The purpose of this is to serve as a closet, or attic, or self-storage facility. A place for me to store what I don't want to lose, all in one place, partly for me, but largely for those who may be interested in what I think about market stuff and trading stuff.
I've reserved the right to moderate comments. Assuming that this works, the point of it is to keep the blog on task as much as possible. Substantive questions will be answered, if I can, but good wishes and so forth will not be posted, not because I don't appreciate them, but because all of that is a lot for newcomers to wade through after a while, so please don't be insulted if you don't see your comment posted.
The first post is a link to a preview of my book. This may be of no interest to you whatsoever, but I do encourage those who are interested to at least look over it before plunking down any money for something that may be of little or no use to them.
Good trading.
I've reserved the right to moderate comments. Assuming that this works, the point of it is to keep the blog on task as much as possible. Substantive questions will be answered, if I can, but good wishes and so forth will not be posted, not because I don't appreciate them, but because all of that is a lot for newcomers to wade through after a while, so please don't be insulted if you don't see your comment posted.
The first post is a link to a preview of my book. This may be of no interest to you whatsoever, but I do encourage those who are interested to at least look over it before plunking down any money for something that may be of little or no use to them.
Good trading.
Support & Resistance and Trading Trend
The following illustrates the potential support and resistance provided by swing points and zones. It also illustrates a means by which one can define "trend". If one doesn't understand trend, he’s going to have trouble understanding breakouts, retracements, and reversals. If he doesn’t understand support and resistance, he’s going to have trouble understanding how and where and when to enter and exit, much less where to take profits, assuming he has any.
.
.
To determine the effects of supply and demand, look for breaches of either support or resistance within whatever interval you're trading, particularly a breach with a quick and strong recovery (which belies the breach and suggests strong buying interest [demand] or selling interest [supply], whichever the case may be). If one is trading trend over the longer-term, he has little to do but sit on his hands until price breaks out or breaks down. If he chooses to trade the shorter-term, he can buy failures to break through support and short failures to break through resistance during those “balancing” or “equilibrium” phases.
.
.
To understand that price rises because demand -- or buying interest -- is greater than "supply" -- or selling interest -- is a no-brainer. The trick is to recognize these changes in balance or equilibrium in real time. Hindsight charts are fine for illustrating principles. In fact, they're nearly essential. However, one must then take the next step and translate those principles into a trading strategy that enables him to make decisions based on those principles in real time, e.g., "failure to breach". For example, one must at least locate in advance those areas or zones in which the aforementioned balance is most likely to change, then wait patiently until those changes actually occur, then act on what he observes.
.
.
Note that as the interval gets smaller, the opportunities increase, but so does the necessity for strict rules. For example, one of the arrows has an asterisk, there to show that while the swing point is lower than the immediately preceding swing point low, it is higher than the more significant low made the previous Friday. Therefore, "higher low" has no intrinsic meaning. The trader must instead place all of this in context and define very clearly just what it is that he is looking for.
In this case, if the trader were not already in, he most likely would not enter long at this point but wait for confirmation of an uptrend and enter at the next higher low (this occurs the next day, Wednesday). Or he may go ahead and take the risk, entering on Tuesday. While doing so entails more risk, it also may mean a tighter stop, depending on how the trader manages stops. There is thus no "best" way to manage the trade. After all, the trader may have entered long at the previous Friday low (12/8) and never have closed his long trade.
.
.
Looking back at the first chart, it would seem that there are few if any opportunities during November/early December since price has “stalled”. But the above and the preceding charts demonstrate that it all depends on your point of view. Even the very last day, represented above, offers excellent opportunities for relatively easy profits.
.
You may also download the above in pdf form below:
.
.
.
Traders must understand the characteristics of a trend day, even if interested only in intraday scalping. A trader anticipating a trend day should change strategies, from trading off support/resistance . . . to using a breakout methodology and being flexible enough to buy strength or sell weakness. A trader caught off guard will often experience his largest losses on a trend day as he tries to sell strength or buy weakness prematurely. Because there are few intraday retracements, small losses can easily get out of hand. The worst catastrophes come from trying to average losing trades on trend days.
Raschke
To determine the effects of supply and demand, look for breaches of either support or resistance within whatever interval you're trading, particularly a breach with a quick and strong recovery (which belies the breach and suggests strong buying interest [demand] or selling interest [supply], whichever the case may be). If one is trading trend over the longer-term, he has little to do but sit on his hands until price breaks out or breaks down. If he chooses to trade the shorter-term, he can buy failures to break through support and short failures to break through resistance during those “balancing” or “equilibrium” phases.
.
.
To understand that price rises because demand -- or buying interest -- is greater than "supply" -- or selling interest -- is a no-brainer. The trick is to recognize these changes in balance or equilibrium in real time. Hindsight charts are fine for illustrating principles. In fact, they're nearly essential. However, one must then take the next step and translate those principles into a trading strategy that enables him to make decisions based on those principles in real time, e.g., "failure to breach". For example, one must at least locate in advance those areas or zones in which the aforementioned balance is most likely to change, then wait patiently until those changes actually occur, then act on what he observes.
.
.
Note that as the interval gets smaller, the opportunities increase, but so does the necessity for strict rules. For example, one of the arrows has an asterisk, there to show that while the swing point is lower than the immediately preceding swing point low, it is higher than the more significant low made the previous Friday. Therefore, "higher low" has no intrinsic meaning. The trader must instead place all of this in context and define very clearly just what it is that he is looking for.
In this case, if the trader were not already in, he most likely would not enter long at this point but wait for confirmation of an uptrend and enter at the next higher low (this occurs the next day, Wednesday). Or he may go ahead and take the risk, entering on Tuesday. While doing so entails more risk, it also may mean a tighter stop, depending on how the trader manages stops. There is thus no "best" way to manage the trade. After all, the trader may have entered long at the previous Friday low (12/8) and never have closed his long trade.
.
.
Looking back at the first chart, it would seem that there are few if any opportunities during November/early December since price has “stalled”. But the above and the preceding charts demonstrate that it all depends on your point of view. Even the very last day, represented above, offers excellent opportunities for relatively easy profits.
The first step for a trader is to determine the current trend of the market.
The second step is to determine one's place in the current trend.
The third step is to determine the proper timing of one's entry into whatever it is he's trading.
-- Richard Wyckoff
.
You may also download the above in pdf form below:
.
Total Comments 0
Comments
Recent Blog Entries by DbPhoenix
- Seven Habits of Ineffective Traders (05-13-2008)
- The Trading Log: Appendix (04-29-2008)
- The Trading Journal: Appendix (04-29-2008)
- The Trading Journal: Appendix (04-29-2008)
- Wyckoff the Great (04-26-2008)
