Unholy Grail to Success

[saliva]

Quote from investwthme:

Saliva is it not feasible to say that if price moves up slowly rather than fast, that price should be held stronger to the upside?

No offense meant, but that's the typical response you find in the Complete Idiot's Guide to Trading 101 and the like. Try to visualize it in terms of counter-trend and counter-momentum. The "counter" concepts are not the ordinary Joe-sixpack methods you'll find in them books.

There are usually three phases in any given trend: beginning, middle, and end. The beginning phase of the trend is considered a counter-trend. Here, you're literally fighting against what has been the main trend until now. Consider the following analogy. Suppose you're being pushed into a corner. What would you do to break through? You would first look for the weakest link in the chain. Once found, you will lunge forward with all your might. Now fast forward to the end phase. Can you discern any difference between the beginning and the end phases? They are rather identical to one another except in one aspect. Their role has been reversed. Instead of being pushed into the corner, now you're doing the pushing.

On a lighter note, I should point out that my approach is not to "walk hand in hand" with y'all but to make you see things from another angle. Without any doubt, PMT is simple, almost too simple, in scope but once properly understood it will transform the way you see charts. To borrow Men's Wearhouse commercial, "You're going to like the way you trade; I guarantee it!"

 

[saliva]

Quote from swapanda:

Now for my question to saliva, at which point would your entry/stop be for the first short order? With no reference to your "retro" or "macro", the momentum to the dotted UTL of the channel certainly seems strong (correct me if I'm wrong) and there were 3 candle highs sticking to it. Personally, I may have entered on the close of the first bearish candle or even the break of its low which in this case would have been a little late in my opinion given the length of that particular candle and the distance to closest support.

I'm certainly looking forward to whatever else you have to share. For the moment at least, I'm looking to improve my trend lines and interpretation of momentum/velocity.

What you're seeing is an ascending upper channel. These are one of the best entries for short trades. Often times, prices will retest the lower channel line, at which point you'll either cover or flip long. Depending on momentum, I like to enter when the upper channel is first touched. When the momentum is strong, the following candle would usually make another touch. All in all, I tend to jump in short at the upper channel. As for placing stops, I place it just above the upper channel 2 candles away. So if I'm trading the 5-minute chart and it's currently 10:03, then the stop will be made just above the upper channel at 10:15. Of course, you would need to exercise discretion. First, see if there's any overhead resistance or support, or any other potential hotspot, around the area. Second, gauge the counter-trend. Is it strong enough? If not, there's no need to stick around for your stop to be hit. This applies to not only ascending channels but to everything else.

Granted, you might find it very uncomfortable to make the leap of faith. However, over time with ample practice, it will get easier. If you feel unsure at the moment, paper trading can also be utilized as a confidence booster.

Note that trendlines and channels have already been discussed in length. I suggest you print out the whole thread and review these posts at your leisure.

 

[saliva]

Quote from swapanda:

[T]he momentum to the dotted UTL of the channel certainly seems strong (correct me if I'm wrong) and there were 3 candle highs sticking to it. Personally, I may have entered on the close of the first bearish candle or even the break of its low which in this case would have been a little late in my opinion given the length of that particular candle....

At a cursory glance, there's no question a strong momentum is present in those three candles. But upon closer look, I realize that they may not be as strong as initially thought. For one, there was a brief moment of breather (a small red body preceding those three candles). Then you have pretty long upper wicks in the two white candles that follow. The second candle actually touches the UTL but quickly withdraws. The third candle makes another attempt, closing slightly below the high of the previous candle. It would have been a little concerning had this candle closed above the previous high. Regardless, I would have taken the short at this point with the stop placed just above the UTL 2 candles away. I believe the high risk:reward ratio would ultimately justify the trade.

Again, I want to emphasize that it's critical to understand PMT in the context of its opposite (eg. "counter"). Think in terms of a projectile. The best place to enter long is at points 1 and 5 (see below). The best place to catch a short is at point 3. These are the absolute pivot points where reversal takes place. Points 2 and 4 are relative pivot points where the trend continues up or down from a pullback. Point 6 is a complete breakdown that gives rise to a new trend.

 

[Spxdes]

Quote from saliva:

What you're seeing is an ascending upper channel. These are one of the best entries for short trades. Often times, prices will retest the lower channel line, at which point you'll either cover or flip long. Depending on momentum, I like to enter when the upper channel is first touched. When the momentum is strong, the following candle would usually make another touch. All in all, I tend to jump in short at the upper channel. As for placing stops, I place it just above the upper channel 2 candles away. So if I'm trading the 5-minute chart and it's currently 10:03, then the stop will be made just above the upper channel at 10:15. Of course, you would need to exercise discretion. First, see if there's any overhead resistance or support, or any other potential hotspot, around the area. Second, gauge the counter-trend. Is it strong enough? If not, there's no need to stick around for your stop to be hit. This applies to not only ascending channels but to everything else.

Granted, you might find it very uncomfortable to make the leap of faith. However, over time with ample practice, it will get easier. If you feel unsure at the moment, paper trading can also be utilized as a confidence booster.

Note that trendlines and channels have already been discussed in length. I suggest you print out the whole thread and review these posts at your leisure.

I was enjoying your thread up until this post.

What you have described is a recipe for disaster. Shorting in an ascending upper channel is not a good idea, especially for the beginner. You have spent a lot of time and effort on this thread preaching about the importance of price, MOMENTUM and time - now you are telling us to SHORT into strong upward momentum?

