Market decline but higher value

[Soultrader 12]

This is an interesting chart from 8/14/06. This is a typical mistake that new traders will make. The markets decline from the lunch hour doldrums into the close for roughly 100 points. They will look at this decline and assume a weak market. I am sure some new traders went short at the close.

 

Looks are deceiving. Lets take a look at the bigger picture. If we visualize a market profile chart from the candlestick chart below, notice that we are actually trading at a higher value. This concept is crucial for market understanding. Price were not accepted within or below value indicating market strength. Although the 60 point gap was filled we have established higher value.

 

[Soultrader 12]

This is what happened at the overnight session. I am sure alot of new traders who went short at the closing assuming market weakness got burned.

 

 

By understanding market concept, you could of placed yourself on the long side at the close.