Making of a method

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Chart attached for 5/2
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Db could you please comment on this analysis? Where were the big mistakes made?

Trade Review for today in an attempt to distinguish lack of skill from lack of luck.

Trade 1: This started off as a buy stop which was cancelled and turned into a sell stop.

a)Momentum had clearly slowed as price crossed DS line.

b)There was overhead R at 2882 as represented by retracement
crest. Price had tried to cross this twice in a span of 2 mins

c) There was was no obvious S below as price had just broken out in an uptrend from a range of 2876. So there were still quite a few points between current price and next major S zone.

d) My entry sell stop was about 1 point from retracement crest.

e) This trade got expensive because of the speed with which price moved against me. It found strong S at the LSL level and rocketed up. I kept waiting and it kept climbing.

Summary: I am not seeing any major issue here in terms of principles.


Trade 2:

a) Price had run into major R zone from pre market at 2887 and it had aslo broken the DS line, showing slowing momentum.

b) But the retracement covered a lot of distance and finished just a half point below the day's high. There was strong S right below me.

c) I had set the sell stop before the retacement showed it's strength. But failed to cancel the order once price showed me that a short here would run straight into the S just below. I basically sat back after placing the sell stop instead of monitoring the conditions.

Trade 3:

a) Watched price breach the TR and then bounce back.

b) Placed the sell stop just below previous breach low assuming that if price came here there was a good chance that S would be broken.

c) This was not a retracement entry. It was anticipating a breakout based on what price had done just a little while back.

d) Better option would have been for price to spend some time away from the range and then wait for the retracement before setting the sell stop. The retracement should not have crossed the R (previously S) zone for the sell stop to be valid.

Trade 4:

a) Price breaks away from the range and stays above it. No obvious R above. Plus S from the range. Plus day's trend is up. This makes it a good buy.

b) I give it time for confirmation. Then, it climbs higher and starts retracing. I am thinking retracement entry for a continuation.

c) The reversal does not drop to the left shoulder of the developing H&S pattern ( I am using this pattern reference now, I did not see it as such during RT). This is further proof of S and buyers joining in during the retracement.

d) Price drop sharp again and I am experiencing the same thing as in trade 1. I keep holding and it goes right back into the prior TR.
 
I had a question but did not want to post it in the "If you can draw a staight line" thread since that seems more for questions directly related to the NQ action at hand.

Also, I know most of these questions have been answered before. If you would rather that I ask general questions in TL so that people directly interested in Price action can benefit from it, I will do so. But then again, hopefully some people are reading this in here too.


I was reading the Auction Market note again and came across this:

"I'm sure everyone has noticed that swing highs and lows and the previous days’ highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume*. Price then reverts to an area where the trader finds it easier to close that trade. That's what provides that ballooning look to the volume pattern “A” in the following chart. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down."


I think I understand the VAP distribution. But I am having trouble with your statement about two different kinds of resistance.

What does it mean that traders cannot find a trade at a given level?

If there is no ask, while bids remain, would not price keep climbing higher?

I understand Resistance defined as traders selling out their positions or even selling short at a particular price level. But I am unclear about what this low volume/lack of available trades resistance is about.
 
Quote from game:

Db could you please comment on this analysis? Where were the big mistakes made?
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I'm not clear on what you're doing or why. You looked to buy at the right spot for your first trade, but why did you back off? There was no reason to exit until price reached 2884. As for the remainder, I can see a short effort at 0853, but you would have been stopped out pretty quickly. And after that there are no trades since you're in a trading range (and even though it's a "trading range", that doesn't necessarily mean that it's tradeable).

Perhaps you are allowing the lines to be your master, when they are supposed to act as your servants. What matters after all is price, and as long as it is continuing to move higher, who cares if it penetrates a line? Remember that the lines are from you; the price movement are from the market. You have complete control over the former and no control at all over the latter. Maybe they're pushing you into a level of mechanical that isn't right for you. Maybe you should do without them for a few trials and see if you are more sensitive to the price movements. I sure as hell don't have time to draw all these lines during the trading session.
 
Quote from game:

I had a question but did not want to post it in the "If you can draw a staight line" thread since that seems more for questions directly related to the NQ action at hand.

Also, I know most of these questions have been answered before. If you would rather that I ask general questions in TL so that people directly interested in Price action can benefit from it, I will do so. But then again, hopefully some people are reading this in here too.

Ask whatever questions you want wherever you want to ask them. Makes no difference to me. What matters is that the questions get asked.

I was reading the Auction Market note again and came across this:

"I'm sure everyone has noticed that swing highs and lows and the previous days’ highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume*. Price then reverts to an area where the trader finds it easier to close that trade. That's what provides that ballooning look to the volume pattern “A” in the following chart. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down."


