Pr0Crast's Sim trade provides an excellent segue into what I hoped to discuss this evening - falling into the clutches of the next lower (or beyond) resolution level and not making it back.
Attached, I have shown two different Gaussian formations - one much larger than the other in an effort to assist you in determining:
"How Large is the Forest?"
First some reminders. When you find yourself in a Point Three channel, you need to know which color bars dominate. It seems simply enough, yet too often we 'forget' which side controls the day at this point in time. Note the first highlighted area of the attached chart. We begin where Price breaks through the 'sea' green up channel (left side of chart) providing increasing volume as Price heads lower. Good so far. As we approach Point Two, we see a black volume and Price Bar. Uh oh? Is it a flaw? Is it an FTT? Is it a WTF? We tense up and wonder if the trend has ended because we forget Price is about to do (or more accurately going to attempt to do) exactly as we should expect - retrace back and form a Point Three. In this example, Price never makes it back to the right side trend line. In fact, price heads even lower on the next bar. Only later does price actually make it to the right side. Note the black volume bars - they are decreasing (just as expected). Price even helps us out by instantly reversing as it formed a Point Three - heading lower quite quickly - and showing increasing red volume (again, as expected) all the way down. No need to worry about mysterious black bars within this Forest. It's simply Price doing (or attempting to do) what it does all the time - attempt to retrace to form a Point Three.
The above red Point Three Down Channel formed the Final Leg of our 'Kelly' Green Point Three (Big Red Circle). From there, we see (first) decreasing black (as expected), and then in one large bar, we traverse the entire channel for the break out. While certainly unexpected, we to receive increasing black volume every step of the way - all the way, to the top.
Now, here is where it starts to get a bit messy. In the third highlighted area we have a Point Three red Downtrend once again (Medium Red Circles). If you watch the red volume bars within the highlighted areas, you see exactly what we would expect, decreasing red volume, for our retrace. However, these increasing black volume bars often confuse us and make us wonder, "Did we do the right thing here?"
Again, Price is doing nothing more than what we would expect. Price is attempting to retrace through this channel. Fails. Continues on, and attempts the process once again. On A Tree Try level, we have FTT to FBO over and over again. When you find yourself confused as to direction (such as in this case here) ask yourself, "What is my context?" Down channel? Retrace? Of a Big Kelly Green Forest? Oh well then, I have nothing to worry about until I see a Point Three (opposite direction) or an FTT. IF you do not understand the size of the Forest in which you find yourself operating, you will freak out, lose your cool or just plain exit out of frustration.
After we hit Bottom, the blue arrow takes us back up to the top where we repeat the process when encountering an FTT.
However, just so you understand about the size of the Forest. Note the Brown Arrows among the Gaussians. This Very large Kelly green Forest shows us how we go from Retrace to Reversal (small red circle in volume pane) over an hour and 15 minute period of time. This is important to note due to what happened just before the last highlighted area. Had you forgotten to note the decreasing black volume, you may have seen the price formation as a Point Three Uptrend (14:30 - 15:05) and found yourself on the wrong side of the market.
Had you drawn in that formation (See dotted pink lines), the bar just before the Point Three of the Down Channel would have ben your FTT. Now decreasing black volume would have told you in advance of the FTT (pink circled) that this simply wasn't right providing you ample opportunity to reverse and catch the express train lower. Note again how over the 'big picture' we see decreasing to increasing red volume - just as we see it on a smaller scale.
Always know your context (How large a Forest in which you currently find yourself operating) and avoid a very common error - ending up on the wrong side of the market.
- Spydertrader
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1379701>
Attached, I have shown two different Gaussian formations - one much larger than the other in an effort to assist you in determining:
"How Large is the Forest?"
First some reminders. When you find yourself in a Point Three channel, you need to know which color bars dominate. It seems simply enough, yet too often we 'forget' which side controls the day at this point in time. Note the first highlighted area of the attached chart. We begin where Price breaks through the 'sea' green up channel (left side of chart) providing increasing volume as Price heads lower. Good so far. As we approach Point Two, we see a black volume and Price Bar. Uh oh? Is it a flaw? Is it an FTT? Is it a WTF? We tense up and wonder if the trend has ended because we forget Price is about to do (or more accurately going to attempt to do) exactly as we should expect - retrace back and form a Point Three. In this example, Price never makes it back to the right side trend line. In fact, price heads even lower on the next bar. Only later does price actually make it to the right side. Note the black volume bars - they are decreasing (just as expected). Price even helps us out by instantly reversing as it formed a Point Three - heading lower quite quickly - and showing increasing red volume (again, as expected) all the way down. No need to worry about mysterious black bars within this Forest. It's simply Price doing (or attempting to do) what it does all the time - attempt to retrace to form a Point Three.
The above red Point Three Down Channel formed the Final Leg of our 'Kelly' Green Point Three (Big Red Circle). From there, we see (first) decreasing black (as expected), and then in one large bar, we traverse the entire channel for the break out. While certainly unexpected, we to receive increasing black volume every step of the way - all the way, to the top.
Now, here is where it starts to get a bit messy. In the third highlighted area we have a Point Three red Downtrend once again (Medium Red Circles). If you watch the red volume bars within the highlighted areas, you see exactly what we would expect, decreasing red volume, for our retrace. However, these increasing black volume bars often confuse us and make us wonder, "Did we do the right thing here?"
Again, Price is doing nothing more than what we would expect. Price is attempting to retrace through this channel. Fails. Continues on, and attempts the process once again. On A Tree Try level, we have FTT to FBO over and over again. When you find yourself confused as to direction (such as in this case here) ask yourself, "What is my context?" Down channel? Retrace? Of a Big Kelly Green Forest? Oh well then, I have nothing to worry about until I see a Point Three (opposite direction) or an FTT. IF you do not understand the size of the Forest in which you find yourself operating, you will freak out, lose your cool or just plain exit out of frustration.
After we hit Bottom, the blue arrow takes us back up to the top where we repeat the process when encountering an FTT.
However, just so you understand about the size of the Forest. Note the Brown Arrows among the Gaussians. This Very large Kelly green Forest shows us how we go from Retrace to Reversal (small red circle in volume pane) over an hour and 15 minute period of time. This is important to note due to what happened just before the last highlighted area. Had you forgotten to note the decreasing black volume, you may have seen the price formation as a Point Three Uptrend (14:30 - 15:05) and found yourself on the wrong side of the market.
Had you drawn in that formation (See dotted pink lines), the bar just before the Point Three of the Down Channel would have ben your FTT. Now decreasing black volume would have told you in advance of the FTT (pink circled) that this simply wasn't right providing you ample opportunity to reverse and catch the express train lower. Note again how over the 'big picture' we see decreasing to increasing red volume - just as we see it on a smaller scale.
Always know your context (How large a Forest in which you currently find yourself operating) and avoid a very common error - ending up on the wrong side of the market.
- Spydertrader
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1379701>
My paper trading has been sick. 
