[taks1990]

Thank you very much DB - your comments are really useful.
So, in terms of interpreting the first chart, do you think the bulls and bears were simply battling for control and there was no clear bias at the time?

Also, you make an interesting point with regard to volume - although I am trying to study volume, I often question if it is of any use - I think you mention in your ebook that as long as the price dynamic is in your favour, volume is not important (this is not a direct quote - just my understanding).

e.g. I'm currently doing a replay where the market is continuing to push up persistently and volume is falling all day. Just wondering what your thoughts are on this?

Thank you

[DbPhoenix]

Originally Posted by taks1990 »

Thank you very much DB - your comments are really useful.
So, in terms of interpreting the first chart, do you think the bulls and bears were simply battling for control and there was no clear bias at the time?

Also, you make an interesting point with regard to volume - although I am trying to study volume, I often question if it is of any use - I think you mention in your ebook that as long as the price dynamic is in your favour, volume is not important (this is not a direct quote - just my understanding).

e.g. I'm currently doing a replay where the market is continuing to push up persistently and volume is falling all day. Just wondering what your thoughts are on this?

Thank you

If you're referring to the very first chart, i.e., the "quoted" chart, then for that overall period, buyers and sellers were pushing and pulling price throughout with little progress toward one side or the other, ending in what amounts to a draw, or a state of "balance", or a state of "equilibrium".

But that's not how trading works. Trading is not "here's a trade from this morning" or "here's a trade from yesterday". Trading is "it's 09:46; what do I do at 09:47?" or "price is at 146.25; what do I do if it hits 146.50?" All you have when you're ready to begin is what came before. One hopes that you know where support and resistance lie. Maybe you have a support or demand line that looks dependable. But the uppermost questions in your mind are (a) what now? and (b) what do I plan to do about it? Couldawouldashoulda has its place, but the step into trading the right edge (Here There Be Dragons) is a high and often insurmountable one.

There are many trading opportunities here that are more easily seen if one backs up and focuses on the movement as it occurs rather than view an entire day or so as a lump. For example, let's back up a bit from my first chart, all the way back to the previous day's close:

Here you have a shot of trading activity right at the close, propelling price all the way to 909. But then what? Most people are getting ready for Happy Hour. But others are continuing to trade, or are just getting ready to. What's available for them? Let's look first at the shaded area:

Notice first that there seems to be no volume at all after the close. Everybody's locked up, turned off the lights and gone home. But if you hang around and get past the fireworks, you find this:

Price has been in a one-point-wide consolidation for four hours, a long wait. But eventually it drops out of that for a test of demand. At 21:00, trading activity increases beyond the norm and preliminary support seems to be provided (price moves sideways for 15m as trading activity declines sharply, i.e., selling is withdrawn). Then price drops further and trading activity increases again. Here trading activity declines sharply again, and price moves sideways for another 15+m. Then trading activity increases again, not to the extent that it did 20m earlier, but price is propelled to 906.25. The behavior of price tells you that the increase in trading activity was an increase in demand, or buying pressure. Price drops back a bit, but it doesn't see 905 again. This is a shake-out and a buying opportunity.

Price then works its way back to that consolidation zone from 907 to 908 and subsequently drops below its demand line, finding support at 907, the bottom of the range:

When price tests this level again a little over an hour later and there's nothing urgent about the trading activity, you have another long opportunity. (Granted these point moves are not huge, but not everybody seeks huge point moves.)

The point is that looking back from the opening bell or later on the 19th, it appears that there's nothing going on here, and there is actually quite a lot going on here. And those on the other side of the world who trade during these hours can profit from applying the very same principles as those who trade during New York hours.

And if the bars begin to screw around with your head, plot your line chart again:

And if you refer back to the charts I posted earlier, you'll see that price tested 907 yet again at 03:30, providing yet another long opportunity, this one good for up to 8pts (though realistically probably a point or two less than that). And where does price land when that 08:30 report is issued? Right back at that same consolidation zone. You then have a shake-out during that 09:50 dip below support, and price takes off for 914.

And these are only a few of the trading opportunities that present themselves on both the long and short side. To look back and conclude that bulls and bears seem pretty evenly matched and that price is for the most part drifting sideways is to overlook these profit ops. In order to detect them, one must become at least acquainted with the principles, then back up and move forward, bar by bar. He will find that "right-edge" trading is a very different world.

As for volume (or trading activity), I addressed this at length in another thread, but I'll quote part of it here for convenience:

Until price reaches an area where a trading opportunity is most likely to occur, there's no reason to obsess over the minor ebbs and flows in volume. However, once trading opportunities are on the horizon, what might be considered directionless activity elsewhere suddenly becomes important.

Here, for example, when price comes back to 1966 the second time, the fact of the test is interesting enough. That it cannot make a lower low even with all the volume is even more interesting. The bullish boost at 1329-30 becomes more important because of what has come before, as does the volume recession when price pulls back to 1975. When another bullish boost occurs, beginning at 1352, it is significant, again, because of what has come before. And when price makes an attempt at a higher high at 1401 and volume isn't there, that again becomes significant because of what has become before and provides the "classic" double-top price-volume divergence setup for the short. Without the context, none of this matters, and volume is little more than traders going about their business. With the context, it becomes a high-probability short trade.

