one can consistently predict changes in the market or stocks. Human behavior is largely unpredictable and no one can predict world and economic events or the reactions to them. Similarly, corporate events and news can be inaccurate or intentionally misleading.

 

Proposition 2. However, stocks and markets often continue in trends that can last weeks or months or longer.

 

Trends form identifiable patterns, probably because humans react to trend patterns in repeatable ways. For example, people often trade off of support or resistance levels or at new highs or lows. While trends can be discerned once started, their length and continuation are also unpredictable.

 

Proposition 3. Given Propositions 1 and 2, one’s success in the market depends on identifying trends once they have begun and staying with them until they end.

 

But if the length and size of trends are unpredictable, each trade may or may not work out; the likelihood that any given trade will be profitable is unknown. Some successful traders have asserted that only about 50% of their trades are profitable.

 

Proposition 4. If only 50% of trades will be profitable, then to prosper, the profits from winning trades must be considerably larger than the losses from losing trades.

 

One can accomplish this goal by limiting the losses on losing trades and by maximizing the profits on winning trades. One can limit losses by setting stop losses and by making small initial trades. One can increase profits by riding the trend as long as possible AND by systematically increasing one’s position as the trend continues.

 

Proposition 5. Given Propositions 1-4, trading success is mostly determined by one’s strategy for exiting the trade rather than the strategy for entry.

 

Since one does not know at entry whether a trade will be profitable, one could probably select stocks at random as long as losses are kept at a minimum and profits are maximized. However, systematic entry and exit rules based on technical analysis can improve the likelihood of a profitable trade. For example, most stocks follow the general market’s trend, and trading consistent with that trend can enhance one’s likelihood of success. Nevertheless, given the considerable uncertainty accompanying all trades, the highest priority must be given to the rules for exiting the trade. If one enters each trade assuming that it will fail, one will be better prepared to handle losses.

 

It is the trader’s job to use technical analysis to develop trading rules that function consistent with these propositions. My blog, wishingwealthblog.com, documents my pursuit of this goal.

 

Happy Thanksgiving!

[Gabe2004 10]

One pattern is made in S&P daily index.

 

Let us see how it will unfold.

 

Yesterday

 

 

Updated

 

 

Regards,

TAQ

 

I think that your HL should be LH

 

Gabe

[BlowFish 10]

Maybe I can answer your questions like this.

What do you do if you have a power failure? It doesnt matter if I can place a trade I am in with stops. 8tp and 160sl now its safe to say that if I took all the setups that my system gives I would find maybe a few trades in the week that would be losers. Thats why I only take 2 to 3 trades a week with most of them being 2. But I would prefer 1. The less trades that I make the higher probability of a profit. The more trades that I make the higher probability for failure. So, does it really matter what system I use? I would have to say no, but I want to get my 8 pips as soon as I can. Even if I am not around my computer to see it.

Or you internet connection gets severed?

Like last night, sorry about that!

 

,Don

 

Interesting Don, stands a lot of 'conventional wisdom' on it's head. Mind you a lot of 'conventional wisdom' is at best based on certain assumptions and at worse rhetoric that is based on supposed 'truisms' that have become enshrined in trading 'law'.

 

I presume your 160 stop is really an 'emergency stop' I seem to recall from the trades you posted you bring it up fairly quickly? I'll check later:)

[BlowFish 10]

I was following Thales links and thought that something I wrote this morning might also apply to the magnet conception:

 

Snip

 

- here are some odds enhancers

 

Snip

 

 

I seem to remember you mention Sam Seiden at some stage. Yet nnother slant on PA (essentially he trades a pullback to a previous congestion area after a substantial break out) Anyway he also talks about 'odds enhancers'. You can work out most from his material in the public domain. I'm always a little reticent about mentioning other PA practitioners (particularly as Sam now works for an educational outfit that are firmly in the pay to learn camp). Still that does not negate the value of the public domain material if used judicially.

[thalestrader 14]

Hi folks,

 

Perhaps we are back to the "Good Ole Days" of 2008 where 2%+ daily moves become the norm. Time and the markets will tell.

 

Here is a current look at the GU. The long has a PT of about +130, and the short has a PT of about +60. We're not trading today, but we'll be watching from time to time. When I came downstairs this morning, my daughter was already up, and she had CNBC on on the television (muted, God Bless her, how quickly she learned!) and she was scrolling through charts on the family computer. She is amazed at the size of the recent moves, and she finds it quite exciting, so I don't see how I will be able to keep her away from at least chacking in from time to time.

 

Best Wishes,

 

Thales

[thalestrader 14]

One pattern is made in S&P daily index.

 

Hi Taq,

 

Thanks for the charts. For that sequence you show, I come up with initial breakdown targets at 1064.25 and 1035.50 (basis the Dec es).

 

Make sure as you focus upon the H-L-LH sequence you do not lose sight of the larger trend that carried price into what you see as a possible top. It is a top, but of what significance? Here we are, 15 minutes before the US equities open, and the ES put in a low just a few points above the first PT level. That may be the extent of the decline, or the decline may resume and ultimately carry down to test the March 2009 lows. Who knows? I don't.

