The purpose of this blog is to provide a comprehensive compilation of articles and posts which have been of great help to me in the past, or that I find very insightful, wise or containing a great deal of useful knowledge.
The original author of the text will be mentioned, so that those who are interested in the subject can explore it deeper.
The blog will consist out of several categories, some more theoretical, other containing charts and analysis.
Finally, this blog is, in a way, a continuation of the journal
I started in the public section on another site.
The original author of the text will be mentioned, so that those who are interested in the subject can explore it deeper.
The blog will consist out of several categories, some more theoretical, other containing charts and analysis.
Finally, this blog is, in a way, a continuation of the journal
I started in the public section on another site.
Analysis 10: June 20 ('bouncing ball idea')
Posted 06-21-2008 at 07:22 AM by firewalker
If ever there was a day "screaming" to go short, it was this day.
First, we need context. This was provided in the "How to end a trend" thread, post #27, see here.
The initial idea would be to buy the (potential) selling climax on support, if you were confident enough to buy when the trend is down. You would then notice, that there was a very strong rejection of resistance couple of days later, on June 17.
The next day, we ended up right back at support. So what does this tell you? Background: strong rejection of resistance, the next day we landed on support again. If you move from resistance to support that fast, sellers are clearly in control. This still doesn't mean we will break support.
Then we had Thursday. A smaller ranging day where we ended about in the middle. Despite buying off support (twice), price had a lot of trouble overcoming 1342.50 intraday. Eventually it did, it managed to get back to the other end of the range, and we saw selling come in, again at resistance 1349 (see chart).
Friday, June 20, we opened below support, but if you didn't short on the breakthrough, you could've entered when price turned support into resistance. After that price started falling sharply. Starting the night and the selling from 1349, we moved lower a lot and pre-market was very, very weak. When you see this kind of weakness approaching support for the 4th or 5th time, the odds are quite high it will give away. I didn't trade the ES yesterday, I shorted the DOW instead, but the principles are the same and the chart is very similar.
I'd like to think of it as a bouncing ball: the first time you throw it at the floor it has high enough energy to bounce back up. The second or third time it loses energy and bounces only inches up from the ground. Eventually there's no energy left and it stops. When there's no energy left from buyers coming in at support, price does not stop, but it falls through. Which is exactly what happened.
First, we need context. This was provided in the "How to end a trend" thread, post #27, see here.
The initial idea would be to buy the (potential) selling climax on support, if you were confident enough to buy when the trend is down. You would then notice, that there was a very strong rejection of resistance couple of days later, on June 17.
The next day, we ended up right back at support. So what does this tell you? Background: strong rejection of resistance, the next day we landed on support again. If you move from resistance to support that fast, sellers are clearly in control. This still doesn't mean we will break support.
Then we had Thursday. A smaller ranging day where we ended about in the middle. Despite buying off support (twice), price had a lot of trouble overcoming 1342.50 intraday. Eventually it did, it managed to get back to the other end of the range, and we saw selling come in, again at resistance 1349 (see chart).
Friday, June 20, we opened below support, but if you didn't short on the breakthrough, you could've entered when price turned support into resistance. After that price started falling sharply. Starting the night and the selling from 1349, we moved lower a lot and pre-market was very, very weak. When you see this kind of weakness approaching support for the 4th or 5th time, the odds are quite high it will give away. I didn't trade the ES yesterday, I shorted the DOW instead, but the principles are the same and the chart is very similar.
I'd like to think of it as a bouncing ball: the first time you throw it at the floor it has high enough energy to bounce back up. The second or third time it loses energy and bounces only inches up from the ground. Eventually there's no energy left and it stops. When there's no energy left from buyers coming in at support, price does not stop, but it falls through. Which is exactly what happened.
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