Ghost of If You Can Draw A Straight Line

[dbphoenix]

This was posted elsewhere but will likely be of interest here as well:

What is a bar? In the context of price data I mean, not in the context of booze and bouncers.

Wikipedia is no help at all.

Thankfully, there is Investopedia:

"Definition of 'Bar'

A graphical representation of a stock's movement that usually contains the open, high, low and closing prices for a set period of time.

For example, if a technical trader is working with daily data, one bar is the set of quotes for one day. In the case of one-minute data, it is the price data for one minute."

In short, a bar is an attempt to summarize price activity over a time span by reducing said activity to 4 key data points: the first price, the last price and the extrema.

The problem is that a bar is a semi-ordered data set that gives the illusion of full information. We know our starting point and our ending point but the only things we know that happened inbetween is that a given high was reached and a given low was reached. As to times or even order (did the low precede the high or vice versa?), we are completely in the dark in the vast majority of bars.

It has been my experience that the TA that works will most often resemble time-series analysis, where there is no question as to the order or the times of all the data points. There is no guesswork about the data in a true time series.

So mixing time-series analysis with bar analysis as some TA methodologies do will typically lead to inferior results IMO. Time series analysis is not designed to deal effectively with semi-ordered data sets, and jamming these two different constructs together either leads to failure or a new type of analysis that is rare or nonexistent in technical analysis today.

Constructive feedback welcome.

I wouldn't call it "new" as it dates back to the nineteenth century. As to "rare", yes. "Non-existent"? Just about. The pioneers of technical analysis began as tape readers, though one could go farther back to the days before tape, when quotes were posted on a board. Reading this continuous flow of price became second nature, so that at the end of the day, if they chose to summarize their observations in the form of a bar, they knew exactly what that bar represented: all the individual trades that took place that day. Thus when newspapers started publishing charts, these traders didn't see "bars" but clusters of transactions, just as someone who understands art sees not a "painting" but colors and tonalities and brush strokes and composition. This is not what beginners see today, particularly those who've been told that a bar of less than a certain interval is "noise".

Candlesticks are much worse, giving the impression that the action takes place in the "body" and that the wick -- or "shadow" -- is only of minor importance. Some candlestick traders plot only the bodies. But if they were to look at the transactions that created that candle, they might find that the bulk of the trades took place in the "wick" and only a few in the body. In fact, most of the transactions may have taken place at the high and the low during that interval with very little inbetween. Whether or not this contributes to the general inability to trade price is another subject.

 

[green.green]

This was posted elsewhere but will likely be of interest here as well:



I wouldn't call it "new" as it dates back to the nineteenth century. As to "rare", yes. "Non-existent"? Just about. The pioneers of technical analysis began as tape readers, though one could go farther back to the days before tape, when quotes were posted on a board. Reading this continuous flow of price became second nature, so that at the end of the day, if they chose to summarize their observations in the form of a bar, they knew exactly what that bar represented: all the individual trades that took place that day. Thus when newspapers started publishing charts, these traders didn't see "bars" but clusters of transactions, just as someone who understands art sees not a "painting" but colors and tonalities and brush strokes and composition. This is not what beginners see today, particularly those who've been told that a bar of less than a certain interval is "noise".

Candlesticks are much worse, giving the impression that the action takes place in the "body" and that the wick -- or "shadow" -- is only of minor importance. Some candlestick traders plot only the bodies. But if they were to look at the transactions that created that candle, they might find that the bulk of the trades took place in the "wick" and only a few in the body. In fact, most of the transactions may have taken place at the high and the low during that interval with very little inbetween. Whether or not this contributes to the general inability to trade price is another subject.

I've seen some of your older work on candlestick construction etc. Its good to see we all are still learning, you're just further down the track.

 

[dbphoenix]

AMT Strikes Again!

 

[bmwhendrix]

Beautiful, poetry in price. !

 

[dbphoenix]

Where we are:

 

[green.green]

I was looking at my own daily chart when you posted this. I know we've already gone over the differences with how different platforms handle merging contracts. I'm including my chart to show mostly how poorly thinkorswim does this. I'm already at the bottom of the channel. Its making me want to switch platforms.

DBP in your experience how important are yearly highs psychologically? I see we are getting close to getting below the 2013 high.

I've also included a screenshot of an equivolume daily of the NQ. I know volume should largely be ignored in the beginning (and maybe for ever) but I've been reading section 7 which is making me want to look closer at volume. Personally I feel that equivolume does convey volume information in a way that is much easier for my brain to observe price and volume together. I know you aren't a fan of candles and colors. Have you given any thought to this kind of charting?

