switching gears to Price Action via SLA

[dbphoenix]

This was exhausting. Even though just watching price, the open felt like chaos to me as buyers and sellers were wrestling for control.

Like a hockey game.

Expect pullback and 3 minutes of it isn't too bad!

The pullback is your friend. It allows those who missed the first move to climb on board.

My current thought process is that giving up so much profit after having watched price go down so much would be very hard. I don't think I could stomach it.

Then don't try. At the moment, you're just observing. But when you get to the point of entering and managing and this situation comes up, just get out and wait for a potential re-entry. Otherwise you lose your calm and your ability to make rational decisions.

 

[gears]

The pullback is your friend. It allows those who missed the first move to climb on board.

And theoretically to moving price in that direction? I think I recall the idea of you not doing the heavy lifting (of moving price), but jumping in when you're more sure that it's going to move that way.

 

[gears]

So I sat in on the SLA chat today for the first time and in some ways, I have more questions than ever, but felt it was a great learning experience.

Trading Range - How is it determined? Do you look at the past 24/36 hours, few days, week, month? How does one determine what range is pertinent to the upcoming day's activities?

Overbought and Oversold - From all the reading, I believe I've read it countless times that trend lines help to illustrate these concepts. If they occur, does that usually mean a change of direction is on the horizon? If something is over or under valued, from a pure economics perspective, it would make sense that a change would be coming. But how does one see it play out in the market? If a channel is drawn and price is above that line for X amount of time, is the probability that it will go back into the channel?

Entries based on RETracements - I'm really not focused on actually entering the market, but I am trying to consistently point out what seems like a RET. When viewing a RET, is a valid entry (more optimal) going to occur inside the DL/SL or outside? It makes more sense that it would be inside. If outside, it might be a RET for the opposite direction, right?

Auction Market Theory - I definitely need to be better versed in this. My summary viewpoint for now is that the upper and lower portions of trading ranges are almost like magnets - both north and south. They almost set up a 'boundary.' Price seems to flock to each end of the spectrum and then just as quickly can move away and back to the other side of the range. If price gets caught in the middle (midline/midpoint), it might hang out for a while before buyers or sellers take the lead. Is this cliff's note version remotely accurate?

Double Bottom and Double Top - What the heck are these? I've seen them mentioned, but feel like I can't get a grasp on a true definition so I can spot them and then get a feel for what often happens with price around them.

Volume and Price - This came directly out of the chat today and I still can't seem to wrap my head around it. From db: "If sellers want to draw buyers up, they're not going to throw a lot of supply at them. That would defeat the purpose. Instead they just dangle the carrot. Since selling pressure is light, volume remains low." Would someone elaborate on this?

I'll be posting my notes on this morning and also doing some more replay later on today.

 

[Gringo]

Entries based on RETracements - I'm really not focused on actually entering the market, but I am trying to consistently point out what seems like a RET. When viewing a RET, is a valid entry (more optimal) going to occur inside the DL/SL or outside? It makes more sense that it would be inside. If outside, it might be a RET for the opposite direction, right?

What do you mean by inside or outside DL/SL?

Volume and Price - This came directly out of the chat today and I still can't seem to wrap my head around it. From db: "If sellers want to draw buyers up, they're not going to throw a lot of supply at them. That would defeat the purpose. Instead they just dangle the carrot. Since selling pressure is light, volume remains low." Would someone elaborate on this?

When price rises on high volume, it implies that demand is strong and supply is also serious, yet demand is winning, as indicated by a rise in price. High volume indicates the intensity of supply provided. Why just the intensity of supply? Look again at the price. It's moving up. This means demand is winning even though the supply is trying hard. Sellers are throwing all they can at demand and yet demand is unsatiated. What if supply withdrew? What would happen to price? In all likelihood price will continue to rise but this time with lower volume. As demand wasn't going to give up no matter what, lower supply simply meant fewer transactions (lower intensity/volume) to move price up.

In one case demand blasts up despite serious opposition from supply. This was high volume rise. Quite a few incorrectly assume this to be a sign of strength. They forget that yes, demand fought hard, but it's also running out of ammunition, while the price fights through the enormous supply provided every step of the way. Can we really tell whether the demand or the supply is going to exhaust first in real time? No , we can't. Unless it's a climactic move with mega volume, it's not really that easy to tell whether higher volume rise is better or lower volume.

Now what's the deal with dangling the carrot? Does a seller prefer to sell at a higher price level or at a lower price level? Of course the seller wants price to be as high as possible, whereas the buyers want to buy at the lowest possible price. This is what a market is for, isn't it? So sellers just don't dump all they have at the unattractive level that the price is at. They want price to rise. They are not excited enough to offer their good at the prevailing lower prices. In the absence of resistance from the sellers, price naturally rises. Now at a higher level where sellers are more excited to sell, they might start offering their goods.

Gringo

 

[gears]

What do you mean by inside or outside DL/SL?

Thanks for your comments, Gringo.

