S/R and the Mirror of Erised

rainman2 said:
How do you define primary trend?

Successive rallies penetrating preceding high points, with ensuing declines terminating above preceding low points.

If the trend is down on let's say the hourly but is up on the 5min and I trade the 5 min, should I consider any long entries counter-trend, or should trend be defined by the time frame you trade from, or does it become a position size issue?

If you're trading the 5m, then the 5m trend is your focus. But then your targets and stops will also be based on the 5m or less.
 
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Regarding the above posts, yesterday's movements provided such a good example of trading trend that I'm posting the chart here. Yes, it's a hindsight chart, but if one knows and understands the principles, he can implement them in real time without a lot of hand-wringing.

First, whether one enters on the ret, the BO thru R, the following ret, or the ret after the bounce off R now S, price continues to make higher highs and higher lows until (1). Whether one exits at the ADR, the LrH, or the break below the LSL (2) is up to the trader. Whether or not one shorts at the LrH or the break below the the LSL is also up to the trader, but the downtrend is not "confirmed" until there are both a lower high and a lower low (2).

The "lower low" is rejected twice. What the trader does with this is up to the trader. But if he wants to revert to the long side, this can be done when the TL is broken and the LSH is exceeded, even though the "HrL" is marginal, or he can wait until he gets an unmistakeable HrL after the test of R now S at (3). No SL is broken thereafter.
 

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simpler

It gets much simpler than s/r and volume. imho....5 minute charts for emini daytrading is twice the thinking required for longer charts. I contend minimal thinking allowed is better. Of course, one must see the signal and take it. That much thinking is required. For you, with the experience you have, it might all be easy. For me, I just wait for 1 clear signal and take it. Call me the dumb robot. The demand line crossing supply line or vice versa is good. If one can see it or draw it. I disagree with a lot of your stuff being needed. The demand/supply lines observance you did teach me that a long time ago when we were on Et forums, you got kicked off once, and I have been 3 times, LOL.. About demand supply lines. Still works. Mathematically impossible not to. Except in whipsaw, then when it moves up or down out of whipsaw/chop, the supply/demand lines will cross.







dbphoenix said:
Regarding the above posts, yesterday's movements provided such a good example of trading trend that I'm posting the chart here. Yes, it's a hindsight chart, but if one knows and understands the principles, he can implement them in real time without a lot of hand-wringing.

First, whether one enters on the ret, the BO thru R, the following ret, or the ret after the bounce off R now S, price continues to make higher highs and higher lows until (1). Whether one exits at the ADR, the LrH, or the break below the LSL (2) is up to the trader. Whether or not one shorts at the LrH or the break below the the LSL is also up to the trader, but the downtrend is not "confirmed" until there are both a lower high and a lower low (2).

The "lower low" is rejected twice. What the trader does with this is up to the trader. But if he wants to revert to the long side, this can be done when the TL is broken and the LSH is exceeded, even though the "HrL" is marginal, or he can wait until he gets an unmistakeable HrL after the test of R now S at (3). No SL is broken thereafter.
I am
 
Nice downtrend

Yesterday showed a very nice trending day where one trade was enough to keep you in for most of the day.
 

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firewalker99 said:
Yesterday showed a very nice trending day where one trade was enough to keep you in for most of the day.

In hindsight, yes. Not quite so easy in real time . . .

Db
 
dbphoenix said:
In hindsight, yes. Not quite so easy in real time . . .

Db

I marked the reason why I draw the lines with a blue line.
So in fact, the lines were there in real time before the breakthroughs.
 

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firewalker99 said:
I market the reason why I draw the lines with a blue line.
So in fact, the lines were there in real time before the breakthroughs.

I'm sure you did. However, the charts were not posted in real time. Therefore, the entry, in hindsight, appears to have been not only easy but obvious.

There's more to trading S/R than simply drawing a line, not the least of which are trigger and stop. In order to translate all of this into a strategy, one must at least have criteria for taking or not taking trades and know what to look for in real time.

Db
 
dbphoenix said:
I'm sure you did. However, the charts were not posted in real time. Therefore, the entry, in hindsight, appears to have been not only easy but obvious.
Db

If you insist, this is a realtime chart of NQ. So I have no idea whether the trade will work out (expect of course what I know from backtesting and probabilities).

We opened below yesterday's close so I looked to short the opening once it hit resistance from that level. It reversed from there but there was news so I didn't trade it. After that it broke and what I read into the price volume action was a retracement. So I entered long at the green dot...

dbphoenix said:
There's more to trading S/R than simply drawing a line, not the least of which are trigger and stop. In order to translate all of this into a strategy, one must at least have criteria for taking or not taking trades and know what to look for in real time.

Yes, but my only purpose was to put up a chart, not to post a trade plan let alone a complete strategy.
 

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firewalker99 said:
Yes, but my only purpose was to put up a chart, not to post a trade plan let alone a complete strategy.

