Making of a method

With 3 months coming up since the start of this journal, it's time to evaluate the big picture.

This journey from the land of Discounted Cash Flow spreadsheets to the gates of Price Action has been fascinating. It's taken me 3 months to recognize the gate. And it would have taken far longer without the wisdom and generosity of those who have walked the path.

Viewing trading from the perspective of PA has been a big shift for me. The excitement generated from insights and the eagerness to apply those insights spurred me too far from the supply lines. I need to go all the way back to the Observation phase, consolidate understanding and then continue ahead.

But it is not a descent like climbing down a ladder, for this process can be viewed as a spiral, where we go round and round, hitting the same points multiple times along an increasingly deeper level of understanding.

My understanding of the post below is quite different than it had been a few months ago. I am now tempered enough to take the steps as outlined.

http://www.traderslaboratory.com/forums/wyckoff-forum/15535-developing-plan-trading-journal.html
 
Prep:
Price has made a new high. The uptrend from both 10th and 11th was strong. Price surged during ON but fell back to consolidation levels during PM. Overall trend is up. Let's see if buyers join in or if people take profits here.

R: 3060 (PM)
S: 3053 (PM)

Till 0842: There was very little movement after the open with traders exploring the upside but not enough pressure to go anywhere. Pressure then shifted to downside but this too did not go too far with buyers showing S at 0835. So at this point, there were two clear zones showing OH and OL.

The S shown at 0835 led to the surge at 0837. One could wait till price crosses OH of 58.50 before considering any longs or one could place a buy stop after the 0836 bar closed without much movement.

The surge lost steam and has been retracing. It is currently at the 50% level of 58. So far, the dominant pressure is up, although not convincingly. But the daily trend is strong and up. So would this 50% RET be a good opp to bet on the long side with low price risk?

0843 Price has crossed 50% level and now the balance has shifted to the downside. Will traders take this opp to buy at 56 as they had done shortly before? Or will no one buy now because there was not much enthusiasm to take price above 60? I don't know. So this could be a zone to avoid since I don't know where pressure is likely to flow.

0845 As price approached 56 traders once again started buying and push price back up to 58. So there is no clear direction right now. But the odds are probably still on the long side since S has been shown twice compared to R manifesting only once so far.

0850 Price bouncing tightly between 56 and 58. Lot of trades taking place in this narrow zone. So pressure is building up here.
To 0854 Buying pressure flowed up but then stopped abruptly. Price fell back down to congestion zone and bounced around a few min an even tighter range. Then pressure broke to the downside.

What are people who trade the 5 min and 15 min thinking at this point? Those who went long at the open are seeing their trade at BE or at a small loss. So are the people who bought from 0843 to 0845. When will they sell, seeing that price is not going up?

0855 Price at 56 zone. This is where buyers have come in to buy twice in the past. Are all Time frames watching this zone? If price falls below this zone, will they capitulate?

0857 Hesitation at the 55 zone. This is where buyers came in shortly before the open.
0859 Buying activity overcomes selling at this zone and price goes back up right back to prior zone indicating value for the time being.
0904 Despite the largely sideways action, the selling waves have been greater in extent that the buying waves. The high of the day can be connected to two LH's to form a downtrend line. The pace of this downtrend is very slow, owing to the buying at the lower levels.
0909 Price back at that 55 zone. The LH's of the past tilt the odds to the short side despite the S zone here.
0917 lot of trades in 57/58 zone. So there is S building here and we know that there is S at the 55 level. So would this be a good chance to take a long position in anticipation of a BO out of 60 and an uptrend?

Possible compelling situations:
0836 to 0837. The S evident at 0835 becoming the surge at 0837
0858 Selling opp that never came as price crossed 56
0915 to 0918 The number of trades at 57 showing that there was another level of S being formed above the prior level at 55. Two levels of S hinting at breakout above high of the day at 60.

Ideas:
For the most part price moved sideways. It jumped from one zone of value to another in bursts.

http://www.sierrachart.com/image.php?l=137382904541.png
 
Quote from game:

http://www.sierrachart.com/image.php?l=137382904541.png
More...
I don't know if you are aware of it, but you won't be able to store images at the SC servers indefinitely.

Eventually you'll have to delete old images to make room for new ones. I don't know what the current limit is. When I ran into it it was in the hundreds or so.

This fine journal will then become unreadable which would be a pity. Unless that is what you intend, of course.
 
Quote from tobbe:

I don't know if you are aware of it, but you won't be able to store images at the SC servers indefinitely.

Eventually you'll have to delete old images to make room for new ones. I don't know what the current limit is. When I ran into it it was in the hundreds or so.

This fine journal will then become unreadable which would be a pity. Unless that is what you intend, of course.
More...

I was not aware of the limit. Checked SC help section but could not find any info on image uploads being limited. Thanks for the heads up.
 
Quote from game:

I need to go all the way back to the Observation phase, consolidate understanding and then continue ahead.

for this process can be viewed as a spiral, where we go round and round, hitting the same points multiple times along an increasingly deeper level of understanding.
More...


Both of our self... and of the mkt (aka PA)

:)

RN
 
What is a compelling trade?

Trade with a high expected value.
High EV can come from various combinations of win rate and extent of win/loss.

Win Rate Element:

The premise behind profitable short term trading is the ability to anticipate future movement from past trader behavior.
Anticipation of future movement is comprised of direction and extent of likely movement.

Given this, between direction and extent of move, which is easier to anticipate?

Direction. Why?

