Should we look at recent price action behavior to forecast direction?
- Thread starter sjain100
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I don't necessarily think this volatility is due to war. This is a daily chart and one way I track the nasdaq, and the volatility was actually greater in January before the war (which was set up well before that imo.)
Yeah, I mean markets were setting up for decent probability of heavy downside moves pretty far back. RTY weekly was giving objective warnings and setting up a distribution zone as early as November / December, NQ Followed and confirmed it's own likely distribution zone in early January, which promptly retested the upside of the zone, we candle closed back below and it's been pretty incredibly bearish since.
You wouldn't think it would be so difficult to convince people that larger players are very calculated and forward looking in how they are setting up their positions(considering a lot of the same people also say how rigged the markets are and how hard is it to make money). I am sure the war likely adds another catalyst and potentially has sped up the process of going down or maybe we even go lower than we would of. But objectively from TA perspective the markets have been looking pretty rough for a long time now.
I see you often speak of probabilities. Are these actual probabilities derived from statistical data or are you just speaking in general terms as to what you seem most likely from your own studies...?
95% if not more of things I use and speak of has a statistical objectively mathematical calculation behind it. Sometimes I speak of discretionary trades / things, but generally tend to clarify that when I do that.
Within that though, not everything do I have an actual statistic as far as win rate or failure rate. For example the distribution zones I am speaking of are calculated based off of exact hard math and how price trades around them is important. For instance once the zone is made, we often pull back into it and retest both of the bottom and the high of the zone. Than once we candle close back below the entire zone, the trap is set and now I know we likely have all those buyers trapped(buyers that were looking for new highs or new relative highs).
With that said I do not have exact success rate to give on how often these zones work or how far do we go down on average after a close below. That is certainly something that I would like to have in the future, but due to the zones being a live calculation and disappearing after certain perimeters are hit (so I don't have a bunch of useless lines on my chart). It makes it more difficult to obtain an exact success rate and admit I have been lazy and lacked the forsight to start my own spread sheet to get a general idea. Certainly something I want to accomplish in the future.
But right now I just use the zones for larger context, as oppose to directly trading off of them. They are very effective, but for actual trade entries I've switched gears to finding bullish or bearish divergences, which trigger more often and tends to be more reliable from the standpoint of having a more exact set risk/reward. Some of the best trades come from being in a zone though and divergence triggering in the zone.
Are those technical indicators, then?
Part of my own desire/motivation for utilizing indicators is that I want something which is objective and repeatable and not subject to interpretation. Except for a few custom indicators which plot levels rather than classical MA/Momentum style indicators, I currently don't use indicators as I have not found any which meets my requirements. Yet. I keep looking, though.
Understood. So, when you say there's a high probability X will happen - that's not based on an actual number you have at hand, but more like a hunch based on your experience using your own approach.
Yes, so on some thing that's why I don't claim "We have a 82% chance to make a new low" or "we have a 71% chance to reach this target within the next 3 bars" because I don't know the exact numbers, again certainly something I need to work towards and would love to have. However, when things align I do know it's a really strong probability to happen. Because I trade it everyday and if I was just getting lucky, I wouldn't be making such solid steps forward in my trading. Still have a ways to go, don't get me wrong, but certainly headed in the right direction.
Yes, technical indicators. Although I also understand to a lesser degree and believe in not using indicators as well. Pure price action can tell you a lot, particularly the more experience you have. However, human brain cannot track as much information as a computer can. Therefore if you have objective measurements on something, I see no reason not to use indicators as they can track the pattern more precisely and also allow you to find more setups.
Brilliant Observation. Thanks for this post
Sorry, didn't realize the chart would post so large, thought it would just link like yours.
So these are all rate of change values (price/ma or ma/ma n periods ago), measuring short term movement (yellow (d) and green (f) raw compared to white (g) and purple averaged), overlaid on long term (grayish purple (a) with averaged black (b)), and other smoothed values somewhere in between.
It shows the averaged long term values last year were already descending, which was the first significant amount in a few years, while we were still reaching new highs into the black (b). Same with short term, white began descending amidst increasing prices (yellow) too. Those 'contradictions' often equate to reversals. Short term is overlaid on long term because every long term reversal starts with a short term reversal, and it helps to visualize simultaneously. White is the most telling sign for the short term and this selloff, as it has shown a very consistent and measurable decline since it reversed in early December and hasn't altered trajectory much since. So these things are why I feel this volatility isn't related to the war.
Fwiw I live in a pretty 'feral' trading analysis bubble, never having looked at or learned TA etc., and paraphrasing it is something new, so I realize it could look or sound rather alien. But while I think the selloff could be anticipated by different measures, as others have expressed too, it's the timing and execution of the rally to new highs beforehand I find more curious.
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