Price, (Volume), Support, Resistance, Demand, Supply . . .

[firewalker99]

This is not "my" thread, not after so many hundreds of posts. I had hoped that by now some effort would be made to go beyond the hypothetical and the theoretical and the hindsight "this is what I would have done", but clearly that is not going to happen since the siren song of effortless trading is so strong. Therefore, I'll work on the S/R thread and leave this one to those who focus on the future rather than the present. They have my best wishes.
Db

If you interpreted my question otherwise, I'm sorry, but I never asked anybody what they thought "was going to happen" or what they "thought was the right action to do". I was only asking "why" price moved in that way and if there were any signals one could have picked up along the way. And if there were any (in the past or present), than I would have something to build upon.

You say it doesn't matter why price went down. Ok, it doesn't matter whether it's down to news, sellers getting more agressive, penetration of support, etc. But in one of your earlier posts you say you're looking to analyze the "results" of what buyers/sellers are trying to do/doing. By analyzing the results, isn't it normal to look for a cause that lead to these results so one can (try to) understand as to why this result happened? Wouldn't every historian, economist, evolutionary biologist,... say "look at the past to understand the present"?

 

[dbphoenix]

My first target is -or was- trying to understand why price moves in the way it does. I'm not sure if it's still worth pursuing in that way that perhaps I'm trying too hard at comprehending every move price makes. The second target was trying to base a strategy on the "acquired knowledge and ability to read the market". The third target was indeed to start making money, but not after I fully understood what was going on.

Now about my question on the two charts been talked about so much. I didn't say this was a situation I would build a plan or setup around. The only thing I was inquiring was why you stated "there is a relatively safe entry with a tight stop which you could make even if you didn't incorporate volume". For that reason only, I posted a similar chart where price did go against you. Let's put it this way: would you see any signals on the second chart (that would indicate this is not a relatively safe entry) that you could not distinguish on the first chart?

You asked why I made the statement and I explained why I made the statement. I then explained one way I would trade it in real time, not in hindsight.

I don't care about why.

I don't care about predicting the future.

I don't care about the meaning of it all.

All that matters to me is whether the setup materializes or not. If it does, I know what to do. If it doesn't work out, I also know what to do. If it doesn't materialize at all, I do nothing.

Db

I've been asked repeatedly about the charts posted earlier, and since newcomers continue to read this thread, it seems appropriate to revisit this issue so that my meaning with regard to realtime analysis vs hindsight analysis may be clearer.

As Justin Mamis has said, hindsight is not available as a tool. This is not to say that hindsight analyses are not impressive. They ought to be. Knowing the future always lends a certain confidence, and the hindsight analyst would have to be truly incompetent not to come off as extraordinarily perceptive.

But hindsight analysis can do no more than tell the trader what he should have done. There's no money to be made in chewing over what should have been done (though if one is still in the process of defining and testing a setup, hindsight analysis is not only necessary but unavoidable given that he is not yet trading). If one wants to make money, he has to act in real time. Thus all of the "analysis" regarding "fractured" volume, while possibly entertaining, is irrelevant to the task of making realtime trading decisions.

To make those decisions, one must act in real time. He must know what he's looking for, be able to recognize it in real time, and act upon what he knows and what he sees. If he waits until everything is wrapped and tied up with a ribbon and bow and there can be no doubt as to the proper course of action, it's nearly always too late.

Here it is to be hoped that the trader is stopped out fairly quickly, either by breaking the demand line (1) or by falling below the congestion level (2). Staying in all the way to a break of the last swing low is not practical for a daytrader, particular since he is trying to catch a reversal.

When price makes a new low, therefore (3), he again applies the Wyckoffian paradigm: selling climax, technical rally, test, upmove or failure. If the trader knows that the area around 5625/30 is serious support, he might make an aggressive entry. However, he can't know whether or not this is a selling climax except in hindsight. So he waits for the test (4). This lower low is accompanied by lighter volume, suggesting that sellers are done or nearly so. Therefore, an entry here is not quite so aggressive. If he wants to be more conservative, however, he can wait after what may be a technical rally for the higher low, which comes soon thereafter (5). If even this seems too risky, he can wait for the break of the technical rally's high (6). And, yes, this trade can still fail. But focusing on the setup -- i.e., the Wycoffian paradigm -- increases the probability of a successful trade. Thereafter, all he has to do is track the demand lines (a new one is drawn, if necessary, with each new high) and the highs and lows of each swing. In real time.