Since the premise behind PA is trader behavior, the trader can only anticipate direction from past behavior. Trader cannot anticipate extent because the behavior that would signal likely extent of move is still in the future. Thus, profit targets are not coherent with the basic premise of PA.

A counter to this argument is that extent of move can be anticipated because traders use mechanical patterns to enter/exit.

But given that the market is comprised of many more participants than just TA traders, it is likely that the extent of a move is truly unknown.

Gain/Loss Element:

Looking at compelling trade through risk -

Risk is comprised of information and price risk. Normally, as one decreases the other increases, so that total risk remains the same. Are there special situations in which both information and price risk decrease simultaneously so that total risk is reduced?

So a compelling trade would be a situation in which likely trader behavior is imminent and where the risk associated with the failure of this behavior to manifest is low.
 
Quote from game:

What is a compelling trade?
More...

This really is a fine journal, and that is a compelling post. Just letting you know that you are being read and your journaling is appreciated.
 
Quote from game:

The premise behind profitable short term trading is the ability to anticipate future movement from past & CURRENT/ PRESENT trader behavior.
More...

Game

I modified this a bit, trust you won't mind Sir

:)


RN
 
http://www.elitetrader.com/vb/attachment.php?s=&postid=3837796




N (nip)are the wide spots,price spent more time there,L is a ledge where a large working bid or offer supported or capped price,large institution found value there , and the c is a cleave where a move exhausted itself and turned, when the market is moving it goes from point to point with a lot of chop in between those points,if you have trouble scalping,then this is a way to swing,adjusting your position at these spots,between larger targets,just an extra trendline or a fib,sounds simple and it is but you never know how big the money playing is,so timeframes become important,the earlier chart was on a shorter timeframe and the 40-41 spx counted,on a larger timeframe,bigger money playing,the numbers change, the ovals represent gaps or places in the recent runup that need to be filled in ,to mirror the lower half of the chart

here are your past and present and the length of the moves,like learning anything,you will get the hang of it in a short time
 
http://www.sierrachart.com/image.php?l=1373944364629.png

0830 As price touches the R level of 73 it retraces. This seems to happen often when price meets PM S or R. Are traders waiting there and scalping as soon as price touches these levels?

0833 The optimistic start has stopped and turned down, although price is still not at the S from PM. What about the people who bought at 0831 and 0832. There are a lot of them since opening volume is always high. Who are they guys and when do they bail? Or will they buy at these lower levels? Are the people who shorted R at 73 going to cover when price hits by buyers at PM S. Price retraces. Traders bought at S. Where did they set their stops if the downwave continues?

0837 The sharp downwave is stopped
0838 Price breaches S as the downwave seems to be continuing.

0844 For those who shorted the Reversal at 0833 there has been no reason to get out of the trade. Who are the people who buy these downwaves? Not likely to be daytraders. People who bet on mean reversion?

0845 price at yesterday's close. Zone where people who bought on the 12th and held overnight. What will they do now? Buy more? Will shorts cover here because it is a technical point? Either way there is likely to be hesitation here before price continues one way or the other. So this is likely to be a zone of value - could display chop as transactions increase here.

0846 Interesting rally as shorts probably cover here. What are the Reversal guys going to do? Wait for a re-test? Or will longer term folk buy at these lower levels for anticipated continuation of inter day upswing? The bounce off the 0845 and 0846 bars in combination with the fairly deep reaction of the 0846 bar is indicating S here.

0851 A V reversal with minor hesitation and price is at the MP. Key level. Will traders short here to join the downtrend at this price? But prior shorts are probably sweating and ready to cover at the slightest hint of the reversal continuing.

0855 Upwave of the Reversal itself reversing at the mp of 68. Since TL's are broken, price likely to continue down as sellers join the trend at this level.
0903 lot of sideways action. those who are playing the downwave as intra day swing are probably still in the short. They will probably use the mp level as confirmation of whether the downwave will reverse and turn into strength. S being formed as price is being brought back from the 65 level. Those who bought the hesitation from 0847 to 0850 are also probably sill in the long waiting for price to continue up past the R from the MP swing point. So 69 and 65 would represent the boundary conditions here with a lot of anticipation in between.

0905 the immediate pressure has been up since 0902. Traders getting in anticipating a breakout?
0910 The breach above mp retraced. But the range of this bar indicating that upwave is likely to continue as there is no substantial selling pressure now except the upcoming R from the open.

The channel:
0911 Traders could have shorted as price touched upper boundary of channel and then covered at 0913 as it fell sharply to touch lower boundary. Are channels a self fulfilling prophecy? Unlike horizontal levels, diagonal S/R does not make sense, in that traders are not buying or selling at previous transaction levels. So why does it seem to hold? Reflexivity? Mean Reversion?

0920 A lower high. The previous buying wave high at 71 was not very convincing either. So no significant up pressure here. And a lot of trades below.
0921 Price at the boundary of channel. Will traders short here considering the weakness indicated by the LH?
0935 Range has reduced and price is being compressed between 69 and 68.

Action at key levels:

S at yesterday's close: Price bouncing at 63 in conjunction with this being an important level due to the number of transactions that took place at yesterday's close, could have alerted the trader to take an aggressive bet Reversal with low price risk.

R at MP of downswing: The LH at 0854 could have alerted the trader to take the short off the MP.

S below MP: Since the downwave from the MP encountered a lot of trades, there was indication that the context had changed and buyers had the upper hand. The strength at 0902 and the hesitation afterwards could have alerted the trader to anticipate a BO beyond the MP.
 
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