trend lines [part 1]
- Thread starter cashmoney69
- Start date
Here's hcour's chart redrawn to illustrate the retrace and reversal differences.
trends over lap.
A new trend begins when the traverse from the trendline to the left channel line fails. My jargon for that is Failure to Traverse. (FTT).
To make use of the original chart I drew in the prior channel (short) that had a FTT to begin the channel hcour sort of drew.
All new channels begin with the retrace of a former trend extention (dominant traverse) coming to an end and then what would have been the next dominant traverse becoming a reversal.
All of this is shown clearly by volume.
Don't worry if you do not catch my drift here. Most people just skip reading anyfurther.
In any trend there is a channel.
Price moves in the channel by traversing it.
Price moving from the Trend line to the left channel line is when money is made and this strength is signified by increasing volume (the P, V relation) as the dominant traverse goes from right to left.
the trip back to the trend line (the left to right traverse) is during weakening volume. Here the price fails to advance and make more money for the trader. This is called a retrace.
At the end of a retrace the volume picks up again if the trend is to continue with another dominant traverse into more extreme prices to make more money.
It is at this time a trader who is expert watches volume and price closely. I marked it A1 in red with a heliotrope tag. This moment leads to some volume but shortly at the FTT the volume increases and the price goes south indicating the REVERSAL you asked about. All FTT's at their extreme then begin the following opposite new trend.
Experts take profits here and then re-enter on the opposite type trade. The whole transaction is called a reversal trade.
You will notice that the price at the point of the FTT's is about as much as the marekt offered in the trend. It is the highest price available and this price is WHY the FTT occurs. Traders will not pay more for the instrument.
This is an excellent entry for the next leg of profit taking since it represents the best price to begin the next trade.
An expert trader is using one piece of knowledge to trade and backtest this. It is the Boolean expression for the P, V relationship.
I noted the channels in heliotrope. A channel is determined by pts 1, 2, and 3. I noted the beginning of the long for you.
You can see the short next. I erased hcour's Trend line since it was not drawn at the right time and at the right place.
This short began at AI on the FTT which is pt 1 of the short trend. What could be more simple and more consistent. Probably nothing. It is not possible for a person who does not know what is going on to back test this stuff. I have stated it. And it just flows from there using boolean algebra.
An expert has this math at his finger tips; he codes it to provide signals. Knowing the P, V relationship in Boolean Algebra is what creates the " R 2 R" as shown on the volume "V" at the bottom. The "V" is the last half of one Gaussian of volume and the next first half of the next Gaussian of volume. A total Gaussian depicts the dominant traverse of a channel followed by its retrace. This is going from right to left followed by going from left to right in channel terms.
There are four FTT's on the chart. The channels all overlap the same.
What does the whole chart represent as an example? What does this representaion tell you about the money that can be made with this instrument?
What is the chief outgrowth of this method of analysis, charting and trading?
If a person is on Qcharts and has a powerful universe he is able every day to watch his potential stocks and keep them in an order from top to bottom where he knows on the list the locations of the stock doing each of the things that I noted above.
It is known by the users as "Getting Tomorrow's Paper Today". It was named that before web sites etc, since early on just the Boolean Algebra was used to make up the lists.
Right now you do not get what I am saying. You would have to "process" what I have given you further to understand why a universe of stocks can be made to form on a list so it moves in two directions (green up and red down) and conveys just where a stock is in the trading cycle.
On qcharts you do the list sort with "unusual volume". It is a defined column that has been added to Qcharts recently. Why, do you think?
The reason is that it is powerful and qcharts people added it when they had sufficient pressure to do so. Why did they name it the way they did? Well it is unusual to them.
for we that now have it available at long last to use, there is only one more column to add to make it best. We still need a reference column that can be filled in with a value that we determine and type in. that is not possible as yet. But as time passes it will be there and excel will no longer be required for a precise backup.
This ever changing list is an example of "backtesting" just being done in real time all the time. The P. V relation that is needed to make backtesting work is what makes the list work.
If you have the list, you go to where the part of the list has FTT's coming up. Then you make charts of the short channel that is ending. As the FTT appears you have the long entery and you hold until the next FTT ends the long trend.
your question is simply another way of stating the difference between a retrace and a reversal.
And now you know why your Q is so excellent. When a retrace becomes a reversal (after the retrace ends and price comes up to th prior high and the reversal begins).
The best fractal for doing all of this is not the one hcour uses nor the one Nononsense screws up his back testing on.
Obviously, I have been using NLP thoroughout this post. It is very clear that the post is pissing off a lot of people (because it is bullshit to them or it confronts their myths they use); it is making some people laugh because they read the humor; and some people are sensing that i am saying something they want to understand; other are thinking they need to understand; some are thinking they can be F***ing rich if they can learn to use it flawlessly; others are too tired to deal with it because they are just plain tired of how it is going for them; finally; there are some people hearing me say, or their benefit, the same old thing I have said for about 50 years; there may be one person who reads this and says "I think i get it!!!". Good for you; you just became a millionaire.
This is an important post. It took me almost 20 minutes to get it done. Back to the masonry to get my system pumping again.....
His best post ever from all his readings.