It should also be noted that if the trader is so conservative that he squeaks, he can also wait for a break of the higher supply line (7). However, waiting for this much confirmation increases rather than decreases risk, and the probability that the move is losing momentum is greater.

Hindsight review will, of course, tell the trader that he applied his rules properly and acted correctly in real time. But the realtime trader will have profited from this move. The hindsight analyst who does nothing else will have nothing but couldawouldashoulda.

Db

 

[firewalker99]

I don't care about why.
I don't care about predicting the future.
I don't care about the meaning of it all.

All that matters to me is whether the setup materializes or not. If it does, I know what to do. If it doesn't work out, I also know what to do. If it doesn't materialize at all, I do nothing.

Db

Then would you agree that trading is 95% patience for someone who sees his setup materialize, let's say once in a week?

 

[dbphoenix]

Then would you agree that trading is 95% patience for someone who sees his setup materialize, let's say once in a week?

What does the market tell you?

 

[SIMA]

Then would you agree that trading is 95% patience for someone who sees his setup materialize, let's say once in a week?

Looks like lot of macho talk has been generated by your chart. Graveyards are full of machotraders))

1. Think when Socrates mentioned bull phase, I don't think he meant a full blown one that is going to last for days, weeks and months. The next day the market went upto 5760 generating a healthy profit.

2. Now it is time to focus on the price action once again, high vol upbar followed by upthrust, suggesting selling pressure , call it distribution if you will, and so on....

3. For every single patten or setup, (including those based on RSI, Stoch divergence, Woodies CCI Zero line Reject etc), one can find hundred charts where these are productive and another hundred charts where they have been unproductive. That is the nature of the beast.

4. Once can trade successfully with that single setup which Db has illustrated, when it is productive with correct trade management it will yield susbtantial profits, when it not productive, your stop loss should ensure minimum loss acceptable to you, that's it, probability in action.

5. As Mark Douglas puts it " Every moment in the market is Unique", Hence to expect that setup to work everytime on any time frame is like saying that everytime the same number of players with the same agenda are appearing every time and hence the outcome can be predict with 100% accuracy....well can only happen in dreams.

 

[firewalker99]

3. For every single patten or setup, one can find hundred charts where these are productive and another hundred charts where they have been unproductive. That is the nature of the beast.

5. As Mark Douglas puts it " Every moment in the market is Unique", Hence to expect that setup to work everytime on any time frame is like saying that everytime the same number of players with the same agenda are appearing every time and hence the outcome can be predict with 100% accuracy....well can only happen in dreams.

Agreed, but I was trying to figure out if in both cases the same signals could be identified for the same setup. If yes, than I would be inclined to say this is just one of those cases the trade doesn't work out. Indeed, there's no 100% accuracy. But if no, then I was looking for an explanation why someone would enter on the first trade and not on the second. Because if he could find out, he would then be able to refine his setup and perhaps eliminate those "bad trades" in order to increase his accuracy. Isn't that the purpose of testing your strategy? To come up with something that has a higher probability for success than before? Higher than say 50-50?

 

[rols]

Agreed, but I was trying to figure out if in both cases the same signals could be identified for the same setup. If yes, than I would be inclined to say this is just one of those cases the trade doesn't work out. Indeed, there's no 100% accuracy. But if no, then I was looking for an explanation why someone would enter on the first trade and not on the second. Because if he could find out, he would then be able to refine his setup and perhaps eliminate those "bad trades" in order to increase his accuracy. Isn't that the purpose of testing your strategy? To come up with something that has a higher probability for success than before? Higher than say 50-50?