In an up move, price goes up for 2-3 bars, there's a RET of a bar or 2 and then price goes up again. With those activities, there's "permission" to draw in a DL. Let's say that price continues to rise and another RET occurs. If that 2nd RET is inside the DL is it a more optimal place to set an entry stop? By just writing it out though, it wouldn't make as much sense to me to enter outside of the DL area. DLs are crossed for retracements a lot, but I'd venture to guess that a RET found inside a DL is safer than one outside the DL because presumably the long entry would also take place inside the DL. Seems like I have a hypothesis to test for my trading plan though.

 

[gears]

Here's my recap of today's action:

• With yesterday begin President's Day and the market not being open all day, price movement was more robust overnight than I had perhaps expected.
• Previous day high was 3672.50 and low was 3656.50.
• The overnight high was 3672.25 low was 3654.00.
• During the overnight, buyers got right upon the previous day high and then promptly price headed down and went through the previous day low by two points. But price promptly headed back up again.
• If I understand AMT, those were two examples of price doing exactly what that theory states - heading towards a limit, trying to reach/breach it and going back.

1. Before the NY open, price was in an upward moving pattern and a DL was drawn.
2. RETs weren't lengthy, but did often get close to the 50% mark of the previous up move.
3. DL fanned due to HH.
4. DL immediately broken and sellers tried to force the issue.
5. Another HH with some resistance along the way.
6. Feels like a ping pong match as price is up and down with areas of RET along the way.
7. At the open, price shoots up which likely made those already 'in' quite happy.
8. As sharp as the price movement was up, price plunged down quite forcefully.
9. Price met and exceeded the previous day high.
10. Price promptly RET as definitively as it had risen, but bounced back and made another HH. I created a steeper DL with the activity after the open wanting to contain price activity more.
11. Price exited my steeper DL but came back up inside it. Couldn't meet the previous high though. 'Could' draw what might end up being an SL.
12. Price went down the toilet again and quickly. Just one slight RET. If my steeper DL wasn't correct, this is the first RET outside the less steep DL.
13. Price kept plunging after the very slight RET at #12.
14. SL broken and pullback at the 50% level of the down move from 0947.
15. Yet again what felt like violent downward movement and with a LL, a new SL was drawn.
16. Price quickly broke the SL and for me the RET was a crap shoot. Would it be a RET for further up movement or was it the beginning of more down movement?
17. Price let me know that it was going up.
18. Price moved all the way back up to the previous high of the day. DL drawn from 1006-1012 wasn't even remotely threatened.
19. DL finally breached, but closed back inside.
20. HH and revised DL.

I don't necessarily know 'why' price moves as it does, but I feel a lot more comfortable when I see sharp rises and falls (without any pauses) that movement in the opposite direction may occur just as swiftly. It's not an absolute (what is?) but I'm not as disturbed as I was when I first started watching price in this manner.

As it did overnight, Auction Market Theory was displayed again after the open If I understand at least minimally. I guess the million dollar question is generally - how long will it continue doing that before testing other price ranges?

Reading what others thought during the chat this morning was interesting, but at times I felt more compelled to watch the chat activity rather than the market. I'm going to "switch gears" again with regard to my focus. I can always go back and read the chat info. But if everyone did that, there wouldn't be much to look at. I've got to figure out a balance.

 

[niko]

You are doing ok, last time you described the market your language reflected behavior, in this new episode you are starting to look for signs, I have gone through that road and it led to pattern recognition, which drove me away from understanding behavior.

Try to think in what traders are thinking and doing, you will not spot entries as fast, but that is not the point, the point is understanding why stuff happens not just to spot it, in that way you can know the bad entries from the good ones.

Whenever you feel compelled to call a trade, forget about it, first get the behavior, it will propel you faster in a later phase.

Here's my recap of today's action:

• With yesterday begin President's Day and the market not being open all day, price movement was more robust overnight than I had perhaps expected.
• Previous day high was 3672.50 and low was 3656.50.
• The overnight high was 3672.25 low was 3654.00.
• During the overnight, buyers got right upon the previous day high and then promptly price headed down and went through the previous day low by two points. But price promptly headed back up again.
• If I understand AMT, those were two examples of price doing exactly what that theory states - heading towards a limit, trying to reach/breach it and going back.

1. Before the NY open, price was in an upward moving pattern and a DL was drawn.
2. RETs weren't lengthy, but did often get close to the 50% mark of the previous up move.
3. DL fanned due to HH.
4. DL immediately broken and sellers tried to force the issue.
5. Another HH with some resistance along the way.
6. Feels like a ping pong match as price is up and down with areas of RET along the way.
7. At the open, price shoots up which likely made those already 'in' quite happy.
8. As sharp as the price movement was up, price plunged down quite forcefully.
9. Price met and exceeded the previous day high.
10. Price promptly RET as definitively as it had risen, but bounced back and made another HH. I created a steeper DL with the activity after the open wanting to contain price activity more.
11. Price exited my steeper DL but came back up inside it. Couldn't meet the previous high though. 'Could' draw what might end up being an SL.
12. Price went down the toilet again and quickly. Just one slight RET. If my steeper DL wasn't correct, this is the first RET outside the less steep DL.
13. Price kept plunging after the very slight RET at #12.
14. SL broken and pullback at the 50% level of the down move from 0947.
15. Yet again what felt like violent downward movement and with a LL, a new SL was drawn.
16. Price quickly broke the SL and for me the RET was a crap shoot. Would it be a RET for further up movement or was it the beginning of more down movement?
17. Price let me know that it was going up.
18. Price moved all the way back up to the previous high of the day. DL drawn from 1006-1012 wasn't even remotely threatened.
19. DL finally breached, but closed back inside.
20. HH and revised DL.

