All You Need... is a Chart

[All You Need... is a Chart]

Well, isn't your thread about utilizing supply and demand to one's intra-day trading benefit? Stochastics and %R are merely technical indicators that help determine overbought and oversold status, so they can serve as tools to support/implement your chart theory.

[All You Need... is a Chart]

This happened only a week ago, and at the time - rather than at the end of the day - I described what I would do, depending on the market action. It underlines the importance of having predetermined scenarios, so that you'll know what to do, when you see it. Anyone reading this, should position themselves "in the flow" of the moment.

 

Within a couple of minutes we have the 'ISM Non-Manufacturing Composite' number which will have a definite affect on the markets. By determining beforehand what action is possible and where this action takes place, we can position ourselves better.

 

Now, there's not much time left (7 minutes) but I'm typing this as we go along.

Attached is a DOW futures chart, with important support and resistance levels drawn on the chart. I have 13030 and 12930 as resistance and support, the midpoint is 12980, which is often an important area where price returns to, when trying to find value.

 

Notice how on Friday price went slightly below 12970 but kept very much around the 80 level. Also today, since the open we moved lower and touched 12977 before going up again slightly. A long entry would be fairly aggressive there, but it's possible...

 

Now, what do we look for?

 

(a) if the news is bad, we'd expect price to go lower, but we'd like to see buying come in around the potential support at 12970. Going long immediately would therefore be risky, but if we get confirmation that price is holding support (for example by first spiking through it but then closing all the way up again above support), this could trigger a buy signal.

 

(b) if the news is bad and 12970 is broken straight away, we stand aside and wait for price to find support lower (preferably around 12920-12930)

 

© if we move up on the news than we missed our entry, but too bad. Then we wait and see how price reacts to resistance at 13030 and see if we get a short signal.

 

[ATTACH]6361[/ATTACH]

 

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And this was posted immediately after the news, after I made an entry:

The ISM number was 52, better than forecast. So we spike up... but, this is a spike into resistance. Now, like I said we wait to see what the reaction to 13030 is. However, by waiting I don't mean minutes, because by then the chance to get in early will have passed. That's why I attached a blow-up of the action, a 15-second chart. Notice how the bar closes at 13029. Coincidence? Of course not. This is where selling pressure comes in.

 

If you look at this from a 1-minute bar or 5-minute it's still easy to see that price fails at this level. Although, the longer you wait the less obvious it's going to be that a nice short entry presented itself, with a stop around 13040 or so.

 

Now, forget about the news for a minute and just observe. How does it help you knowing that there was news and what the figure was? It doesn't. The fourth rule therefore is that you don't need to know what moves the markets, you only need to see the resulting action. Whatever the cause, price is being pushed down because there's a lot of supply at that level. The volume is huge, price fails, what more do you need to know? This doesn't automatically mean price will plunge, but at least you have a trade that you can ride back to the opening low, where you should expect price to find support again.

 

This example is meant to illustrate that the cause of what happens is irrelevant. Even if this would turn out to be a losing trade, it doesn't change the fact that you can see everything you need from the chart, without looking at the news.

 

[ATTACH]6362[/ATTACH]

 

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Anyone looking back at this day, without knowing when the ISM report was released can still see the high volume and the rejection of resistance. What matters is what you see in front of you, which is the effect - the net result - of the sum of all buyers and sellers. Knowing who is moving price or why price is moving in a certain direction, should not be our concern, unless we want to become financial analysts, instead of traders.

 

Note: below is a chart of the whole day so put things in perspective.

 

[ATTACH]6366[/ATTACH]

Forgive me if I'm missing the point, but aren't all these posts (one long thread) come down to supply and demand (combination of looking at volume and price action) and using stochastics and %R to determine overbought or oversold levels?