I admire your tenacity but I still feel the penny hasn't dropped. I have nothing to gain by banging on at you apart from the satisfaction that I may assist you in achieving your goals.

Ironically you already know the answers. This is apparent by your choice of nik and signature
Sometimes, to uncover that which is hidden, we must first be made to look...

In order to become a fire walker requires a leap of faith does it not?

The I shall spell it out for the final time and leave you alone!

The essence of the financial markets is that they are counter-intuitive and reverse-emotional logic. Their continued existence is achieved by thwarting common logic and the law of human behaviour.


Good luck!

 

[SOCRATES]

Looks like lot of macho talk has been generated by your chart. Graveyards are full of machotraders))

1. Think when Socrates mentioned bull phase, I don't think he meant a full blown one that is going to last for days, weeks and months. The next day the market went upto 5760 generating a healthy profit.

2. Now it is time to focus on the price action once again, high vol upbar followed by upthrust, suggesting selling pressure , call it distribution if you will, and so on....

3. For every single patten or setup, (including those based on RSI, Stoch divergence, Woodies CCI Zero line Reject etc), one can find hundred charts where these are productive and another hundred charts where they have been unproductive. That is the nature of the beast.

4. Once can trade successfully with that single setup which Db has illustrated, when it is productive with correct trade management it will yield susbtantial profits, when it not productive, your stop loss should ensure minimum loss acceptable to you, that's it, probability in action.

5. As Mark Douglas puts it " Every moment in the market is Unique", Hence to expect that setup to work everytime on any time frame is like saying that everytime the same number of players with the same agenda are appearing every time and hence the outcome can be predict with 100% accuracy....well can only happen in dreams.

That is correct ~ I very clearly said BULL PHASE, and not a Bull Run or a Bull Market.

A Bull Phase is a very different market situation to a Bull Run or Bull Market.

A Bull Phase is a fleetingly temporary market condition in order of magnitude within a given specific timeframe, and not to be confused with the other two.

 

[barjon]

It seems to me that, whilst everyone is attempting to obtain an understanding of the market through price/volume, there are two schools of thought emerging when it comes to trading.

The set-up school

This school seeks to gain an understanding of the market with the objective of establishing a set-up which has a known probability of success. That set-up is traded when it appears and its traders are not really concerned about forecasting since whatever it is that happens when the set-up triggers will happen and their money management will take care of it.

The forecasting school

This school seeks to gain an understanding of the market with the objective of forecasting how the price is likely to move. Traders here are concerned with timing their entry to capture that anticipated move. They may use a particular set-up - or range of set-ups - for that, or rely on LII, tape reading or pure intuition.

Both approaches have validity, but it seems important not to confuse the two.

good trading

jon

 

[rols]

It seems to me that, whilst everyone is attempting to obtain an understanding of the market through price/volume, there are two schools of thought emerging when it comes to trading.

The set-up school

This school seeks to gain an understanding of the market with the objective of establishing a set-up which has a known probability of success. That set-up is traded when it appears and its traders are not really concerned about forecasting since whatever it is that happens when the set-up triggers will happen and their money management will take care of it.

The forecasting school

This school seeks to gain an understanding of the market with the objective of forecasting how the price is likely to move. Traders here are concerned with timing their entry to capture that anticipated move. They may use a particular set-up - or range of set-ups - for that, or rely on LII, tape reading or pure intuition.

Both approaches have validity, but it seems important not to confuse the two.

good trading

jon

I beg to differ jon.

The marriage of right and left brain capabilities is a marriage made in heaven when it comes to trading. I know you can fly a plane on one engine but why take the risk? Better to take to the skies knowing both engines are firing on all cylinders.

For example you are watching the chart of X and a golden cross appears as a strong BUY signal but at the same time you feel a strong sense of danger and visualise a sudden plummet. Separate the two responses and score them out of ten. Then decide whether the trade is worth taking. Other times the chart and the intuition match so the trade can be entered with confidence.

Rather than confusing the two I suggest they make beautiful music together!

