If You Can Draw A Straight Line . . .
- Thread starter dbphoenix
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dbphoenix, I'm enjoying your journal as you write with clarity and a nice style of descriptive words, very good English language use. Thankyou for your efforts. I think many mature traders are not posting on your journal as they do not wish to clutter it due to your very good method of covering the topic so well.
Ah, the truth comes out.
A different methodology, ON THE SAME TOPIC, is off-topic to you.
You enjoy your ET oligarchy. And good luck to all your free-thinking subjects.
Happy 4th
Db,
When retracements are spoken off, in cases where these are less than 50% of the preceding swing, the likelihood of trend continuing is taken to be higher than when the retracement retraces almost the entire preceding move. This is inferred to be resulting from the strength of the trend in that buyers are happy to jump in early (in case of Uptrend).
My question is that how does it reconcile with the view that we generally look for a close Higher Low or even Double bottom when looking for a Test which is seen at the start of the reversal of a trend.
Is it just that the logic/dynamics of Test are different so it is best that the S/R level is tested as close as possible. And this is different from retracements in a trend. Or is it something else.
Thanks.
When retracements are spoken off, in cases where these are less than 50% of the preceding swing, the likelihood of trend continuing is taken to be higher than when the retracement retraces almost the entire preceding move. This is inferred to be resulting from the strength of the trend in that buyers are happy to jump in early (in case of Uptrend).
My question is that how does it reconcile with the view that we generally look for a close Higher Low or even Double bottom when looking for a Test which is seen at the start of the reversal of a trend.
Is it just that the logic/dynamics of Test are different so it is best that the S/R level is tested as close as possible. And this is different from retracements in a trend. Or is it something else.
Thanks.
Interesting thread, little different from what I do, but at this stage studying the ideas of experienced traders can be very valuable in enhancing our personal techniques.
Thank you for taking the time Phoenix.
Thank you for taking the time Phoenix.
This is a cool thread.
ES honors trendlines and channel lines, greatly. Especially when drawn off the dailies, or higher.
Imho, one of the keys to successful trading using trendlines and channels, is a 4th point confirmation. Iow, once a trendline and channel is drawn using the standard three points, if price reacts to the trendline (support) or channel line (resistance) going forward, a fourth point has been "established" and the entire trendline and channel line, has been validated. That means in the future, after that fourth point reaction, there's a big chance, price will respect the channel and trendline when it hits it again.
What's cool, is even if the original validated trendline is broken, price will continue to honor that structure, if price manages to get back within that range. It's really the pinnacle of self-fulfilling prophecy. Lots of stuff going on in the markets, but this stuff is really pure psychology.
ES honors trendlines and channel lines, greatly. Especially when drawn off the dailies, or higher.
Imho, one of the keys to successful trading using trendlines and channels, is a 4th point confirmation. Iow, once a trendline and channel is drawn using the standard three points, if price reacts to the trendline (support) or channel line (resistance) going forward, a fourth point has been "established" and the entire trendline and channel line, has been validated. That means in the future, after that fourth point reaction, there's a big chance, price will respect the channel and trendline when it hits it again.
What's cool, is even if the original validated trendline is broken, price will continue to honor that structure, if price manages to get back within that range. It's really the pinnacle of self-fulfilling prophecy. Lots of stuff going on in the markets, but this stuff is really pure psychology.
In a word, yes
A "Retracement" is a pullback in a trend, one which enables the trader who ISN'T in to enter the move and which enables the trader who IS in to judge the strength of the trend and even to add to his position. A little-r retracement is used casually as a synonym with a pullback or counter-move. This can be confusing to someone new to the idea, but it is unfortunately unavoidable. Fortunately, the confusion doesn't last long.
A /\ or \/ move, then, may be a retracement but not a Retracement, i.e., price is retracing its steps all the way back to where it started. Thus the "trend" turned out to be a very brief one. This isn't necessarily "weakness" but rather a characteristic of the trading environment which suggests that traders don't know what they want to do and are thus running in place until they decide. A selling wave that is equivalent to a preceding buying wave, or vice-versa, is definitely NOT a signal in and of itself that price is heading off into the opposite direction. It's a sort of "let's try that again" reset.
