So regarding number lines. Many people here are confusing number lines with a trade signal. Number lines do NOT give trade signals. For starters, let's break down what we are actually looking at. A 30 day number line is a composite look at the previous 30 trading days. That's 6 weeks of data! In the market world, that's a long time. So we don't want to over react to individual data points. The analogy I've used on here is the number line is like your overall health. Your health stays pretty constant over time. If you get sick, in most cases, it's usually gradual. And when you get better, it's usually the same. The number line is the "big picture". It's the forest not the trees.
The real value in number lines is two fold. One, area of focus. In a world of endless trading products, the number lines direct you towards where you should be putting your focus. For example, rbob. Rbob has been confirmed for a long time now. Heating oil and WTI have been all over the map. But the 30 day told you to focus on gasoline. It's given you the best signals and the best trades and the best follow through.
Which leads us to the 2nd point....follow through. Number lines are the only thing I have ever seen in the trading world that gives you a look forward into potential follow through with no endpoint. In other words, you are not just buying something and selling it at resistance where the resistance level is your target. The number lines are giving you a probability on price extension. I could buy anything in the world. And at times, almost everything might move together. But all products do NOT have follow through, even in bull or bear markets. Your time and focus in this world is very valuable. In the end, we're all dead. So time is a constraint and therefore you should not give it freely. If you are going to commit to a product and a position, you better make sure there is the potential for follow through. And that is what the 30 day is for. It says if product XYZ is confirmed, even though it's stalling at a level or might look weak for a day, don't bail! That is where the value is. Products with choppy number lines fail. And heaven forbid you are fading an opposing number line, well not sure what you are expecting to happen there.
Now let me be clear about this. A strong number line does NOT mean you buy something in free fall. If something is making new lows everyday you don't just buy it. That is why we have A levels. These are the levels that violate our thesis. The A levels are the markers on the playing field. As long as the market stays in between these levels, we deem the price action to be normal and can rely on the number lines for bias. But if these levels are violated, it simply means the number lines are probably lagging. And therefore the value of their output is less.
So the number lines direct our focus and define our opportunity. The A levels define our risk. Together one can construct positions on price levels to enter that maximize their return based on a given level of risk.
The real value in number lines is two fold. One, area of focus. In a world of endless trading products, the number lines direct you towards where you should be putting your focus. For example, rbob. Rbob has been confirmed for a long time now. Heating oil and WTI have been all over the map. But the 30 day told you to focus on gasoline. It's given you the best signals and the best trades and the best follow through.
Which leads us to the 2nd point....follow through. Number lines are the only thing I have ever seen in the trading world that gives you a look forward into potential follow through with no endpoint. In other words, you are not just buying something and selling it at resistance where the resistance level is your target. The number lines are giving you a probability on price extension. I could buy anything in the world. And at times, almost everything might move together. But all products do NOT have follow through, even in bull or bear markets. Your time and focus in this world is very valuable. In the end, we're all dead. So time is a constraint and therefore you should not give it freely. If you are going to commit to a product and a position, you better make sure there is the potential for follow through. And that is what the 30 day is for. It says if product XYZ is confirmed, even though it's stalling at a level or might look weak for a day, don't bail! That is where the value is. Products with choppy number lines fail. And heaven forbid you are fading an opposing number line, well not sure what you are expecting to happen there.
Now let me be clear about this. A strong number line does NOT mean you buy something in free fall. If something is making new lows everyday you don't just buy it. That is why we have A levels. These are the levels that violate our thesis. The A levels are the markers on the playing field. As long as the market stays in between these levels, we deem the price action to be normal and can rely on the number lines for bias. But if these levels are violated, it simply means the number lines are probably lagging. And therefore the value of their output is less.
So the number lines direct our focus and define our opportunity. The A levels define our risk. Together one can construct positions on price levels to enter that maximize their return based on a given level of risk.