 

[barjon]

I

..................Rather than confusing the two I suggest they make beautiful music together!....................

rols,

Always assuming your instrument is well-tuned With my musical ear I mostly find that when I second guess my set-up I play a bum note at the back

I was really trying to highlight differences in objectives in studying price/volume.

good trading

jon

 

[ymonly]

when we see the entry signal that we have confidence in we must take it......is it forward prediction? of course..with the highest probability we can create......or have created thru enormous time given to the signal testing......or signals....thanks to the forum for higher level comments..unlike the one that slammed my friend mr. marcus.shame on them..i always speak of emini daytrading only....

 

[SIMA]

Agreed, but I was trying to figure out if in both cases the same signals could be identified for the same setup. If yes, than I would be inclined to say this is just one of those cases the trade doesn't work out. Indeed, there's no 100% accuracy. But if no, then I was looking for an explanation why someone would enter on the first trade and not on the second. Because if he could find out, he would then be able to refine his setup and perhaps eliminate those "bad trades" in order to increase his accuracy. Isn't that the purpose of testing your strategy? To come up with something that has a higher probability for success than before? Higher than say 50-50?

How I wish we had all this info. and advice presented on this thread some 6-7yrs ago, would have saved lots of time and money during the learning process

1. Backtest this setup , there are many variations peddled by Gurus and vendors ( Lazy M or lazy W, Failed Tests , 1-2-3 etc), I am sure you will find that if you took the next 100 signals, you would come out with a profit. Even with a 50-50 probability, this strategy would be profitable , as the risk is kept small.

2. On that second chart, if a long trade had been taken, there was enough time to move to breakeven, another 15min to move stop higher and then micromanage it on lower time frame from there on.

3. Another opportunity cropped up in the afternoon , believe around 3-4p.m which would have yielded more profits.

4. As to why the upmove came to a halt, selling pressure entered the market at that level, why? there are pivot resistance levels to the left, if 30min or 60min charts were viewed, these may coincide with further confirmation, that is pretty sufficient to trade intraday. To carry on up further into the cause-effect chain is futile
5. If there was sufficient buying pressure then ofcourse these resistance levels would be broken, that is why Db calls them "SOFT" , We just have to respond to what the market is telling us, i.e go with the flow.
Very similar to when we are driving, if there are divergences due to roadworks, accidents,for whatever reason, we just follow them despite the fact that sometimes we find ourselves going back or away from our target, however all the time implementing our driving skills.

 

[dbphoenix]

oh yes barjon you must not confuse the two..

i am so very glad you brought this up.. as i feel someone must highlight this glaring danger.. i fear someone may fall into a terrible trap.. one which could end up burning a hole in their pocket.. very deeply.. and cost them a lot of time.. and cause them a great deal of pain and anguish.. perhaps culminating with a bill running into tens of thousands of pounds for the services rendered..

i must stress deeply that everyone should take care when being presented with forward predictions of market action..

on the surface these predictions can give the illusion to the hopeful and aspiring trader that a correct outlook of the market has been given.. but on closer inspection one can see that this is not the case..

i highly recommend everybody view these posts objectively and impartially.. look in particular for when forward predictions are vague in their composition... 'its going up' would be an example of this.. and where the goal posts have a habit of being moved at whim.. especially after the event has taken place.. for instance 'well, what i meant was so and so'..

stick to hard concrete indisputable fact.. and never be afraid to confront a person when you suspect there is a smell in the air.. their reaction to your suspicions will be the mark of their character.. the good will stick their ground and the bad will run away with their tail behind their legs.. perhaps with your cheque too if you are unlucky..

best wishes to everybody, good health, and most of all be very careful and protect yourself...

Somebody gets it, which is something. Maybe not a lot, but something.

I don't know who you are, GreenWelly, but I look forward to tracking your progress.

Db

 

[counter_violent]

Given that instruments spend approx 70% of the time in ranges and consolidations, members here could do worse than read up on Median Trading and then trade one direction.Filter entries using the higher time frames as the starting point for overall trend. Lots of patience and discipline is required but probabilities will, on average, be in your favour,trade entries with the trend.
Combine this approach with good money/trade management.
Exhaustion of a price move should be treated as an exit only..they are easily recognised with practice,even if volume is not on your charts.Look for " V " tops in a rising trend and "V" bottoms in a falling trend... these are exits/ exhaustion.

