Son of If You Can Draw a Straight Line . . .
- Thread starter dbphoenix
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It might help if you were to list the steps one must go through in order to make decisions in line with this approach. You can use the steps I provided last Friday, though I put them in terms of questions. I've listed these steps many times and to do it again would be of little value. It's up to whoever is interested in this to do it himself so that it might stick better.
So beginning with my first post on Friday, what are the steps? Whatever charts you use must stop at the time of the post. No hindsight. No decisions based on foreknowledge. You can't trade the past and you can't trade the future. You can trade only what's in front of you.
I kinda did that during the weekend, came up with a trading plan, is too long so I will post it in my journal and place a link here.
For now, these are the steps i have identified.
1. What is the current trend of the market (look for HH and HLs for uptrends and LL and LH for downtrends)
2. Trace a line
3. Look for signs of change in the direction of the market
a. Break of the line
b. Verification that is not just a poke. Price must fall or rise beyond the line.
4. Look for the first RET and take the trade
5. Follow price and see if the LSH or LSL is exceeded to confirm the trend.
6. If the trend is confirmed trace a new line.
7. Follow the line until broken, when broken go back to 3.
8. If the new trade fails, look for continuation of previous trend.
9. If 8 fails as well, then it would mean chop. Wait until things clear.
Here is the plan I came up with:
http://www.elitetrader.com/vb/showthread.php?s=&postid=3886068#post3886068
Please criticize it as hard as you can.
http://www.elitetrader.com/vb/showthread.php?s=&postid=3886068#post3886068
Please criticize it as hard as you can.
It's alright for something like this to be fairly vague because you have to be open to whatever the market throws in your direction while also knowing what to look for. Sort of like being married. After a while, you've become familiar with your spouse's various moods, but you don't know exactly what to expect when you walk in the door. So you look for signs and signals. Same with bosses and people you work with actually.
No one has mentioned this during this current series of posts, but there was no retracement in the downmove after price broke the first demand line. What does this tell you?
The fact that there was no RET in that move, was what at first led me to treat this down move as a down wave and the next up move as the RET.
But I guess that is not the answer you are looking for.
I have tried to come up with an answer, but it really does not tell me anything different, that there was no entry at the moment to take the short side of the trade.
Now, after thinking about it a little more, the only thing I can come up with is air pocket, but I am not sure.
At the time it occurs, however, you don't know that there will be a "next upmove". You have to trade what's in front of you.
As I said yesterday, when a supply/demand line is broken, the imbalance has shifted from one side to the other. As Gringo said, you then want to watch for signs that will tell you how much it has shifted. If there's no retracement in a downmove after breaking a demand line, then there's no entry, just jumping in because the line has been broken isn't going to work over a series of trades.
Therefore, the first thing you look for after the break is a retracement. If there isn't one, there's no short. However, there are only two outcomes here: that the move will be brief and not worth trading, or that price will collapse and you'll be left with no trade at all. The latter can happen, but if it does, a serious move to the downside isn't going to be short-lived and there will be an opportunity at some point to enter if one just waits for it. Yes, it's possible that price will reverse right after the short is placed, but that's a separate issue.
If there is a retracement and the short is taken, you then start looking for signs that the move is coming to an end, and this is where the swing lows and the extent of the downmove apply. If the swing lows are not breached and/or the downmove is not extensive -- the one on Friday was 25%, as I pointed out in the questions -- then you have to be prepared to exit as soon as the supply line, which you have by now been able to draw, is broken and look for a retracement in the subsequent upmove to go long again.
There's nothing new here, but until the trader puts it in his own words and makes it part of his own plan, it's just PAbabble.
To back up a little, you say in your post to "trace a line" and "look for signs of change". Where would you trace a line here, from Friday's pre-market, and what signs of change would you look for?
http://cdn3.traderslaboratory.com/f...1778034-re-trading-off-daily-charts-10111.png
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