Ghost of If You Can Draw A Straight Line

[dbphoenix]

I've been asked about the difference between demand lines and supply lines on the one hand and trendlines on the other. Searching for relevant posts brings back far too many hits. And explaining it in words doesn't do much good, so I'll show you.

You can, of course, call all of these trendlines as long as you understand what each of them is supposed to do. If you don't, then they're just lines.

 

[Tonkadad]

A picture is worth a thousand words ($).

Perfectly clear.

 

[dbphoenix]

Re this morning's chart, when it comes to a showdown between "resistance" and AMT, AMT -- in this instance -- won:

Now on to 60?

 

[boru]

Db would it be prudent to redraw the channel on the 60 min in lieu of recent PA?

 

[dbphoenix]

Db would it be prudent to redraw the channel on the 60 min in lieu of recent PA?

Why?

......

 

[dbphoenix]

Given all the new journals which are focused on price action, it seems an appropriate time to repost this;

I post this here -- from another site -- not because I'm mentioned but because I like the sentiments expressed regarding the path one chooses and the value that can be obtained from a trading forum (if one can shovel aside what can sometimes seem like insurmountable piles of drek):

If you accept that trading can't really be taught or handed over to someone via posts or words, and that the main features of successful trading have been disseminated over time by the market wizards and others. Then all that is left is for one to spend time on it themselves, develop their own understanding and carve out their own niche. If they already have carved it, then all that is left is to repeat truths that are known for a 100 years to the new generation, discuss any differences in the current cycle and shoot the breeze with others. Trading forums provide an option for this for both the newcomer and the experienced.

So they provide an option for the successful to get rid of some of their boredom and feel like they are giving back, and for the newbies to get rid of some of their frustration at losing, and find comfort in the herd. That is why they work, in an industry where you would think a trading forum can't possibly work because it is all competitive and everybody's interest should be in others losing. Amazingly there are a few who do want to help. Is it down to some underlying guilt at knowing that they are taking the money of others on a daily or weekly basis?

In these ways, trading forums all offer something 'useful'. Maybe not so useful in developing an edge, but useful for the psyche. Unfortunately, as with nature, parasites develop, who see the whole thing as prey of which they can suck blood from. They may be your common garden vendor or may be even the site owners and admin. These become an irritant to the other species, but if nature finds mosquitos and leeches necessary, then they must be needed in the system somehow. Perhaps someone can enlighten us as to why they are necessary.

The worst site for this parasitic infestation seems to be ***** ******* (and I don't think that's the one you are referring to as the zoo). ***** was vouched for by all the gurus over there. ******* vouched for him too, and is also vouched for by dozens of others there, but he probably can't trade either, and was outed by one of his own members (although the cover-up was quick). There are at least half a dozen off shoots of ******* and I'm sure the list could go on. ****** seemed to disappear prior to all the scandal. Seems like these people are working together.

From what I've seen, there are lots of gurus and vendors with cherry picked charts on all of these sites. Very few have held up to my own testing - that is testing whether what they say is true and whether they can speak clearly rather than talk in generalities.

DBPhoenix was one of those from here that did stand up to testing. There are two or three other posters here that also have stood up to testing.

Here is something for the new trader: If you can't find an edge, don't worry too much, unleveraged buy and hold for indices or a basket of well chosen stocks is profitable if you can afford to wait. Add a bit of timing to it, and you've got something good. Of course there are better ways to trade, but if one is stuck in the myth that nothing works, and hasn't found anything good yet, well there you go.

Seeker
​

If one hangs around long enough, eventually those who claim to be expert traders will say something that suggests that they are not expert at all, or even trade. This something may have to do with indicators, or trendlines, or "randomness", or mean reversion. One may even discover that a respected member who has been around for years has never gone beyond paper trading.

Therefore it behooves the beginner to ignore -- as soon as and as quickly as possible -- most if not all what is posted on message boards and rely on the only entity that matters: the market itself.

As Gringo posted in another thread:

The author [Wm O'Neil] of the book, How to Make Money in Stocks, gives an example of a Harvard professor, who asked his class to submit and assignment about fish. He failed them all because they used all kinds of resources to gather information , but none of them bothered to gather direct evidence. "If you want to know about the fish" said the professor, "then observe the fish swim." (Quotes here are probably not exact as it's been a long time since I read that book)

The same applies to trading. All your gains and losses are dependent on one thing and one thing only. And that thing is price. Your gains and losses are not depended on what the president said or did, but what the price did. Yes, everything is inter-linked but the price will determine whether you're profitable or not. Highly obtuse philosophical erudition isn't going to make it simple for you to comprehend, let alone translate to a profitable trading plan.

You need to observe price yourself and come to your own conclusions. This literally means start looking at price and how it behaves, and how it it turns and all the variations in between. Those with no prior knowledge have an extremely high chance of getting it figured out quickly if they don't get lost.

It is up to you to decide what kind of a trader you wish to become. You need to first find out how to do it, and then how to find an edge.

All we can offer is advice, of which some you'll comprehend, and some you won't. In time the veil can part, but it will require focus, dedication and discipline. You are young, ambitious, and aware of what you want. You already have a slight edge. However, there are no guarantees in this business. [The] Majority fail.​

Finally, a note about what one sees, or thinks he sees, in charts, much less the conclusions he draws from these "observations":

Put simply, support is the price at which those who have enough money to make a difference are willing to show their support by retarding, halting, and reversing the decline by buying. Resistance is the price at which those who have enough money to make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls this money professional or big or smart or institutional or crooked or manipulative or (fill in the blank) is irrelevant. If repeated attempts to sell below this support level are met by buying which is sufficient to turn price back, these little reversals will eventually form a line, or zone. Ditto with resistance.