The purpose of the thread, however, was/is to show how to locate and trade S/R in real time. Hindsight charts are abundant. You've demonstrated above that trading S/R in real time is not quite so easy, particularly if one has no setup or strategy.

Db
 
dbphoenix said:
The purpose of the thread, however, was/is to show how to locate and trade S/R in real time. Hindsight charts are abundant. You've demonstrated above that trading S/R in real time is not quite so easy, particularly if one has no setup or strategy.

Db

Those who are interested in my setups/strategy can look into the daily dax thread, my journal, or even contact me. I'm happy to explain why and how I take trades in real time. As of today I haven't met many members who are willing to do the same.

You may interpret my "demonstration" as you wish, the only result for me was a profitable trade (target 5 points). Anyway, regardless of the outcome I followed to plan ("strategy").
 
firewalker99 said:
Those who are interested in my setups/strategy can look into the daily dax thread, my journal, or even contact me. I'm happy to explain why and how I take trades in real time. As of today I haven't met many members who are willing to do the same.

You may interpret my "demonstration" as you wish, the only result for me was a profitable trade (target 5 points). Anyway, regardless of the outcome I followed to plan ("strategy").

Does that profit include the loss you took on the short at the beginning of the day?

Db
 
dbphoenix said:
Does that profit include the loss you took on the short at the beginning of the day?

Db

I didn't take that short:

"We opened below yesterday's close so I looked to short the opening once it hit resistance from that level. It reversed from there but there was news so I didn't trade it"
 
firewalker99 said:
I didn't take that short:

"We opened below yesterday's close so I looked to short the opening once it hit resistance from that level. It reversed from there but there was news so I didn't trade it"

The news, however, wasn't released until a half hour later. So do you not trade at all when there are news reports to be released?

Db
 
dbphoenix said:
The news, however, wasn't released until a half hour later. So do you not trade at all when there are news reports to be released?

Db

That's about correct: I don't enter a trade when news is imminent (30 minutes) and when I'm in a trade I exit it at last 15 minutes before. I define news as everything that has the potential to move the market (I have a list of those items).
 
The Mirror of Erised
Harry Potter’s encounter with the Mirror of Erised symbolizes his growing self-awareness, as the magic mirror forces him to look within himself and face the question of what he really wants. Harry has never had to inquire into his own desires before, because the Dursleys never cared about his desires and, upon arriving at Hogwarts, he seems to have everything he needs in his daily schedule of classes and meals. But the Hogwarts experience is meant to be more than a routine of memorizing formulas and learning to transform matches into pins. It is meant to bring personal growth and character development, for which it is necessary to examine one’s soul.

Greetings to everyone who has been kind enough to post in this forum. I have just found this site and became a member yesterday. I stumbled onto part of this thread doing a Google search for price action and support and resistance, and then found the complete thread on this site. I am thrilled to be here and look forward to “growing in self-awareness.”

I will sadly admit that I have willfully looked at used far too many indicators and fell captive to their charms over the past 5 years without any success. These indicators are like someone has mentioned earlier, “just footprints of the market action.” I have removed them from my screens, and am now focusing on price action as it relates to support and resistance levels. I have read the entire thread though just once so far along with the charts and am just amazed at the exchange of knowledge and openness.

As I get started on my new quest, I would like to know if there are some particular readings, articles, pdf’s etc.. on this site that anyone can recommend to get me started in the correct direction. I have been down the wrong path long enough.

Thank you in advance
 
oldbull said:
As I get started on my new quest, I would like to know if there are some particular readings, articles, pdf’s etc.. on this site that anyone can recommend to get me started in the correct direction. I have been down the wrong path long enough.

Welcome to Trade2Win oldbull. I would recommend taking a look at the following:

http://groups.yahoo.com/group/DbPhoenix/

I have benefited greatly from information I received there.
 
oldbull said:
The Mirror of Erised
As I get started on my new quest, I would like to know if there are some particular readings, articles, pdf’s etc.. on this site that anyone can recommend to get me started in the correct direction. I have been down the wrong path long enough.

Thank you in advance


Keep in mind that all this S/R, volume etc reflects how the market really functions, it is not a system or a strategy or a setup, that has still to be constructed with the rule sets.
Have a look at Wasp's Journal, he proved that a system based on indicators can work fine, if first you set the rules, prove it to yourself and then consistently apply.

There is also a ton of free info. on how to use Volume at www.tradeguider.com
Best of luck
 
Joey said:
Keep in mind that all this S/R, volume etc reflects how the market really functions, it is not a system or a strategy or a setup, that has still to be constructed with the rule sets.
Have a look at Wasp's Journal, he proved that a system based on indicators can work fine, if first you set the rules, prove it to yourself and then consistently apply.

Additionally, if you look between the lines (pun intended - regardless of how poor!) but not literally, you can see and understand how price reacts well enough to not actually need the indicators at all. All my exits are based on price and S/R alone and the only reason te indicators stay is becuase it keeps my overall P:L and consistency in check. Plus it makes it easier to run on API and not think too much.

