[Frank]

Chapter 5: Long-Term Auctions

This chapter is in some ways the lightest content chapter in the book, in my opinion. Nevertheless, there are a few good (inter-related) concepts in this chapter:

1) The market price only has to be ‘fair’ in the day timeframe.
2) On longer timeframes, markets do not go directly from Bull Market to Bear Market or from Bear Market to Bull Market. They enter intermediate term ‘Brackets’ in between bull and bear markets.
3) Longer-term players may disregard short-term balances that spawn short-term auctions. However, traders and investors of all timeframes should pay careful attention to higher timeframe breakouts as they include participants from all timeframes and can therefore bring large momentum moves

Long-term charts (auctions) are for context. You don’t act on indicators or patterns based off of long-term charts in reality but they give you an idea as to remaining cognizant of what can happen if and when all timeframes align at key points in time.

This is not from the book but is a good analogy I got from another trading book that fits here. This is like being at the ocean and the waves are going in and out. Imagine you are watching that little whitewash current that sucks the water in and out before a wave comes in. Well, sometimes that little current is running in and out and you think you understand the rhythm. But then occasionally that little current gets sucked out and it runs straight into a monster wave that shoots further up the beach than a wave has all-day. THAT is what can happen if you are not cognizant of what is going on with the long-term charts.

Major market ‘breaks’ are non-linear, they auction VERY quickly once underway. These will not happen very often if you are focused on short-term trading – but when they do – they will be extremely powerful.

A Bull market does not convert instantly to a bear market. An intermediate term ‘bracket’ forms first. The next chapter (chapter 6) is about intermediate-term brackets. Thus, this chapter is really about understanding whether you are in an intermediate-term bracket or in a major bull or bear trend. An intermediate term bracket will feel violent at times. A Long-Term non-linear break will feel stronger than that…

To me, the bigger issue here is watching the daily timeframe in context of the intermediate term trend or bracket (the next two chapters). There isn’t that much more in Chapter 5 regarding long-term auctions except to say --- expect extreme non-linear movement to occur from time to time and be ready for it. The next two chapters: Chapter 6 (Intermediate-Term Auctions) and Chapter 7 (Short-Term Trading) are probably the 2 best chapters in the book.