A swing high or low represents a point at which traders are no longer able to find trades. Whether that point represents important support or resistance will be seen the next time traders push price in that direction. But everyone knows this point, even if they aren't following a chart. It exists independently of the trader and his lines and charts and indicators and displays. It is the point beyond which price could not go. Hence its importance, both to those who want to see price move higher and those who don't.

Therefore, before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, Fib level or whatever) -- may be only incidental to what is truly providing that support or resistance.

A fundamental misunderstanding of how "indicators" are calculated and what they're supposed to do can lead to all sorts of off-task behavior. We think we see the indicators indicating something, or not, and believe we have made an important discovery. We then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on determining whether or not the indicator is actually indicating what we think it's indicating. In most if not all cases, it isn't.

Consider the virgin being tossed into the volcano: sometimes it results in a great crop, sometimes it doesn't. Maybe tossing her in earlier or later will change the probability of a healthy crop. Maybe two virgins are better than one. Maybe six. Maybe tall virgins are more effective than short ones. And surely age is important. But does the robustness of the crop really have anything to do with tossing the virgin into the volcano in the first place?

The money under the pillow is not evidence of the existence of the tooth fairy, and spring will arrive regardless of whether the virgin is tossed into the volcano or not.​

 

[dbphoenix]

I've been asked about a few "nuances" with regard to trading price that come up fairly frequently but which may be unnecessary distractions to those who are trying to learn this.

First, again, one should read the first post to this thread. In that post, links to the first three threads are provided. There is also a link to the stickie at the end of the first thread which recommends important posts in the initial thread. All this amounts to about 40 posts, not 4000.

Once one has finished that, then it's time to review the plan for the plan, i.e., how one is going to go about developing a plan. I will repeat here again that the journal is not a trading log. It is not set up to provide calls for those who are looking for tips. Rather the journal is a record of the journey. It begins even before the journey does, i.e., what one plans to do to prepare for that journey. The actual development of the trading plan takes place much later. So to postpone the journal until one is well on one's way is to misunderstand the whole point of the journal.

Beyond that, if one is going to focus on trading price, then the How To Do It info will be of help.

After all that, the "nuances" I referred to earlier may make more sense and may be of more use.

The first is the "climax" and "climactic volume". During these climaxes, lines aren't going to be of much use. It will be the dynamics of the climax and the test that will tell you when to enter.

The second is "The Dog That Didn't Bark" (TDTDB). This came up yesterday regarding that higher low a couple of minutes before the open.

A third is the WTF entry.

There is also the matter of the "stealth" entry, but that has to be explained live. I'll see what I can find.

 

[dbphoenix]

Interesting hinge today, tho one has to zoom out or go to a larger bar interval to see it easily. I read somewhere or was told that if price does not exit the hinge by the time it is two-thirds of the way toward the apex, it will more likely just dribble out the end and go nowhere, at least for the time being. This has proved to be the case so often it's almost a rule.

Looks like we may just make it to 80 after all.

 

[niko]

Thank you, this will clear the doubts some of us had about how to spot these in RT.

I've been asked about a few "nuances" with regard to trading price that come up fairly frequently but which may be unnecessary distractions to those who are trying to learn this.

First, again, one should read the first post to this thread. In that post, links to the first three threads are provided. There is also a link to the stickie at the end of the first thread which recommends important posts in the initial thread. All this amounts to about 40 posts, not 4000.

Once one has finished that, then it's time to review the plan for the plan, i.e., how one is going to go about developing a plan. I will repeat here again that the journal is not a trading log. It is not set up to provide calls for those who are looking for tips. Rather the journal is a record of the journey. It begins even before the journey does, i.e., what one plans to do to prepare for that journey. The actual development of the trading plan takes place much later. So to postpone the journal until one is well on one's way is to misunderstand the whole point of the journal.

Beyond that, if one is going to focus on trading price, then the How To Do It info will be of help.

After all that, the "nuances" I referred to earlier may make more sense and may be of more use.

The first is the "climax" and "climactic volume". During these climaxes, lines aren't going to be of much use. It will be the dynamics of the climax and the test that will tell you when to enter.

The second is "The Dog That Didn't Bark" (TDTDB). This came up yesterday regarding that higher low a couple of minutes before the open.

A third is the WTF entry.

There is also the matter of the "stealth" entry, but that has to be explained live. I'll see what I can find.

 

[dbphoenix]

An enormous difference exists between debating policy and managing assets. They are two radically different activities. You folks are talking at cross purposes.

Grad students can go to Cafe Reggio on MacDougal Street, smoke clove cigarettes, stroke their goatees and debate this philosophically all night. That’s fun, and its what you are supposed to do in grad school.

However, that is an indulgence of the student philosopher.

Anyone who toils in the markets professionally or manages money for other people does not get to enjoy such a luxury. Their job is not to opine on such matters, but rather, to manage cash in the environment that is — the world that exists presently, and is likely to exist in the near future. It is not their role to manage money based on the way things ought to be rather than the way things are.

I think of myself as a Sailor, and my job is to navigate the seas on behalf of my clients/passengers.

Any good sailor knows the Seas, the prevailing tides and the lunar cycle, He understands the trade winds. He must know how to read charts, the weather, the sky & clouds. He anticipates the changing seasons. He can navigate by the stars.

A good sailor knows his boat inside and out, and can make repairs with whatever is at hand.

An experienced sailor knows when to ride out a storm, and when to turn around and head to the safety of port.

An old salt, a professional sailor, he knows when the sea is angry, when the storm gods are vengeful, where the sea monsters live.

The sailor that knows all of that, and is a little bit lucky, might return home to port alive. The rest don’t stand a chance.

You can discuss the sea and the storms and the serpents all you want, but all this chatter is mere spit in the ocean. Stop talking, and start sailing.

--Barry Ritholtz