I don't want to take db's thread off track though, so I'll shut up....
 
oldbull said:
As I get started on my new quest, I would like to know if there are some particular readings, articles, pdf’s etc.. on this site that anyone can recommend to get me started in the correct direction. I have been down the wrong path long enough.

Thank you in advance

In addition to the fifth post in this thread, the following may be of help. As for your comments re "The Mirror", I'm glad you understand why I chose to title the thread as I did. The mirror is also a metaphor for the chart, given that we more often see what we want to see rather than what's really there.


Reversals
Mark Douglas​


After a certain period of time, you can notice how trending markets will develop a certain rhythm and flow, making the price movement look very symmetrical on a bar chart. You really don’t have to know why this is so, you just have to notice that it exists. When this flow is broken (the market trading above or below a significant trend line), it is a good indication the balance of the market forces has shifted. Then ask yourself, what is the likelihood the shift will gain hold and continue trending in the direction of the break?

You don’t even have to know the answer to that question. Put in an order at a spot that would confirm the highest probability of a change in the balance. Then wait for the market to define itself. If your order is filled, put a stop where the market shouldn’t be to confirm that your trade is still valid. “What is a valid trade?” you ask. One where the highest probabilities for price movement are in the direction of the prevailing force.

I will give you an example.

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No matter how simple a trade this is, it has very sound psychological reasons for working. In this example, the market made new highs and sold off. The sell-off could be the result of new sellers coming into the market in force, or old buyers selling to take their profits, or a combination of both. Prices will continue to drop until enough traders believe the price is cheap and are willing to take the initiative and bid the price back up. As the price approaches the last previous high, buyers will begin to anticipate whether or not prices can penetrate, and sellers will be looking for a top.

In either case expectations by both will be raised. If some buyers are willing to bid the price past the previous highs to some significant level, it will make believers out of others who were on the sidelines. If they do come in, it will add to the momentum. Some old sellers will admit to being wrong and will have to buy to get out of their trades, thus adding to the upward momentum.

However, what if the market approaches the highs the second time, and sellers come back into the market again with enough force to keep the price from exceeding or equaling the previous high? Buyers will start to become disappointed. Where will they really be disappointed? — if enough buyers don’t come into the market to support the price at the previous low. If prices penetrate that low, watch for buyers to bail out en masse. For them to get out of their position, who is going to buy it from them? If everybody is trying to sell and no one is available to buy, what are prices going to do? Fall like a rock.

The reason why a bull market is ready to turn into a bear market when the general public gets involved is because the general public has the least tolerance for risk and consequently needs the most reassurance and confirmation that what they are doing is a sure thing. As a result, they will be the last to be convinced that the rising market represents an opportunity. If a bull market has lasted for any length of time, the general public will feel compelled to jump on the bandwagon so to speak, because of their perception that everyone else is doing it and making money. They will pick up on any reason that sounds the most rational to justify their participation, when in reality, they will know very little about what they are doing, but since everyone else is doing it, how can they go wrong.

A continuing bull market requires the continual infusion of new traders who are willing to pay higher and higher prices. The longer a bull market lasts, the greater the number of people who are already participating as buyers, leaving fewer and fewer traders who haven’t already bought and fewer and fewer traders who are willing to bid the price up. These older buyers obviously want to see the market keep on going up, but they also don’t want to get caught holding the bag, if the market stops going up. As their profits accumulate from the higher prices, they start to get nervous about taking their profits.

By the time the general public starts buying en masse, the professional traders knows the end is near. How does the professional know this? Because the professional knows that there is a practical limit to the number of people who will participate to bid the price up. There will come a point where everyone who is likely to be a buyer will have already bought, quite literally leaving no one else to buy. The professional trader would like the market to continue to go up indefinitely just like all the other buyers. However, he also understands the impracticality of that happening, so he starts taking his profits while there are still some buyers available to sell to. When the last buyer has bought, the market has no place to go but down.

The public gets stuck because they weren’t willing to take the risk when there was still potential for the market to move. For the market to sustain itself, it needs to attract more and more people. As big as this country is or the world for that matter, there are only so many people who will buy. Eventually the supply of buyers runs out, and when it does the market falls like a rock.

The professionals have been selling out their positions before this happens, but once the supply of buyers runs out, the professionals start to compete among one another for the available supply of buyers which is dwindling fast, so they offer lower and lower prices to attract someone into the market so they can get out. At some point, instead of the lower prices being attractive to people, it panics them. The public didn’t anticipate losing. Their expectations are very high with very little toleration for disappointment. The only reason they got in was because it was a sure thing. When the public starts to sell, it starts a stampede.

Again, people will ascribe their actions to some rational reason because nobody wants to be thought of as irrational and panic-stricken. The real reason why people panicked and the prices fell is simply because prices didn’t keep on going up.

[Note: This excerpt is somewhat edited from Douglas's book, and I replaced the original image with one of my own which to me illustrated the concepts more clearly.]
 
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