 

I would also suggest that you check the steep trendline you have drawn. That line was very steep and as such indicated an unsustainable pace. To see how steep that pace was, you need to shift your trendline back to the prior low. You want to strike your uptrend lines by drawing from the lowest low of the trend in question to the low preceding the highest high. You drew across the low printed after that high. Price is thus actually looking to set a new pace.

 

Referring back to the importance of not losing sight of the big picture, you should also cast another line lower that would define the larger overall uptrend.

 

Best Wishes,

 

Thales

[thalestrader 14]

I really like the 123 except for one thing - it seduces people with the call of the countertrend.

 

That, and it leads folks to focus upon what price is doing over a very short period of time while often causing them to lose sight of where that small moment fits into the last day, week, month, and year.

 

I once wrote here that "not every breakout is a reversal, but every reversal can be traded as a breakout." Similarly, every major trend reversal will have evident "123" sequences at multiple degrees, but most 123's are not reversals of larger trends. Which leads, of course, to yet another old saw of market wisodn - "take what the market is willing to give."

 

Best Wishes,

 

Thales

Edited November 27, 2009 by thalestrader

[Don4 10]

Interesting Don, stands a lot of 'conventional wisdom' on it's head. Mind you a lot of 'conventional wisdom' is at best based on certain assumptions and at worse rhetoric that is based on supposed 'truisms' that have become enshrined in trading 'law'.

 

I presume your 160 stop is really an 'emergency stop' I seem to recall from the trades you posted you bring it up fairly quickly? I'll check later:)

 

I use 2 systems 1 would be like I posted here before that you are talking about above and the other would be like I said. I enter with the same with both trades but the stops are completly different!

 

Thanks,

Don

[Cory2679 11]

Hey guys,

 

I just pulled up the GU...curious to see it after Thales' trade last night...

 

I wonder...does it still have further to go??

 

My first chart is the 4 hour chart, and a line that I'd consider strong support...perhaps this support will act as a "magnet"?

 

That's not to say there couldn't be a pullback before it reaches that level...

 

I was tempted to short where where I've indicated on my 15 minute chart, but I'll think I'll just stick to the sidelines for this one...I'm not necessarily comfortable with jumping into a move that has already come SO far.

 

-Cory

 

IT DID! IT DID! It did have further to go! Bounced right off my anticipated support...

 

...missed out on 77 ticks had I gotten in where I said (I'm truly planning to go live Monday!).

 

EDIT: Sorry, I'm just a little excited...that's the biggest move I've ever "called," so to speak...still new at this...

 

EDIT2: Looks like I shoulda/woulda/coulda gotten long off of the bounce off my anticipated support and the higher low (like Thales pointed out). I'm kicking myself...I've missed out on what seems like 100's of ticks by sitting on the sidelines all this time. I can't wait for Monday!!!!

Edited November 27, 2009 by Cory2679

[thalestrader 14]

Here is a current look at the GU. The long has a PT of about +130, and the short has a PT of about +60.

 

Hi Folks,

 

The long side triggered, and price has now consumed 70 ticks of range between entry and PT, with 60 ticks to go. Nothing says price has to reach that PT, as it has now reached into an anticpated zone of resistance. The PT shown would typically be a PT2 level, but given the volatility, I would anticipate a better than usual odds of hitting that level. Of course, better than usual odds of continuing does not preclude a sudden and sharp reversal, so if I were long here from the entry point identified, my stop would be a break even or better.

 

I am going to clean these charts up for a separate post, as I think this illustrates an important concept.

 

Best Wishes,

 

Thales

[thalestrader 14]

If you buy into the idea that resistance becomes support when broken (which we all do right?) then isn't there always a potential long lurking wherever there is a short?

 

Hi Folks,

 

The GU this morning beautifully illustrate the point Blowfish made in the above post.

 

I have attached three charts:

 

1) Identifies the swings that indicate a long opportunity

 

2) Identifies the swings that indicate a short opportunity

 

3) Shows how price chopped around before it decided which indication it would follow.

 

 

 

Best Wishes,

 

Thales

[Don4 10]

Thales, when would you have got out.

 

Thanks,

Don

[jonbig04 10]

IMO, if this is the beginning of the second leg of the big bear market then it will have nothing to do with the 123. Just go back and see how many 123s have already happened in this rise.

 

I have enjoyed the number of tops called in this sucker over at ET. Its not until people stop calling them that they actually happen - but you've only got to be right once (or have a short memory like Prechter).

 

I really like the 123 except for one thing - it seduces people with the call of the countertrend.

 

What he posted is a zoomed-out view of what I posted just before. Nice to know I'm not the only one looking at it.

 

I just called the pattern a double top. I guess it could be called a number of things, but IMO that's not important. Could it be the "second leg of the bear market", yea I suppose. I haven't seen very many double tops on the daily time frame.