 

[goldenarm]

You can short this way for quick scalps when you're range trading in a market that's moving sideways. The key is that the support and resistance levels should be clearly defined. If the market is trending upwards, it's a high risk trade and should be avoided.

In either case, these types of fade plays are not recommended for beginners. Beginners should stick to trading an uptrend from the LONG side only.

 

[saliva]

You're free to form and express your own opinion. I can only speak from experience. However, you're putting words in my mouth. The illustration you seem to take out of context was my way of rebutting another poster's preposterous claim that trendlines are "illusions". It was meant to say that, yes, you can trade trendlines and make money.

Be that as it may, I don't subscribe to your view that I was trading against a "strong upward momentum". I would still have shorted knowing exactly where the UTL was far in advance. By the same token, if you were holding a long position, this would also have been a good place to take profit. Either way, in order for you to succeed as a trader, you need to first acquaint yourself with a countertrend to really know what a TREND is. Like I said, learn to see from its opposite. This also applies to MOMENTUM as well.

Quote from saliva:

There are usually three phases in any given trend: beginning, middle, and end. The beginning phase of the trend is considered a counter-trend. Here, you're literally fighting against what has been the main trend until now. Consider the following analogy. Suppose you're being pushed into a corner. What would you do to break through? You would first look for the weakest link in the chain. Once found, you will lunge forward with all your might. Now fast forward to the end phase. Can you discern any difference between the beginning and the end phases? They are rather identical to one another except in one aspect. Their role has been reversed. Instead of being pushed into the corner, now you're doing the pushing.

BTW it ain't my business to shove my system down your throat. You can take or leave it. Nevertheless, I assure you that you won't go very far by clinging on to those naive views preached by textbook hacks. Just my otherwise useless 2-cents.







[edit]
Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!

 

[goldenarm]

The term "countertrend" is misleading and confusing. There is only one trend, either an uptrend or a downtrend. There is no "countertrend". The beginning phase of a trend is called a "reversal" or "breakout", not a "countertrend".

The correct term for what you describe as a "countertrend" is really a "pullback" (in an uptrend) or a "rally" (in a downtrend). Pullbacks are good spots to initiate long positions and rallies are good spots to initiate short positions.

I like a lot of your informative posts, but sometimes I think you're reinventing the wheel and creating your own terminology. Technical Analysis already has proper terms for most of your concepts.

 

[saliva]

Game Plan: Deconstructing PMT into Shreds (Well, just a teaser for now)

Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!

So you've taken the time to learn the ropes of PMT. Now you're asking "geez, what's so damn special about PMT, which has literally been around for centuries if not longer?" Well, well, if I tell you that PMT is used for MARKET TIMING, is that enough to make it special? That's right. PMT serves to facilitate our understanding of market timing because everything boils down to timing, timing, timing! (Got that Mandel? )

Just what is timing and does it mean anything to a trader? Or, better yet, should it matter? Timing is everything in this game. If you didn't already know that trivial fact, you really should look for another profession. Timing will either make or break your bank account. Here's an example that plays out across the globe on a daily basis. A trader correctly forecasts the trend but she still manages to lose money because she screwed up her entry due to poor timing. On the contrary, another trader rakes in huge sums of money even though he trades against the trend, thanks in large part to his impeccable timing. Now, if timing is so damn crucial to a trader, why hasn't there been enough literature devoted to this important topic? It's a real pity, I know.

 

[saliva]

Quote from goldenarm:

The term "countertrend" is misleading and confusing. There is only one trend, either an uptrend or a downtrend. There is no "countertrend". The beginning phase of a trend is called a "reversal", not a "countertrend".

The correct term for what you describe as a "countertrend" is really a "pullback" (in an uptrend) or a "rally" (in a downtrend). Pullbacks are good spots to initiate long positions and rallies are good spots to initiate short positions.

I like a lot of your informative posts, but sometimes I think you're reinventing the wheel and creating your own terminology. Technical Analysis already has proper terms for most of your concepts.

That's because I believe you either misunderstand the term or you're intentionally twisting it to suit your own needs. I say that out of good spirit, of course. There's a very good reason why I'm reinventing the wheel as it were. A trend is often defined as a series of higher highs (uptrend) or lower lows (downtrend). But just what does that mean? Other than the fact that subsequent price closed higher than its predecessor, it doesn't tell us much. You might want to know about the strength, let alone time, leading up to that point. By doing so, you would have a better understanding whether this is a genuine trend or simply a fake. Pullback is even more vague. According to Investopedia, pullback is defined as "falling back of a price from its peak. This type of price movement might be seen as a brief reversal of the prevailing upward trend, signaling a slight pause in upward momentum." These useless [sic] definitions fall short and certainly will not do justice to what's being discussed in this thread. So I say forget about the textbook terminology that's widely circulated in Investing 101.

The centerpiece of PMT rests on the laurels of counter-this and counter-that. Call it a Yin Yang principle of trading.

Instead, look through the prism of its opposite (eg. "counter"). I swear I wrote this earlier today as well as yesterday. But I feel this is worth repeating: it is not merely the advance (or force) of the price movement that should take the center stage but also the weight of its counterforce. Remember the following remark, which was posted at the outset of this thread? (I apologize if this comes across as condescending but you really need to think for yourself.)

Quote from 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?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.

 

[investwthme]

Can you compare pmt to macd (w/histogram)?
You got momentum, price and time.