Price and Volume

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More comments about today. As a student of this, I want to find out how i'm doing.

At 10:30 there is a divergence between price and volume, marking the start of a reversal, as it turned out.
The advance that ensued was on declining volume.

Thus at the time, i'm thinking this is a "pullback".

At 11:20 there is a push up, met with strong supply.

To me that's a cue to get short. Sure enough in the next bar (11:25) there was a nice chance to get short near 65.

In the short selloff that followed, initially it was on advancing volume (and bigger bar at 11:30) however things dried up quickly, volume-wise. A little before noon it was apparent that this small decline was on overall declining volume. Probably a good sign to get out.

Then, at 12:05 another challenge by the buyers, on weaker volume than the first try. That's a classic double top. However, like last time, the decline that ensued was on declining volume. Another signal to close that short.

Now I guess by 13:00 you could look and see, hey, not much selling going on at 61-62, this looks like support. Not a bad place to get long. And, sorry to bashpemize the thread, but that's an upside down head and shoulders. And, yes, I did notice it as it was going on, but I did not see the more important underlying volume pattern I just wrote about.

Also, DB, out of curiousity, in which scenario did you take your first trade today? Also I remember a long time ago you posted that you usually wait out the first hour and a half, as a matter of habit. Still the case? I can see now how that lets the supply/demand picture develop, still leaving the trader with many opportunities.
 

The principles here have nothing to do with strategy; therefore, it is important to separate the principles from the strategy questions in order to make sense of where the hurdles and potholes may lie.

Yes, 1030 was a reversal, and, yes, the reversal didn't have a whole lot of push.

However, to characterize it as a "pullback" suggests that you not only saw a downtrend but that you also had some reason to expect that it would blow through what had been proven to be strong support. None of that has anything to do with demand and supply or price and volume. It has instead to do with bias, and approaching the market without bias is something that you're going to have to work on, assuming that learning to do so is something you value. If it is not something you value, then learning to evaluate the demand/supply dynamic objectively is going to be unnecessarily difficult.

As for the "cue to get short", that's up to you, and that's probably as good a place as any, given your analysis and given the fact that it's near congestion and a pivot level (resistance is often where you find it). And your observations of the dryup and using that as a signal to get out are sound, though, again, part of this falls under strategy and risk management. Your analysis of the next cycle is also sound.

As for the reverse H&S and the volume pattern, you are correct to state that the volume pattern is more important. Volume is, of course, what creates what people see as patterns, but many traders don't understand that, which is why they so often get it wrong.

However, principles don't change. They are absolute. Demand and supply is a principle. Patterns change. Patterns are not absolute. If you focus on the volume and how it relates to price and how all that reveals the demand/supply dynamic, the "patterns" will be completely irrelevant, as they should be.

Without going into a lot of detail, you've noted that price finds R at the same place twice. You've also noted the volume pattern. You've also noted, in a sideways fashion, that price is holding in the upper half of that brief trading range. These are all clues that the move will be up, not down, though the brevity of the base suggests that the move will not be a dramatic one. Does identifying a pattern help in any way? Doing so may make you feel more comfortable, but, otherwise, focusing on the pattern separates you from the action by at least one step, and, since patterns are not absolute, this puts you at a disadvantage, particularly if you like playing pattern breakouts.

I'd rather not get into how I played it since my particular strategy is not the point of the thread. Let's just say that buying the reversal and letting oneself get stopped out at the failure to get past the opening high is one way to play it with as little effort as possible.

As for how you played it, I do have a few comments to make, but I'd rather make them in your journal, if you want to hear them now (if you want to hear them later, or not at all, that's okay too).
 
Quote from dbphoenix:

Yes, 1030 was a reversal, and, yes, the reversal didn't have a whole lot of push.

However, to characterize it as a "pullback" suggests that you not only saw a downtrend but that you also had some reason to expect that it would blow through what had been proven to be strong support. None of that has anything to do with demand and supply or price and volume. It has instead to do with bias, and approaching the market without bias is something that you're going to have to work on, assuming that learning to do so is something you value.
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I agree with your statement on bias, however, I don't see how it applies here:

(1) 9:55 lower high, 10:30 lower low = downtrend
(2) rise after 10:30 on lower volume
(3) 11:35 lower high formed

facts 1-3: downtrend and pullback at that point

You could only objectively say it was a reversal, starting at 11:40 when the first higher low was formed. Believe me, I would like to know how this is biased, if it really is.
 


Why not call it a downtrend followed by an uptrend? Why isn't the "downtrend" actually an extensive pullback within the "uptrend" initiated on 2/24? Why isn't the move from 1120 to 1130 a "pullback" within the previous "uptrend"?
 
Good judgment is usually the result of experience, and experience frequently is the result of bad judgment.

--Robert Lovell
 
Quote from dbphoenix:

Why not call it a downtrend followed by an uptrend? Why isn't the "downtrend" actually an extensive pullback within the "uptrend" initiated on 2/24? Why isn't the move from 1120 to 1130 a "pullback" within the previous "uptrend"?
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I see now. Just using the words "pullback", "reversal", and "up/downtrend" is bias towards a particular time frame. One man's pullback is another man's reversal. Easier just to stick to supply and demand, huh? Now I get it.
 
Candlesticks

Since I'm going to be using some candlestick terms, perhaps now is the time to explain what they mean.

First, I pay attention to only the few most reliable candles and candle patterns.

Second, I reduce the number of names to what makes the most sense to me (why learn two names for two candles which are exactly the same except that they are the opposite of each other?). And unless you plan on writing some learned article for TASC, you may as well do the same.

Hence:
 

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Candlesticks
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One more thing about candlesticks:

The reason why morning and evening stars are reliable is that, if you moosh them together, or "blend" them, they make a hammer (or shooting star).

See attached:
 

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