 

But that's just speculation. The important thing to focus on IMO is that on a large time frame the market, which is in an up trend, just failed to make a higher high. And upon confirmation (which happened just after I posted the pattern), just made a lower-low. The likes of which haven't happened in a month or so.

 

Because of this I no longer consider this time frame to be in an up trend. Thats what reversal formations do. So too ignore the pattern, to me, would be to ignore the trend.

 

The great thing is that if it fails, it still gives you as much information (and trading opportunities) as if it had confirmed and played out. For example, if this spike up doesn't turn into a LH and price rallies, it will have to break through the 1111 area to continue upwards.

 

That could give rise to a nice break out to the upside, just like the confirmation of this pattern gave rise to a nice BO to the downside last night when the 1083 area was taken.

 

I wouldn't consider the second leg a LH. Though it technically is, only by like 1.5 points. That's not very much when you're talking about 30 point legs.

 

If price stalls out where it is now at the 1095 area and then continues to make a LL we will have Thales setup, just on a massive time frame:

 

[thalestrader 14]

Thales, when would you have got out.

[ATTACH]15937[/ATTACH]

 

Thanks,

Don

 

Hi Don,

 

I was not watching today at that time, so it is difficult to say exactly how I would exited those trades, or even if I would have taken them at all. However, drilling down to a one minute chart, I think that what I have attached here would be a fair depiction of where I would have taken my losses. Each looks like it would have been about a -10 tick loss if no slippage on the entries and exits.

 

Best Wishes,

 

Thales

[jonbig04 10]

Thales, I was wondering what you thought about this potential short. The biggest problem I have with it is R/R, but leaving that aside for now.

 

I drew some purple bars in there to show what I'm looking for price to do before entry.

 

[johnjohn1hew 10]

Thales, I was wondering what you thought about this potential short. The biggest problem I have with it is R/R, but leaving that aside for now.

 

I drew some purple bars in there to show what I'm looking for price to do before entry.

 

 

I'm not Thales, but i think it looks ideal. Strong movement down, breaking out of the double top midpoint. You should then expect a decent pullback, but barely anything comes in = giving strength to the pattern's meaning, suggesting further to go. Also, the swing high (just above the green line) before the move upwards could be the top of a zone of support IMO, thus a PT1. Support and resistance aren't exact (for those who want to know).

Edited November 27, 2009 by johnjohn1hew

[thalestrader 14]

Sure, at your leisure.

 

With kind regards,

MK

 

Hi MidK,

 

I'm just now getting around to looking at your traders. The first one I am looking at is the GU short you made were you exited with a -6.5 pip loss. I have included a chart I posted a few hours prior to your trade, as well as a copy of your chart and a chart of mine with some additional notes. One point I make on the chart was made here by Kiwi recently:

 

Round numbers are resistance in forex ... but they are also magnets.

 

Round numbers have a certain "magnetism" in general, and not just in currency trading. The relevance of Kiwi's post here is that he would not have objected to your short entry, but he would have suggested that half profits be taken at the round number, and I presume a break even stop at that point.

 

Other than that, I hope my notes on the chart explain my interpretation of price action at that point in time.

 

Best Wishes,

 

Thales

[Gabe2004 10]

Thales, I was wondering what you thought about this potential short. The biggest problem I have with it is R/R, but leaving that aside for now.

 

I drew some purple bars in there to show what I'm looking for price to do before entry.

 

Would anyone have taken a short at the blue line?

 

Gabe

[thalestrader 14]

Sure, at your leisure.

 

Hi MidK,

 

Here is your last EURUSD trade. I didn't like this when I first saw your post, and I still do not like it.

 

One thought I'd add here, in addition to my chart notes, is that if you are going to place a trade based upon a longer swing in terms of time, it must also be sharper and longer in terms of extent.

 

Best Wishes,

 

Thales

[jonbig04 10]

Would anyone have taken a short at the blue line?

 

Gabe

 

Requires too large of a stop for me.

[thalestrader 14]

Sure, at your leisure.

 

With kind regards,

MK

 

 

Hi MidK,

 

You can see my notes. This trade was a short entry you made on the GU on the same night as the other short I have already discussed. Other than you entry being rather late in the decline, it was not unreeasonable, and I think you did a good job of cutting your loss.

 

Best Wishes,

 

Thales

[thalestrader 14]

Sure, at your leisure.

 

With kind regards,

MK

 

Hi MidK,

 

See the notes on the chart.

 

Best Wishes,

 

Thales

[thalestrader 14]

Sure, at your leisure.

 

With kind regards,

MK

 

Hi MidK,

 

This is your USDCAD trade. This approach works fine on the USDCAD/6C, but as a rule,I typically use the 15 minute sequences to enter if I taking a posiiton off of a big picture S/R level. I like to identify these on the 240 minute chart, and then use the 15 minute to fine tune my entry/minimize risk.

 

I have a few USDCAD trades posted throughout the thread. If you search for them I think you will see what I mean.

 

I can't say this was anything obviously wrong here. This was just a loss. They will happen.

 

Best Wishes,

 

Thales