I think I understand the VAP distribution. But I am having trouble with your statement about two different kinds of resistance.

What does it mean that traders cannot find a trade at a given level?

If there is no ask, while bids remain, would not price keep climbing higher?

I understand Resistance defined as traders selling out their positions or even selling short at a particular price level. But I am unclear about what this low volume/lack of available trades resistance is about.

If somebody wants to sell at a given price and nobody wants to buy at that price, then the seller has to lower his price until he finds a buyer. If he still can't find a buyer, he has to continue lowering his price until he does find a buyer. Meanwhile, those who bought at higher prices become concerned when they see their holdings becoming devalued by the minute and they begin to unload themselves, often at any price. This is how tops are made.

As to bid and ask, I don't do that. I'm interested only in actual transactions, not intentions.

As for low volume, that translates as low trading activity. The less trading activity, the more difficult it is to complete a transaction. It's always better to have a mob wanting what you have than only a handful.
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That helped. Going forward, I will assume that everything upcoming is going to be a range. This way, I won't try to get in early on range breaks that put me back inside it.

Also, will try to take trades where the trend is clearly established, even though that may mean missing out on part of the move.

On your chart: In the bar where you exited, price dropped to 2882. In RT, could this not be an indication of upcoming reversal, and a potential short entry? In this case, the next bar retraced all the way back to 2886 (so the strength nullified the short opp), but if it had not and gone till say 2883, then could this not be an opportunity for a sell stop down from retracement trough?

Also, for my last trade (the exit point was not shown in the chart): Why do you not see that as a break of the range at 9:02 and 9:03? Why are we still in range at this point (in RT of course)? Does not the break and the ability of price to stay above range, make it the start of an uptrend?
 
The bar you mention plus the next seven constitute a RET. You would not be stopped in to a short off any of them. You would not be stopped in to a short until the eighth bar. This is the case whether in real time or hindsight. All you'd be doing is tracking with a followstop until it got triggered. As for the "trough", this is a crest, like a dome. A trough is a dip or a scoop, like a feeding trough. If these confuse you, you needn't use them.

As for the last trade, fine, if you want to trade breakouts. I prefer to wait for a retracement after the breakout for the same reason as here: they too often fail.

About crests and troughs: http://cdn3.traderslaboratory.com/f...85418-re-trading-off-daily-charts-image57.png
 
From "The Practicing Mind" pg 53:

Hollywood has made the martial arts seem a form of acrobatics performed by superhumans whose goal is take on any number of opponents and defeat them, but this is far removed from the original nature of the martial arts. The different forms of the martial arts seem to teach the participants how to function in the present moment and to force them into this state of mind through a desire for self preservation.

5/3/13

Trade 1: -0.50
Trade 2: +0.50
Trade 3: BE
Net: 0

8:44: Set Buy stop at 2940.25
8:45 Buy stop hit
8:45 Exit Sell at 2939.75



8:58 Price is bouncing in a very right range. Springboard. Could go anywhere from here. But last buying wave was short.

9:00 Set Sell stop at 2940.75.
9:00 Sell stop hit.

Price has crossed the DS line but will keep holding and give it room till LSH of 2940
9:06 Exit Buy at 2940.25

9:20 Sell stop at 2939.50
9:21 Cancel sell stop

9:30 Buy stop at 2945.50
9:30 Buy stop hit.
9:34 Exit sell 2945.50
 

Attachments

The study of charts is not as some people claim, the mere identification of certain labeled patterns made by the actions of stocks. That sort of thing borders on the mechanical and does little to aid in the development of one's judgment. But when a student undertakes to read from his charts the purposes and objective of those who are responsible for a stock's action in the market, he is beginning to see, in a true light, the meaning of scientific stock speculation.

Richard Wyckoff


Some thoughts so far:

1) Price is either in equilibrium (Range) or finding one (Trend). Price in equilibrium is value - albeit for the time being, until it moves again.

2) The movement of price is caused by traders. It is traders who anticipate either news or behavior. Thus, the action around the points that were being anticipated, holds a lot of information. Examples: Successful retests of bottoms or up movement on bad news. This information reduces risk.

3) Support and Resistance is the past behavior of traders at a given level.

4) The speed and degree of this behavior tells us a little about their conviction behind certain anticipations - and thus about their likely future behavior.

5) The goal of a trader is to maximize expected value of any given bet.

6) Trades made through retracements at turning points maximize expected value because they help reduce both price and information risk while maximizing the degree of likely future movement.

7) There are 3 kinds of approaches. FA, TA and the wrong way of doing either of them. It is likely that most people are taking the third.
 
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