Unholy Grail to Success

[saliva]

Quote from Imba:

885 (close by a stop).
872 (short). (883 SL).

And here we goes lower....


Apes IQ brain required really

Congratz, you just got stopped out!

BTW whatever suits you best, you have all my blessing. As a matter of fact, it's all-you-can-cherish, so come back for more if you please.

But then again, there's no refund either...especially for those with ape brains.

 

[saliva]

Support & Resistance

We all know that everything revolves around prices. We also know that prices are driven by demand and supply. Hence, if we literally take this textbook definition to its logical conclusion, we can safely assume that prices stall and reverse when either the demand or the supply wanes.

In the parlance of trading, demand and supply don't fluctuate out of random. That is, reversals that counteract demand and supply occur at very specific price levels. These price levels, in turn, are established by previous support or resistance (S/R).

There are major S/R as well as minor S/R. The minor S/R appears more or less at very specific place that usually coincides with previous minor S/R. However, these minor S/R's are usually limited to the confines of a major S/R as seen below. As a matter of fact, the collection of minor S/R's is what makes up a major S/R.

 

[ctrlbrk]

Quote from saliva:

Support & Resistance
There are major S/R as well as minor S/R. The minor S/R appears more or less at very specific place that usually coincides with previous minor S/R. However, these minor S/R's are usually limited to the confines of a major S/R as seen below. As a matter of fact, the collection of minor S/R's is what makes up a major S/R.

Excellent chart Saliva. Do you typically use a 30m chart to find S/R channel for that day, and a 1d chart to find for the week?

 

[saliva]

Quote from ctrlbrk:

Excellent chart Saliva. Do you typically use a 30m chart to find S/R channel for that day, and a 1d chart to find for the week?

I use the 5-minute chart to trade. However, I also use 15-, 30-, and 120-minute charts to monitor S/R. There are usually more revelations on the 30-minute chart, but I like to cross-reference the 5- with the 15-minute chart. The 120-minute chart is very useful in spotting a longer-term major S/R that is not so apparent on the daily chart.

It's worth noting that I'm citing S/R in the context of PMT strategy. But the actual forecasting of S/R will be covered more in detail when TRAP is discussed.

 

[saliva]

Trendlines & Channels

Now that we've got support and resistance (S/R) out of the way, let's briefly cover some of the key points to look for in a trendline (TL).

TL is similar to S/R in that once it is breached it becomes a counter-trendline (CTL), just as a support becomes a resistance when the former is violated. Hence, it's very typical to see prices jump off the CTL following a breakout (see the chart below). Moreover, trendlines and channels are very reliable tools to gauge potential price targets (read: price reversals). It's simple as drawing a line between two highs and taking profit when prices again touch the trendline.

Lastly, when the trendline aligns with either the support or resistance, be prepared for a powerful rally or a plunge.

 

[saliva]

Momentum (Intro)

Momentum is perhaps the most difficult, if not the most elusive, concept to comprehend. It sounds easy in theory but it's always a challenge to execute in real time.

Consider the following analogy. Suppose you ran your car into a cement barrier at 20 mph. The collision would no doubt leave a permanent damage to your car but you will nevertheless come out relatively unharmed. Now suppose the same collision occured at 60 mph. At this point, I'm certain that the car will be "totaled" and you would be in no better shape. The bottom line is that you would not succeed in breaking through the concrete barrier without some serious repercussions.

Suppose then we replace the concrete barrier with your neighbor's wooden fence. What would be the outcome after driving your car into the fence at 20 mph and then at 60 mph? While you might not break down the fence at 20 mph, you will surely be driving on the other side at 60 mph.

At first glance, we can conclude that the same analogy can be applied in trading. The success of any breakout will depend largely on the level of barrier exerted at support or resistance. The larger the barrier, the less chance for success, and vice versa. However, what would happen to the concrete barrier if we keep banging on it, one car after another?

Stay tuned...more to come.

 

[tommymoose]

I like whats you've written so far and where this thread looks like its going. Momentum is a very interesting concept that I think is much harder to program and where many discretionary traders find their edge.

Strong S/R with a meandering market = high probability reversal.

Weak S/R with an impulsing market = kiss the zone good-bye

 

[saliva]

Counter-Momentum: Momentum in Reverse

By now, you should know that I have a knack for everything preceded by "counter". On that note, I confess that I never fully understood the concept of momentum until I came to realize the importance of counter-momentum—if there is such a thing. So what exactly is counter-momentum? Consider the following premise:

• If the stock doesn't go up, then it must come down

You can readily observe in any chart that a given stock will go up as long as there's enough buying interest. Once the buying interest dries up, the stock will in turn stop going up. Now consider another premise:

• If the stock should go down but does not, then it must go up

Suppose XYZ reaches a new weekly high at $50. It then comes down and stalls at $49.50. However, the stock never manages to drop much further and instead meanders in the range of $49.35 and $49.65. Once the buyers realize that the supply of sellers have dried up, they quickly step up to the plate and bid up the stock higher.

As you can see from the two examples, it ain't the momentum but rather a lack of momentum that can provide a greater insight into where the damn price will likely move.

 

[Humpy]

Quote from saliva:

Counter-Momentum: Momentum in Reverse

Once the buyers realize that the supply of sellers have dried up, they quickly step up to the plate and bid up the stock higher.

I think I'm right in saying that if the stock reaches equilibrium and is therefore not moving up or down then the mms will tempt buyers/sellers in by moving the price a bit. They depend on commission for income.

 

[MandelbrotSet]

Great thread.

Nice, clear trading concepts that are easily transferrable to many different styles of trading ...

... and your description of how momentum plays out in the markets is one for the books.

The counter-momentum techniques are actually more advanced though, and where the really good traders break the bank.