Price Action based Analysis
- Thread starter bearmountain
- Start date
I have no objection to what you're saying. I know also some people who have a good handle of price formations without doing any calculations.
Can you tell me if you see a double top in IAU and what the probability is for a sizeable drop?
My view is that the CW trading is based on reaction to what is observed.
On the otherhand, and from my point of view, expert traders ocupy a space that is slightly ahead of the Present and they are watching the future move into the Present anticipating the next event in an order of events.
At the site, Behavioral Finance, you can find an overview of human behavior with repsct to trading under the heading BF or BS? I agree with their assessment of human behavior AND what they define as events and pre and post events.
The example of the up/down or the right/orientation is best stated from a dominant/non-dominant market consideration.
For the minimum number of market moves to express the market cycle, six moves must be considered. For example consider a long trend followed by a short trend. Each contain three moves.
Each contain two dominant moves with a non-dominant move inbetween.
At this point most people would not agree with me. Most people are CW type oriented up/down traders.
As an aside consider the retrace and the reversal. As each begins it is possible to know which is which. CW has a lot of names for what it is called when a trader misses this type of que.
As trends overlap by their nature; it is important to learn that the period of overlap is non-dominant and is also a subfractal characteristic.
lets go through the CW routine for six moves (long trend then short trend):
Up
Down
Up
Down
Up
Down
You can see that the long is an Up, Dowm, Up, then the short is Down, Up Down.
Up/down traders, especially PA traders, react to the end of retraces, and teade the dominants. In the long, they see the first retrace as a down and could also think the second down is also a retrace and not catch that the second down is really a revrsal which is a beginning of the short trend instead.
In an up down orientation the dominance or non-dominance is not taken into account. The beginning of the short is generally a losing trade to a reaction trader and that throws off the next two opportunities as well.
If a person trades from right to left and left to right, he always knows the diffrence between a retrace and reversal freom the beginning of each. He gets to right/left trading by annotating trends and then analyzing the "order of events" of a trend.
The six parts of a long then short cycle to hime are:
B2B
2R
2B
R2R
2B
2R
He doesn't get caught by the R2R being a reversal, since he knows the overlap ends with "continuation" of the price move all in the same direction.
If a person is trading right/left, he is seeing two triads and NOT three pairs. It has to do with his focus on RTL's and LTL's of trend containers by monitoring and analysis of trends AND not judging, in reaction, the ups and downs of markets.
As a person annotates trendlines (right and left) he is looking for the points that dfine them. He knows the order of points 1, 2, and 3 of a channel. Fro him the end of a retrace is always a point 3. He anticipates this.
People hwo trade retraces in CW are entering at the end of the retrace in the dominant market direction. They look for another retrace at the end of their profit taking. you often hear CW traders and especially PA traders say "wash and rince, again" as a statement of their reactive routine.
The second, play they make in reaction is where their stops get hit since they are not trading an entry at the end of a retrace the next time. they enter and the market is in a reversal and they remain upsidedown until thier stop is hit.
trading in anticipation using triads is left roight trading by the simple consequence that annotations of trendlines allows the person to always know that he knows the order of events right from each beginning,
Any right to left trade is a dominant trade. any left to right trade is a nondominant trade.
the order of trades in terms of dominant and non dominant is: dom, non-dom, dom, dom, non dom, dom. Dom s and non doms are anticipated since they do NOT just alternate as do up/downs.
CW traders react and this is a tool of their trade as they do up/down trading.
Non-CW traders are monitoring and analyzing trends so they "know that they know" the order of events as patterns; naturally, they learn to "anticipate as a consequence.
It is very difficult to go from CW prediction and betting (trading in a reaction orientation; see OODA of John Boyd) to an "order of events" orientation (MADA) where anticipation is always the way trading works based on right and left trends lines as build containers as they are happening.
In ET, you can see most people have made a series of decisions over many many hours of inductive reasoning regarding the up/down of the markets. CW turns out to be inductive and people bet on "edges" that they react to when they see them. The bet is made by a prediction.
The non probabilistic alternative is to reason and deduce the pattern of a trend: three moves in a specific order that forms a container point by point. This order of events only has two alternatives at any time and one of themn is always "anticipated by the order of events obyained by a once completed deductive process.
I must admit your writing style isn't good for me BUT this post really got me thinking! Very interesting. I always liked behavioral finance when studying economics and found it difficult to take other theories very seriously. daniel kahneman's Nobel Prize winning lecture of 2002 (Here) was something that really opened my eyes!
I also find it interesting because when I started I know I was an up/down trader... as time has gone on and achieving profitability etc I notice that I'm much more towards being a left/right trader...
... by that I mean I'm focused less on the intermittent action at the current level but rather looking at anticipating moves well before they happen and looking for what I believe the stock will do when it reaches certain levels.
When I started and the stock made a sharp down move, I couldn't see it making another move and instead got out and looked for it to retrace its move because I couldn't imagine it moving further down. Instead of riding the trend and expecting more selling as all the new longs were pressured and others entered the short side.
Maybe I'm way off with what your talking about but it made sense to me hahaha
Very interesting post Jack. However, I still don't see how probability can be taken out since there is a strong stochastic component in price evolution. Simply, we don't know what news events can take place next. Thus, even though we may believe we have a valid deduction it is only based on past information.
Are you essentially talking about people who can "see" into the future?