C V

 

[Charlton]

Am I understanding you Db ?

It seems to me that, whilst everyone is attempting to obtain an understanding of the market through price/volume, there are two schools of thought emerging when it comes to trading.

The set-up school

This school seeks to gain an understanding of the market with the objective of establishing a set-up which has a known probability of success. That set-up is traded when it appears and its traders are not really concerned about forecasting since whatever it is that happens when the set-up triggers will happen and their money management will take care of it.

The forecasting school

This school seeks to gain an understanding of the market with the objective of forecasting how the price is likely to move. Traders here are concerned with timing their entry to capture that anticipated move. They may use a particular set-up - or range of set-ups - for that, or rely on LII, tape reading or pure intuition.

Both approaches have validity, but it seems important not to confuse the two.

good trading

jon

Jon

I'm not so sure that these are that different. The setup school waits for a particular set of signals to occur to, say, make an entry. It's already established the likely probability of success. How does it do this ? By looking at history. If the signal says go long, then is this not a kind of forecast ? It might not have the nature of "price will reach 1750 at 16.00 hrs", but nonetheless it is a forecast.

Clearly the forecasting school is more specific about price levels and timing, but like the setup school there is some kind of set-up i.e. a set of conditions that say I can enter this trade now.

What I think Db is saying (please correct me if I am wrong), is that it doesn't matter how you get to the scene of the action, but once you are there you need to observe and act appropriately. Appropriate action may be to get involved or to walk away. Involvement might correspond to the map that you used to get to the scene of the action e.g. price moves in the direction you anticipated or your involvement might correspond with a totally different set of circumstances that are emerging as you stand there.

At this point it is irrelevant how you arrived, but what is important is how you react to the circumstances you now face. This involvement and reaction to events will continue until you exit the trade.

At that point, with hindsight, you might decide to alter your strategy, to alter your map, to (hopefully) arrive at more productive scenes of action in the future.

Charlton

 

[dbphoenix]

What I think Db is saying (please correct me if I am wrong), is that it doesn't matter how you get to the scene of the action, but once you are there you need to observe and act appropriately. Appropriate action may be to get involved or to walk away. Involvement might correspond to the map that you used to get to the scene of the action e.g. price moves in the direction you anticipated or your involvement might correspond with a totally different set of circumstances that are emerging as you stand there.

Charlton

No, this is not what I'm saying at all. It does matter how you "get to the scene of the action" and, no, there is no option to abandon the trading plan. If one succumbs to that, there's no point in going to the trouble of creating a plan in the first place.

The "forecast" group may be a crowd-pleaser and may leave some observers "breathless", but all of this has to be translated into real-time action, and the forecast group invariably comes up short in this regard. They're good at telling you what you should have done, but are nowhere to be found when someone wants to know what to do now.

Hindsight riches appeal to the same gullibility that reigned in '99/'00, and the results are no different. Yet it seems so easy . . .

Db

 

[Splitlink]

Jon

I'm not so sure that these are that different. The setup school waits for a particular set of signals to occur to, say, make an entry. It's already established the likely probability of success. How does it do this ? By looking at history. If the signal says go long, then is this not a kind of forecast ? It might not have the nature of "price will reach 1750 at 16.00 hrs", but nonetheless it is a forecast.

Clearly the forecasting school is more specific about price levels and timing, but like the setup school there is some kind of set-up i.e. a set of conditions that say I can enter this trade now.

What I think Db is saying (please correct me if I am wrong), is that it doesn't matter how you get to the scene of the action, but once you are there you need to observe and act appropriately. Appropriate action may be to get involved or to walk away. Involvement might correspond to the map that you used to get to the scene of the action e.g. price moves in the direction you anticipated or your involvement might correspond with a totally different set of circumstances that are emerging as you stand there.