As for various tests of support and resistance, they of course depend on the existence of support and resistance. If, for example, price is testing support with a double bottom or a higher low, or even a lower low that rejects the lower low position like it touched a hot stove, then one can be reasonably confident of a reversal. However, if there's no identifiable support there, the "reversal" may be nothing more than a retracement in an ongoing downmove, and traders who take every 2B and 123 and Ross Hook and Dunnigan Swing (and so forth) that they think they see end up with a great many counter-trend trades and a great many losses. And a great deal of confusion.
This is not to say that all reversals take place at easily identifiable support and resistance. Sometimes they occur in the middle of nowhere, for no discernible reason. But that doesn't mean that one should take them all on the offchance that they might turn out to be legitimate. The probability of a reversal turning out to be a true one is far greater at S or R. Therefore, the trader who wants to avoid trading counter-trend will avoid trading reversals that may not be reversals at all unless he has damned good reasons for doing so. Trying to catch the reversal just because you missed entering the original trend is not a good reason.
One of the reasons why I came up with the idea of using demand lines and supply lines was to avoid jumping into false reversals. Those who've read Dunningan's One-Way Formula will have seen the difficulties in trying to catch reversals even with clearly-defined criteria. As good as these criteria may seem in theory, the practical reality is that one makes one counter-trend trade after another until the reversal finally comes, at which point one is so far in the hole that even a substantial reversal move may do no more than bring him back to breakeven. A simple D/S line serves as at least a reality check, though nothing is 100%.
A reminder that this thread is not about trading trendlines and trend channels but rather trend (and support/resistance and demand/supply). While one must know whether price is trending or ranging, and, if trending, whether the trend is up or down, focusing on trendlines and trend channels can lead to all sorts of problems, the chief one being the development of a conviction that trendlines and trend channels provide support and resistance. And they don't. They can't. And one who has been persuaded that they can may end up with a chart that looks as though it's had a handful of raw spaghetti spilled on it.
The job of a trendline, and a trend channel if price forms one, is to show trend. Thus it really doesn't even matter whether or not the line is drawn particularly accurately, though accurate is better than sloppy. But while the trend is "in the market", the line the trader or his software uses is not. Therefore it cannot provide support or resistance any more than any other overlay the trader manufactures and applies to his chart. After all, price is going to do what price is going to do whether the trader even uses a chart at all.
The job of a trendline, and a trend channel if price forms one, is to show trend. Thus it really doesn't even matter whether or not the line is drawn particularly accurately, though accurate is better than sloppy. But while the trend is "in the market", the line the trader or his software uses is not. Therefore it cannot provide support or resistance any more than any other overlay the trader manufactures and applies to his chart. After all, price is going to do what price is going to do whether the trader even uses a chart at all.
I couldn't have picked a better time to start this thread. So many interesting things are going on. Currently, for example, there appears to be a trend change going on in the ES. The trend is still down, but it's angling upward. If this is the case, this upward drift would account in large part for the bounce in the NQ from its daily trend midline on Wednesday.
Plotting a new trend channel for the ES would indicate a reversal at 30, which is where it reversed this morning. Whether or not this pans out remains to be seen, but if a trend change is in fact in the offing, a higher low can be expected in a week to ten days.
As for the NQ, its trend has not changed. If it had, price would have reached 80 today. Still, it got to 70, and that may be enough. As with the ES, if a trend change is in the offing, a higher low can be expected in a week to ten days.
Since this is all up in the air, the daily trend channels and their midlines can't be used for reliable estimates of when and where prices will revert to the means. The hourlies, therefore, will take on added importance. Whether or not they will be enough remains to be seen.
Plotting a new trend channel for the ES would indicate a reversal at 30, which is where it reversed this morning. Whether or not this pans out remains to be seen, but if a trend change is in fact in the offing, a higher low can be expected in a week to ten days.
As for the NQ, its trend has not changed. If it had, price would have reached 80 today. Still, it got to 70, and that may be enough. As with the ES, if a trend change is in the offing, a higher low can be expected in a week to ten days.
Since this is all up in the air, the daily trend channels and their midlines can't be used for reliable estimates of when and where prices will revert to the means. The hourlies, therefore, will take on added importance. Whether or not they will be enough remains to be seen.
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