Case study - breakthrough - why it happened there?
- Thread starter exnergy
- Start date
Hi, it's me again, the guy with the unhelpful answer.
What I really wanted to explain in my first answer, is that it's not possible to know why price moves all the time, and that anything can happen any time.
This is because supply & demand ultimately determines price, and supply & demand are driven by people's subconscious valuations, and not mechanical principles.
This is why indicators only work some of the time. They work only when the supply & demand conditions are right for that indicator. In trending markets, trend-following indicators work well. In ranging markets, oversold/overbought indicators work well. In news-driven markets, no indicator works well, because people's valuations change very fast as they interpret the news.
The job of the trader then becomes predicting when these conditions will continue, and when they are likely to change.
The reason so many look at price and volume for change of conditions rather than indicators is because most indicators aggregate past volume and price data. They must then by definition signal a change of conditions later, or at best, at the same time as price and volume do (usually it's later). Also, most indicators work only on one dimension, either the price, or the volume dimension. Looking at both volume and price is usually more fruitful.
If you are an intraday futures trader, then you must experience many days of trading before your mind will pick up any patterns that signal change of conditions.
I personally do not trade futures intraday, so I don't look at the intraday chart too often, but I have made some notes on your chart that show places I think signal changing supply & demand conditions.
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2119705" width=800>
Click image to enlarge
Point A
The three first bars were up bars on expanding volume and expanding range. Nothing unusual so far. But the bar at point A is interesting. The price moved a little lower. Does this by itself mean that the trend is over? Of course not, this could just be a pullback before we continue higher. What makes this bar interesting is the volume. The volume is higher than the last bar, which was a big white candle. Why didn't the bar at point A then move even higher than the last one then? The only logical explanation is that there was aggressive selling. Does this mean that the price will go down? No. This just means that we should be cautious about going long, because there might still be more sellers up at that price. If we had a retest of that price level that failed we might consider going short. Here we didn't get a retest. The closest thing to a retest was a white candle three bars later that was quickly refused by the next black candle at higher volume. Not a great signal, but it shows some difficulty for price to go higher. The next candles all make lower lows. The people that bought at the first four candles are probably becoming really frustrated. In the end, some of them decide to sell, and we get a larger black candle. Now that they see that candle, the rest of those who bought at the first 4 candles are beating themselves up and have to sell to end the pain, and also those who wanted to go short are also beating themselves up for not shorting earlier. Later we get a small pullback on low volume but it gets rejected, and we continue downward.
We make some lower lows but volume is drying up, which means that probably most of those who wanted to sell have sold already.
We're moving into mid-day where there is usually little activity. It is extremely normal to see a "U" shaped volume pattern in a day. With so little activity, there is not much opportunity either way.
As we're nearing the afternoon, we expect activity to rise again, and it does. I usually don't place many trades in the afternoon, as I find it a really difficult environment.
We break down and out of the midday range, but we get a pullback really soon, which makes us a bit suspicious. After the pullback we make lower lows, but volume is drying up, which again makes us suspicious. If price is falling but volume isn't rising, then probably there aren't so many people who need to cut their losses anymore.
Next is the big white candle on the largest volume of the day. You probably wish I could tell you that this was predictable, but to me, it wasn't. Yes, we had a momentum divergence (probably) before it, and as said above, the lower prices didn't attract activity, but that is just a signal that something might be changing. It doesn't mean "go long immediately!"
Point B
Easier to interpret is point B. It has the same high volume as the previous bar, but the price doesn't advance much despite the volume. In fact, it closes in the middle of its range. Once again, the only logical explanation is aggressive selling. This is usually a negative sign in my experience, especially on such high volume. But it doesn't by itself mean that we must reverse and go lower right away. Anything can happen, and we could get even higher volume later and go higher. Here though, we get a volume peak at point C, on a really negative looking candle. The close in the lower of its range along with high relative volume informs us that price has probed higher levels, but been rejected by aggressive selling. We would be very cautious in entering any long positions here. Combine the interpretations of point B and point C, and together they form a strong signal that something has changed, and that the conditions that gave us the large white candle aren't there anymore.
PS: Volume does not lag price, it is just the second number that describes a transaction. The last transaction is described by the last price and number of shares traded at that price.
For example, the bid/ask is currently
200 shares offered at $31
100 shares bid at $30
Next, a transaction happens. Someone buys 100 shares at $31. Volume happened at the same time as price.
PPS: I just want to emphasize again that I do NOT trade futures, and that my interpretations are just speculation based on some basic economic theory and a little experience watching the intraday charts, and a lot of watching and trading of daily charts. You should experience many trading days and discover patterns yourself. Only after discovering them yourself can you intuitively know what is high and what is low probability.
Thank You guys for the last 2 pages,they are confirming my way of thinking I have not disclosed at the beggining to avoid implying anything.
The third, successful breakthrough occured late in afternoon, and there was a chance that it will be bigger than formerly generated also because - as I remember - there were signals confirmed by higher timeframes - so market participants who look at i.e. 15 min charts joined the move - I suppose.
And that was time , the high time - for movement before US markets opening (due to time difference - it is for my timezone 15:30 hours).
I really appreciate Your messages, so If You will notice anything more, please post it.
PS. Maybe I am newbie to the forum, but not entirely to the markets
PPS - I see price action is very popular lately. I use also pivots and candle formations. Still learning, still trading
The third, successful breakthrough occured late in afternoon, and there was a chance that it will be bigger than formerly generated also because - as I remember - there were signals confirmed by higher timeframes - so market participants who look at i.e. 15 min charts joined the move - I suppose.
And that was time , the high time - for movement before US markets opening (due to time difference - it is for my timezone 15:30 hours).
I really appreciate Your messages, so If You will notice anything more, please post it.
PS. Maybe I am newbie to the forum, but not entirely to the markets
PPS - I see price action is very popular lately. I use also pivots and candle formations. Still learning, still trading
Plenty of ways to look at this. Elliot waves often have the 4th as a triangle so expect a 5th down
There's a clear triangle that's got hanging PA on the top and your indicators are calling down. It's a pretty clear, clean Sine Wave so the the break down was no suprise as it's out of time and space.
Your MACD was continually sliding down calling for weakness.
You can read the bigger timeframe in this by looking at the triangular consolidation. The red line shows the 50% resistance that came in to play later, but the point is consolidation below this level is weak so the call is odds on lower.
The bigger time frame indicators should be confirming the downward pressure and as such are leading the call down.
There's a clear triangle that's got hanging PA on the top and your indicators are calling down. It's a pretty clear, clean Sine Wave so the the break down was no suprise as it's out of time and space.
Your MACD was continually sliding down calling for weakness.
You can read the bigger timeframe in this by looking at the triangular consolidation. The red line shows the 50% resistance that came in to play later, but the point is consolidation below this level is weak so the call is odds on lower.
The bigger time frame indicators should be confirming the downward pressure and as such are leading the call down.
Maybe one suggestion from me : We are looking at the completed chart now.
But please take a look at this like You had to make a decision in real time, before it happened - cause there was so little time to act when bigger black candle appeared that only few could go short "after" volume move etc..
Now it is getting tougher to analyse
But please take a look at this like You had to make a decision in real time, before it happened - cause there was so little time to act when bigger black candle appeared that only few could go short "after" volume move etc..
Now it is getting tougher to analyse