I don't necessarily know 'why' price moves as it does, but I feel a lot more comfortable when I see sharp rises and falls (without any pauses) that movement in the opposite direction may occur just as swiftly. It's not an absolute (what is?) but I'm not as disturbed as I was when I first started watching price in this manner.

As it did overnight, Auction Market Theory was displayed again after the open If I understand at least minimally. I guess the million dollar question is generally - how long will it continue doing that before testing other price ranges?

Reading what others thought during the chat this morning was interesting, but at times I felt more compelled to watch the chat activity rather than the market. I'm going to "switch gears" again with regard to my focus. I can always go back and read the chat info. But if everyone did that, there wouldn't be much to look at. I've got to figure out a balance.

 

[dbphoenix]

And remember that everyone is in a different place. Like a one-room schoolhouse. Some are actively trading, some have only begun developing plans, some are still testing, some are still observing behavior, some are only thinking about it while they cling to their indicators.

If the chat is distracting, beg off. You are usually the best judge of what you need to do at any given time. Remember that the objective is to trade well, not to boost your ego by making good "calls".

 

[gears]

You are doing ok, last time you described the market your language reflected behavior, in this new episode you are starting to look for signs, I have gone through that road and it led to pattern recognition, which drove me away from understanding behavior.

I must be missing a connection somewhere as perhaps I'm not understanding the difference between understanding behavior and looking for what might be typical behavior AFTER that initial behavior.

Try to think in what traders are thinking and doing, you will not spot entries as fast, but that is not the point, the point is understanding why stuff happens not just to spot it, in that way you can know the bad entries from the good ones.

I'm definitely lost now. Could you elaborate? I'm ok with not spotting entries, but I guess I thought I was doing what I should be doing (observing and seeing) and it seems that I may have gone off course.

But thanks for taking the time to read what how I'm doing and offer suggestions.

 

[dbphoenix]

Previously posted:

There is no "right" interpretation. There are millions of other traders looking at the same thing you are. If they all interpret what's in front of them the same way you do, price will never move. What matters more is an understanding of what they may have in mind and what they may try to do about it.

Each trading session is a story. The professionals have not only read the prologue, they've memorized it, though they won't all look forward to the coming session in the same way. The amateurs won't even know what play they're in. When the bell rings, buyers will have one thing in mind, sellers will have another. If you view the activity as an ongoing and continuous drama, you may be able to better understand what the other players are trying to do and avoid getting too caught up in minute details.

Try relating your charts in terms of a story. No demand/supply lines, no RETs, no REVs, no BOs. As if you were explaining the dynamic to somebody -- preferably a child -- who knew absolutely nothing about charts and how they track buying and selling (though if it's a child, he won't likely have any trouble telling up from down). Those who have tried this in the past have benefited from it, and you might too.

Remember, though, to include the "backstory". If you've ever followed a series, you know who the characters are and their relationships to each other, the plot progression, and so on. But if you find yourself watching an episode without ever having seen another or read anything about it, you won't know who is who or what anybody wants or anything about the story. On the other hand, if you're familiar with the backstory, you'll be more likely to be able to lay odds on what's going to happen and who's going to do what to whom and win your bet.

An example:

Price goes up a little after the open and then goes down to where it had been a half hour ago. Once it reaches this place, the people who had bought at this price a half hour ago once again buy more. Due to their interest price starts rising. It climbs past the opening high. Shortly afterwards, the people who had bought start selling to take some profit. But when they sell other people join to buy the thing that keeps going up. After 7-8 mins of this dealing, there are more people who want to buy so price once again goes up.

Again, people start selling and price drops a little. But it stays above the last zone of activity, where a lot of people were either getting off or getting on. More buyers join and price rises again. But this time, as price rises after the initial selling, it cannot rise any more. Nobody wants to buy anymore and people start selling. Some people keep holding hoping that someone else will come and buy to make the price go up again. But when they see nothing is happening, they too start selling, making the price drop fast.

This selling is stopped as people come in to buy at lower prices. The short sellers are also taking profits. Price rises because of their actions but it never manages to cross half the distance that it fell. Seeing this, the people who bought at the lower level get nervous and they start selling. Price drops again. This cycle repeats itself another time and price drops even more, crossing the level from which it had initially risen all the way to the top. (Game)