Hope all of this (a) makes sense and, if so, (b) is helpful.

[DbPhoenix]

Though I've looked at the 1930-31 analysis more times than I can remember and eyeballed the trendlines and support and resistance and so forth, I've never actually annotated the charts. MLB's suggestion yesterday -- and a lot of time on my hands -- and a comment I read about all of this being so "out of date" -- prompted me to go ahead and do it, at least for the first two charts in the triptych:

Trading ranges, support, resistance, midpoints, swing points, trend: it's all the same now as it ever was. And it really doesn't even require language.

[mjackson]

To use mental stops one has to be disciplined and confident...

[Mickey Caine]

Originally Posted by mjackson »

To use mental stops one has to be disciplined and confident...

And also may I say. AS MAD AS A BOX OF FROGS.

[atto]

Originally Posted by mjackson »

To use mental stops one has to be disciplined and confident...

Stops are used for several reasons, and all the confidence and discipline in the world won't afford the protection stops provide. In fact, it has little to do with discipline and confidence.

Wyckoff advised placing stops at logical places (below S, or above R) to protect oneself from an adverse move. Trading without stops leaves you wide open to market action past "danger points". In addition, stops give protection from unplanned predicaments, such as loss of internet connection or data feed. Even if you plan on manually exiting losing trades, you should also have a stop order in place.

Unplanned dangers aside, mental stops also breed perilous behavior, such as adding to a losing position, or rationalizing the loss ("I'll make this a long term play now", "It's only a loss on paper"). When the market stops you out, it is telling you something.

[firewalker]

It's been a while since I posted a decent analysis here, so for old times' sake (and also to keep the mind sharp), here's a review of today including the why and the how!

It's my personal perception, so don't take any of it as 'true' or 'right'. Comments are welcome. Attached is the NQ of today, 1 minute candle chart.

It's been pretty lackluster couple of days lately, with price action at times so slow that watching paint dry has been more fascinating... this is also the week leading into 4th of July, so I'm guessing lot of traders are sipping cocktails on the poolside instead of studying their charts!

Anyhow, before the day opened I had identified support around 1468-1470 (same level as previous days), resistance around 1508 and the previous day high (minor resistance) at 1492 and 1488 the midpoint. Incidentally, 1487.50 was the premarket high. So those were the areas I was looking to take a trade.

(1) Market opens and rallies towards PDH and fails to show much strength. I wasn't following the TICKQ, but I assume there was a divergence somewhere there. And shorting here, in hindsight, was probably the best trade of the day. Price pulls back towards 1485, makes another attempt and then stalls minutes before the hour. Where it stalls is interesting, considering it's +/- the midpoint of the bigger range. However, I didn't want to get shaken out by the news, so I stayed flat.

(2) At the hour there was a news report (CB consumer confidence), which explains the volume peak. But we already had signals that buyers weren't that interested in pushing price higher.

(3) Price falls, and there is no reason to take a long trade, the trendline isn't broken until after we reach support. At 1630 we have what looks like a selling climax but price falls further in the next minutes.

(4) However there's more interest from buyers (they clearly like 1469), and despite that price is stall falling, an aggressive long entry could be taken here...

(5) And price reacts off support (technical rally after selling climax), but volume takes off rapidly and the demandline breaks.

(6) And here price action is really zip at first... but if you zoom in it's actually a mini-hinge. Question is does it have potential, I like to evaluate where and when it takes place.

(7) playing around with support here... but we're still in lunchtime

(8) a bigger test, notice the higher volume. It's outside of lunchtime hours, but more importantly, it shows a poke below 1468 which immediately gets rejected and buyers rush to push price higher. Long entry here with 2pt stop (green dot).

(9) volume drops off after the reaction... it's like everybody stopped caring (notice the gradual volume dry-up almost to zero). It might be hard to see because volume is so tiny, but after a successful test, volume often dries up, in anticipation of a continuation.

(10) the rest of the day is just following the line of least resistance. The first 'target' would be the high of the technical rally at 1477.50.

(11) And by the time we get there, there's not much time left. So what you do here is up to personal preferences, but I called it a day (exited at purple dot) and started typing this.

Finally, I added some letters (A,B,C and D) to annotate volume peaks which I didn't pay much attention to. Partly because they didn't make sense to me, but most importantly because I couldn't relate price action to the rise in volume. Most of them occurred during lunchtime hours anyway.

[thalestrader]

Originally Posted by DbPhoenix »

Trading ranges, support, resistance, midpoints, swing points, trend: it's all the same now as it ever was. And it really doesn't even require language.

Excellent, excellent post, Db.

It took me longer than it should have, but I eventually learned that if someone has to invent an entire new vocabulary or lexicon to explain their interpretation of price action, rather than use the tried and true concepts that carried the earliest market practitioners to success, then they are not explaining price action.

Thank you for this wonderful example,

Thales