Flawless.....
don't bother. that nonsense from above isn't worth it. everybody knows this. for recognizing when a trend is over and a new one begins nobody with the slightest common sense needs a trend line or a channel or whatever. those stupid lines are lagging indicators like any other ma or stoch or whatever - price derivatives can't do anything else but lag. look closely and you'll notice that those channels are drawn with extreme subjectivity
the volume thing: pure bullshit. by the time a volume bar is complete (5 min. bar for example) and you would then know whether it is a green or red bar - it will be already much too late to enter. all those things maybe look tempting in hindsight but for a complete newbie only - it's like with all those indicators. they can serve as a support or confirmation - but basically they are useless. applying this crap will make millionaires - but on the other side of your trades.
I'm so sorry. I thought you had done the annotation and associated commentary.
I just used the attachment to your post for concevnience and continuity.
We all look forward to the response requested of you.
I use references in the normal manner. My assumption is that anyone posting has a bona fide view based upon a reasoned approach.
There are many many ways to make money and comparing and contrasting them is also a normal process. You may find that you yourself use other's as examples and references as a convenience way to forward understanding. The writer makes these deciisons as he wishes as I understand it.
I woul approeciate it if you used anything I have written whether in contrast of concurrance in your upcoming post on retraces and reversals. It will put others a step ahead in their considerations.
Unlike many on these boards, I'm not an authority, I've only been at this a few years, and I'm still a struggling trader. These are just my observations that I'm sharing w/you. I don't use indicators, if by "volume indicator" you mean vol itself, that's not an indicator. I follow the principles of Richard Wyckoff, this stuff is about a hundred yrs old, pure pv interpretation.
The principles determining a pullback vs a reversal are well-established. Read some basic TA, it's there. I outlined some standard Wyckoff criteria for a pullback in this post a while back:
http://elitetrader.com/vb/showthread.php?s=&postid=580279&highlight=pullback#post580279
To try answer your question further, markets only do two things: Trend or Consolidate. So it depends first if a valid channel/trendline is broken, if not, put most simply, assume it's a pullback until it shows itself to be otherwise, but pay close attention to the price action, spreads, and if available, vol. If the previous traverse of the channel from the demand line (lower-line) to the supply line (upper-line) took ten bars on narrow spreads and diminishing vol and the reaction then back to the demand line took 3 bars on wide spreads on higher, increasing vol, well, that tells you something. If the tl is broken, then first watch the nature of the break - wide or narrow spreads, strong closes or weak, high/low vol, a deep break or a shallow one? Does it recover quickly and on what kind of pv behavior? How deep does the subsequent rally manage to get back into the channel? Is it at other converging support/resistance? Price interpretation is not static, it's an ever-evolving, cumulative process.
A market trends up, then it breaks the trendline and consolidates. Before that break there will usually be climactic conditions - a parabolic rally, excessive vol, wide spreads. (Or maybe just the exact damn opposite, as the market climaxes w/a whimper instead of a roar as it peters out.) That new high will usually be tested, weakly. A consolidation forms, in an uptrend this will be either a re-accumulation phase (continuation) or a distribution phase (reversal). In a downtrend a re-distribution phase (continuation) or an accumulation phase (reversal). You watch that consolidation until it starts to reveal itself as either/or. There are certain criteria one looks for in the consolidation to determine ultimately whether it's dist or acc and there are certain points that one takes a position; the sooner the higher the risk but the greater reward (on a shakeout or a test of a shakeout, still w/in the trading-range), then later positions offer more security but less reward (the initial pullback following the breakout of the TR, the first pullback in a trend). It's too much to go into here, I and others have written about it many times elsewhere on this site. Again, this is pretty standard TA. Once the tl is broken, basically you're just trying to determine what is taking place w/in the subsequent trading-range - acc or dist? Is demand in control, or supply?
When an established trend is broken significantly this is what Wyckoff referred to as a "change of character". Something different is happening in the mkt, though we may not be sure just yet what it is. Sometimes the clues are clearer than others, of course, even if the tl is not broken. If you look at the S&P this month, on the 11th and 12th there were the two widest-spread down days closing on the lows since mid-Jan. These 2 days wiped out most of the gains of the previous 3 wks. Certainly this was at least a warning that a change of character may be occurring, something other than a normal "pullback". As of this writing, the last 8 days have retraced most of the gains of the previous 3 months. Last Fri, following Wed's massive down bar closing on the low on the highest down vol in 4 months, there was an extremely high volume up bar, but there was no commensurate price gain and it closed well off the high. So currently supply seems to remain in control of this mkt and this, as a "Wyckoffian" (which is to say, standard TA) is the central thing one is trying to determine.
I followed a nice Wyckoffian channel on the 60-min EUR/USD in the latter part of this thread, illustrating some of the principles I've been talking about:
http://elitetrader.com/vb/showthread.php?s=&threadid=60260&perpage=20&pagenumber=2
H
Of course I did the annotation and commentary. I assumed by "fractal" you meant what most would mean - timeframe, 60-min chart, 4-hr chart, whatever. I don't even know what the timeframe was, it was the OP's chart and timeframe wasn't relevant to my particular analysis. Not sure what else you would mean by "fractal" as I don't follow your posts and thus am unfamiliar w/your terminology or the way you use it.
H