At this point it is irrelevant how you arrived, but what is important is how you react to the circumstances you now face. This involvement and reaction to events will continue until you exit the trade.

At that point, with hindsight, you might decide to alter your strategy, to alter your map, to (hopefully) arrive at more productive scenes of action in the future.

Charlton

Forecasting is- for how long, in your opinion? Personally, I look on forecasting of more than a few days (and I'm being generous, here) as being practically impossible. There are too many unknown factors involved. Even this week we have had a panic at London's airports and could anyone tell me how the Middle East ceasefire will pan out?

I follow my trade and move my stop up behind it. There seems to me nothing more that can be done. The assessments that posters make on this thread suit me because they make sense. A trader is entering his trade because he thinks that his share is going to move in a certain direction. His reasoning has led him to that conclusion and another poster will question that reasoning and cause the trader to think in another way. But no one can know what the outcome will , truly, be.

If he is wrong he must get out. We all have varied reasons for doing what we do- If a trend trader thinks his trade may last for a week or so he can do nothing more than follow it as it moves, All this reasoning that it is going to go to a support level in a month or so and then go sideways before moving up so many pence is not being practical and he cannot think that far ahead.

Split

 

[Charlton]

Further clarification requested

Db
Thanks for the response. I don't want to labour this, but could you clarify a couple of points that I make below

No, this is not what I'm saying at all. It does matter how you "get to the scene of the action" and, no, there is no option to abandon the trading plan. If one succumbs to that, there's no point in going to the trouble of creating a plan in the first place.

Db
I assume that you are talking about my phrase "walk away". I do not mean to imply that you abandon the plan, but that the plan includes the option to do nothing i.e. to not trade.

The "forecast" group may be a crowd-pleaser and may leave some observers "breathless", but all of this has to be translated into real-time action, and the forecast group invariably comes up short in this regard. They're good at telling you what you should have done, but are nowhere to be found when someone wants to know what to do now.

You used the term "may be". Does this mean that the methods of the forecast group e.g VSA can form part of a valid plan i.e. an entry, exit and stop strategy that is successful or is the forecasting of price levels totally invalid ?

Finally, returning to your first comment you stated that it does matter how you get to the scene of the action. I take it that the details of the plan that got you there now serve to provide a framework for what you should do now and be flexible enough to be adaptable to current circumstances. Is this a reasonable interpretation ?

Charton

 

[dbphoenix]

Db
Thanks for the response. I don't want to labour this, but could you clarify a couple of points that I make below

Db
I assume that you are talking about my phrase "walk away". I do not mean to imply that you abandon the plan, but that the plan includes the option to do nothing i.e. to not trade.

If the setup appears, the trader has to trade it. The probability of success is based on all the testing that has been done, which includes taking every trade that presents itself. If the trader doesn't trade the setup, there's no point in having a trading plan, much less in having done all that testing. An equally important part of the plan is not taking trades that aren't there. This is not the same as having an option to do nothing.

You used the term "may be". Does this mean that the methods of the forecast group e.g VSA can form part of a valid plan i.e. an entry, exit and stop strategy that is successful or is the forecasting of price levels totally invalid ?

The only way one can determine whether the methods of the "forecast group" can be translated into a consistently profitable trading strategy, at least for him, is to make the attempt, preferably without putting real money at risk. What I or anyone else "thinks" is irrelevant. For myself, however, I have yet to see in all these years any consistently profitable strategy based on whatever these methods are (since they haven't been made specific, I can't enumerate them).

Finally, returning to your first comment you stated that it does matter how you get to the scene of the action. I take it that the details of the plan that got you there now serve to provide a framework for what you should do now and be flexible enough to be adaptable to current circumstances. Is this a reasonable interpretation ?

There is no absolute "scene of the action". The action is continuous. Whatever scene of action there may or may not be depends on what structure the trader elects to impose on what is in front of him. If he can't find create impose define detect a structure that he can exploit for profit, then he's just guessing.

But we continue the theoretical hypothetical philosophical. Most if not all of this becomes clear once one begins to grind it out.

Db