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DbPhoenix

Trading By Price

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Trading By Price

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Trading by price -- and "volume" (or trading activity) -- requires a perceptual and conceptual readjustment that many people just can't make, and many of those who can make it don't want to. But making that adjustment is somewhat like parting a veil – or taking the red pill -- in that doing so enables one to look at the market in a very different way, one might say on a different level.

 

One must first accept the continuous nature of the market, the continuity of price, of transactions, of the trading activity that results in those transactions. The market exists independently of you and of whatever you're using to impose a conceptual structure. It exists independently of your charts and your indicators and your bars. It couldn't care less if you use candles or bars or plot this or that line or select a 5m bar interval or 8 or 23 or weekly or monthly or even use charts at all. And while you may attach great importance to where and how a particular bar -- or candle -- closes, there is in fact no "close" during the market day, not until everybody turns out the lights and goes home.

 

Therefore, trading price and volume, or at least doing it well, requires getting past all that and perceiving price movement and the balance between buying pressure and selling pressure independently of the medium used to manifest or illustrate or reveal the activity.

 

For example, the volume bar is a record of transactions, nothing more. The volume bar does not "mean" anything. It does not predict. It is not an indicator. Arriving at this particular destination seems to require travelling a tortuous route since so few are able to do it. But it's a large part of the perceptual and conceptual readjustment that I referred to earlier, i.e., one must see differently and one must create a different sense of what he sees, he must perceive differently and create a different structure based on those perceptions. As long as one believes, for example, that "big" volume must or at least should accompany "breakouts" and clings to this belief as ardently as he clings to his rosary beads or rabbit's foot or whatever, he will be unable to make this perceptual and conceptual shift.

 

If you can work your imagination and use it to travel in time, you will have a far easier time of this than most. Imagine, for example, a brokerage office at the turn of the 20th century. All you have to go by is transaction results -- prices paid (and maybe # of shares) -- on a tape. No charts. No price bars. No volume bars. You are then in a position wherein you must decide whether to buy or sell based on price action and your judgment of whether buying or selling pressures are dominant. You have to judge this balance by what's happening with price, e.g., how long it stays at a particular level, how often price pokes higher, how long it stays there, the frequency of these pokes, their pace, at what point they take hold and signal a climb, the extent of the pokes, whether or not they fail and when and where, etc., all of which are the result of the balance between buying and selling pressures and the continuous changes in dominance and degree of dominance.

 

One way of doing this using modern toys and tricks is to watch a Time and Sales window and nothing else after having turned off the bid and ask. But this wouldn't do you any good unless you spent several hours at it and no one is going to do that. Another would be to plot a single bar for the day and watch it go up and down, but nobody's going to do that, either. Perhaps the least onerous exercise would be to follow a tick chart, set at one tick. Then follow it in real time. Watch how price rises and falls due to imbalances between buying pressure and selling pressure. Watch how and where these waves of buying pressure and selling pressure find support for and resistance to their movements. And when I say "watch", I mean just that. Don't worry about what you're going to do about whatever it is you're looking at. Don't worry about where you'd enter or where you'd exit or how much money you'd make or whether you'd have been right or wrong to do whatever. Just watch. Like fish in an aquarium. If that seems only slightly less exciting than watching concrete harden, or it's just not possible for you to watch this movement in real time, then collect the data and replay it later at five or ten times normal speed. You can do an entire day in little more than half an hour (though you won't get any sense of real-time pace). Granted this means a lot of screen time, even in replay, and only a handful of people are going to do it. But those few people are going to part that veil and understand the machinery at a very different level than most traders.

 

Once the continuous nature of these movements is understood, the idea of wondering -- much less worrying -- about what a particular volume bar "means" is clearly ludicrous, as is the "meaning" of a particular price bar or "candle" (including where it "opens" and "closes" and what it's high is and so forth), and eventually the trader may come to the realization that all those people who've been insisting that these bars have some cosmic meaning have been trying to sell him something, i.e., DVDs and courses and software and seminars (box lunch included) and so forth that explain what these meanings allegedly are.

 

If the continuous nature of these movements is not understood, then the trader spends and wastes a great deal of time over "okay so this volume bar is higher than that volume bar but lower than this other volume bar, and price is going up (or down or nowhere), so...".

 

And if you're really into this, you may be interested in my eBook, Trading By Price, which is a much-revised, expanded, updated, integrated and generally improved version of the old, unimproved Trading By Price. The new version has three parts: the SLAB (the SLA/AMT Book), a resurrection and dusting-off of the pertinent sections of Db's Burrow (for those with long memories), and Notes (which is a combination journal and diary, regularly updated until I run out of thoughts), altogether something just over 400p.

 

The Table of Contents is as follows:

 

Part I: The SLAB

 

Section I

The Mind Game

 

Section II

Developing a Trading Plan

The Trading Journal

The Trading Log

 

Section III

Straight Line Approach, The

Wyckoff and Auction Market Theory

Glossary

Appendix A: The Hinge

Appendix B: The Dog That Didn't Bark

Appendix C: The Law of Supply and Demand (1931)

Appendix D: A Wyckoff Practicum

Appendix E: Characterizing a Market

Appendix F: On Fear

Appendix G: Trading the SLA Intraday

Afterword

Part II: The Burrow

 

How to Read A Chart

Bases

Rectangles

Demand/Supply

Stalking the Wild Equity

Valuation

Trendlines

Post Cards

Appendix: Bottom Fishing

 

Part III: Notes

 

Climaxes and Climactic Volume

Volume and the Tick

The Law of Supply and Demand

Judging the Market by its Own Action

Buying and Selling Waves

The Springboard

Trading Opportunities

Back-Testing

Emotionless Trading

Exits

Trend

Coaching, Mentoring, Trading Rooms, etc.

The Danger Point

The Price of Admission (risk)

Art Class

Q&A

Trade the Behavior, Not the Pattern

Please Sir, May I Have A Trade

Equilibrium

What Am I Bid

Easy Street

Messages

How Long Does It Take

Where to Start

 

The "SLAprvTOC" pdf attached below is a condensed version of the SLA/AMT and acts as an introduction to it all, largely to enable the individual to decide whether or not this is something in which he might be interested. Those who are may contact me at dbsburrow@gmail.com. The pdf also includes the Table of Contents above (TOC)

SLAprvTOC.pdf

Edited by DbPhoenix

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