Lastly in section 7 Wyckoff switches his long bias when he sees several high volume up days in a row that aren't making progress. If it is true that the bigger players do most of their selling on up moves and given that most of the recent significant volume has been on the down side, does this make it more likely that this is correction similar to the one we had at the end of January rather than a top?

If I should move these types of volume-related stuff to my journal I would be happy to do so.

 

[dbphoenix]

I was looking at my own daily chart when you posted this. I know we've already gone over the differences with how different platforms handle merging contracts. I'm including my chart to show mostly how poorly thinkorswim does this. I'm already at the bottom of the channel. Its making me want to switch platforms.

Check it against how your platform plots the NDX.

DBP in your experience how important are yearly highs psychologically? I see we are getting close to getting below the 2013 high.

Easy enough to check using the Nasdaq, which is only 20+yrs old.

I've also included a screenshot of an equivolume daily of the NQ. I know volume should largely be ignored in the beginning (and maybe for ever) but I've been reading section 7 which is making me want to look closer at volume. Personally I feel that equivolume does convey volume information in a way that is much easier for my brain to observe price and volume together. I know you aren't a fan of candles and colors. Have you given any thought to this kind of charting?

I've looked at it and didn't have any use for it. But if it tests out well for you, there's no reason not to use it.

Lastly in section 7 Wyckoff switches his long bias when he sees several high volume up days in a row that aren't making progress. If it is true that the bigger players do most of their selling on up moves and given that most of the recent significant volume has been on the down side, does this make it more likely that this is correction similar to the one we had at the end of January rather than a top?

Forecasting a top is pointless, particularly if trading it in real time. Therefore, whether one is looking at a correction or a top is irrelevant to making real-time trading decisions.

As to volume itself, it has nothing to do with supply and demand but with trading activity. The balance of supply and demand is illustrated by price movement. If you're interested in the subject, I suggest you read Section 14 and the Volume thread in the WF at TL.

 

[dbphoenix]

Given the usual remarks about how all of this is hindsight and therefore doesn't count, I'm wondering how many people can tell me the rules that were followed in order to trade this (below, a copy of what I posted Friday). At least half a dozen have already done so in other journals, but it would be nice to consolidate it all here, this once. And it would be good practice for those who are still learning.

 

[k p]

And it would be good practice for those who are still learning.

Here we go. The first set of lines envelope price into a hinge. We aren't looking at the pattern, but at the behavior. Here we have buyers that can't push the price higher, and sellers that can't push the price lower, so we get price "squeezing". Eventually price will have to exit, and its best if it does before the hinge closes. We break out the bottom.

The little dashed horizontal pink line shows a double top, but once again the behavior behind this is that buyers couldn't push the price past this point. Following SLA, and continuing from the downmove from the hinge, we have an entry position, one point below the top of the crest. Our hinge and double top provide double the confirmation if we are looking for more reason to put the trade on.

We follow the pink supply line down to the bottom. Two levels are marked, 50% of the move down and 50% from the last swing high which occured at the double top. There are marked in because if a retracement goes more than 50%, this would show weakness of the down move. In this case, price does not rally past the 50% of the down move, but we do touch 50% of the last swing high. We can look at this as strength in the down move though since we don't reach 50% of the down move.

At the bottom we break the supply line, and the little blue horizontal line shows a double bottom, an area where sellers tried to push price down even lower but couldn't on two occasions. We wait for a retracement and can enter again, following the demand line now. We break the demand line quickly unfortunately, so we are out, and then look for a short, which we get quickly.

This continues on for a couple of more times until we enter our last final short which just goes down and down. This is why its important to take each trade that SLA gives you because you never know when the next big move will start.

It is true that this SL down might have been hit and had to have been fanned a few times, but the keen price action trader is good at figuring out when the ultimate down move might be over and when its just a tiny retracement.

The 3640 level that is marked in we get from looking at the hourly charts. We see many instances in the past few weeks where price turns around and goes back up and this level. Buyers have found value at this level in the past and no reason why they wouldn't again. If I recall, i think this level might have even acted as resistance, an area that earlier buyers couldn't get past since very often levels first act as resistance and then as support. We are first and foremost watching price and basing our entries and exists on price, but being aware of these levels tells us where price is likely to go.

 

[bmwhendrix]

My hindsite chart.