Sector Analysis Using Pure Price Action

[Gringo]

Quote from game:I have been seeing a lot of this in the NQ intraday swings. Once a swing turns into a dominant trend for the day (say up), it is better to wait for the Reversal and then go long again as the Reversal fails. If the dominant trend is finishing, there will likely be a prominent re-test, so one could always go short on the retest. But this way, the trading is always weighted towards the trend.The overbought condition can be used to scale out of the position if one is already long.

I am in agreement with what you have said. The overbought condition is simply a gauge to stay alert and not a buy or sell signal. The trend has been up and yes, going long has a higher probability of success than going short in these markets. The only position taken is going to be at least on a retracement after the demand line break which would in itself given some indication of weakness. I have no position of any kind in the market right now. Now this business of a 'test' is a bit tricky. Let me first ask you this: What's the difference between a retracement and a test in your view?

Quote from game:I am unclear on your use of words like 'daring'. The way I am seeing it, decisions should be based on probabilities. While these judgments of probability are only approximations, they do provide a somewhat clear framework for making decisions. As such, the meekness or daring applied to a situation should correspond to position size and not whether the trade should be taken or not. It is either a positive expected value trade or it isn't.

The use of word 'daring' implied those who have higher risk tolerance. These are the souls who wouldn't care for more information, including price information, before plunging in. It seems as if you believe all positive expectancy value trades are to be taken and the only distinguishing criteria is the position size. It actually might be the best way to go about trading, although, I do tend to not position size as much and go in heavier from the start. It is perhaps due to a combination of my personality and the amount of available funds. Now I do recognize here that I may be at fault. I'll attempt to bring Db into this conversation for his views so as not to lead you into a wrong direction due to my faulty thinking.

Gringo

 

[game]

Quote from Gringo:

I am in agreement with what you have said. The overbought condition is simply a gauge to stay alert and not a buy or sell signal. The trend has been up and yes, going long has a higher probability of success than going short in these markets. The only position taken is going to be at least on a retracement after the demand line break which would in itself given some indication of weakness. I have no position of any kind in the market right now. Now this business of a 'test' is a bit tricky. Let me first ask you this: What's the difference between a retracement and a test in your view?
Gringo

Did you mean what's the difference between a retracement and a Reversal in my view?

 

[Gringo]

Quote from game:

Did you mean what's the difference between a retracement and a Reversal in my view?

Difference between a retracement and a test. I think you answered it today in your blog.

Gringo

 

[game]

Whether a retracement turns out be a Reversal can only be known in hindsight. However, the likelihood of a retracement turning into a V Reversal can be approximated by judging the ongoing balance between demand/supply as well as by using base rates from instances in the past.

For example:

The NQ often opens with small swings that Reverse in the opposite direction. These forays are a process of exploration as traders jostle for position in anticipation of the dominant move of the day.

However, once the dominant move is underway, it is unlikely that an initial retracement in the move is going to turn into a V Reversal. Even if the retracement turns out to be deep (ex:50%+), there is a strong likelihood that price will once again test the initial trend direction, allowing for exits on the retest if necessary.

V Reversals are memorable - due to the pain they cause as one sees a profitable position quickly evaporate. This is what led to me being skittish in exiting winning trades during a large part of the Forward Testing. But the intensity of the memory was disproportionate to it's occurrence. Knowing the approx probability of V Reversals has really helped me stay in the trade with confidence. Of course, the best combination would be knowing not only the base rate, but also the 'in the moment' quality of supply/demand to judge whether the dominant trend will Reverse or not. But until I can master judging balance, relying on the base rates lets me stay with the trend and avoid counter trend.

Most major swings are a shift to a new value level. They signal their end with flat pace, so the trader has a lot of time to exit comfortably.

Thanks for the question. I am sure you didn't need the thesis, but it helps me organize my thoughts.

 

[Gringo]

XLF couldn't stay above 20.75. It is intermediate term in an uptrend but there is an air of shift in the wind. Of course it's an early stage but weakness here could mean price possibly going to the bottom of the trading range. If further strength is not coming then this might be ready to go down.

Weakness is financials historically hasn't ended well for those who are asleep.

Gringo

 

[niko]

I have been lazy regarding this thread, sorry. Will try to make up the lost time in the following days.

Thanks for keeping it up and running G.

 

[niko]

Quote from Gringo:

XLF couldn't stay above 20.75. It is intermediate term in an uptrend but there is an air of shift in the wind. Of course it's an early stage but weakness here could mean price possibly going to the bottom of the trading range. If further strength is not coming then this might be ready to go down.

Weakness is financials historically hasn't ended well for those who are asleep.

Gringo

Nice fakeout.

 

[niko]

Quote from Gringo:

You're doing a wonderful job Niko. Considering the market might start correcting I might do some analysis for these sectors. The gold and silver with the indexes are so much more exciting, don't you think?

I never replied to this, sorry.

If you want to include gold and silver EOD in the mix count on my limited time and great interest to help on the journey.

 

[niko]

My update.

RED dots for exits. Only XLP triggered a new entry.

 

[Gringo]

XLB couldn't continue up after DL break. It is showing weakness. I would keep an eye on it if someone likes trading sector ETF's or their underlying stocks.

Keep an eye on 43.5. If demand gets strong there then feel free to take precautions. For now weakness is in the air.

Gringo