SLAyers' Notes

[barjon]

Where is the danger point?

Long and my danger point would be yesterday's low until (if) we made a new high and I could fan the DL when a break of that would sound the warning bell.

 

[dbphoenix]

True. However, not everyone is willing to assume 50pts risk, at least not with real money.

 

[barjon]

.......................ie: I'd be looking to draw in the thick dotted green

 

[barjon]

db - how would you deal with the alternative trend lines I've shown? Both seem valid but likely to draw different conclusions from each? Drilling down (which I haven't done) might give the answer I suppose.

 

[dbphoenix]

They're fine but not pertinent to the task at hand. If one is trading price rather than lines, he has to determine what constitutes a confirmation of the retracement (a higher high) and where the danger point lies (just below the swing low). The question then becomes whether or not he's willing to assume the risk, which in this case is 50pts. If he isn't, then he has to pass on the trade, daytrade it (which few are in a position to do), or switch to the QQQ.

 

[barjon]

Ok, thanks

 

[Gring0]

When the situation is ripe for the taking, one doesn't need to contort eyes to see it is the case.

Gringo

 

[dbphoenix]

So now that the trade is in the black, the trader who has not yet determined the criteria for judging whether or not the trade has failed should do so immediately. In determining these criteria, HE MUST FORGET ABOUT HIS TRADE ENTIRELY. The market couldn't care less about his trade or his feelings. From this point at least he must judge the market by its own action.

 

[manraygun]

Where is the danger point?

I take it that the danger point is more important in managing the trade (at least early on) than in drawing a demand line. I need to and will do more reading on danger points. Thanks for walking through this. Very helpful.

 

[dbphoenix]

A demand line can't even be drawn until you have a retracement. Therefore it is of little use at the beginning.

You have to analyze the situation in which you find yourself, as I did yesterday, then decide where the danger point is, where you're thinking about entering, and whether or not you're willing to assume the risk (see also "The Price of Admission"). If you're not, then you must either pass on the trade or switch to the Q.

 

[dbphoenix]

So now that the trade is in the black, the trader who has not yet determined the criteria for judging whether or not the trade has failed should do so immediately.

This task, by the way, is not rhetorical. It should be completed in advance, not in hindsight.

 

[manraygun]

After entering, we hold the trade as long as it stays above the danger point. If price goes below the dp, we exit and view the loss as the price of admission. Once in the black, when a higher high is reached, we draw a demand line and exit on a break, or possibly before. A failure to make a higher high is noted as weakness. The 50% line between last swing high and low (4370) is a gauge of strength and can be used as an exit signal if price moves below it. I'd also note a drop below 4390, the previous swing high on the daily as weakness. The hourly is in an range with a bottom of 4405, a breakdown below that level would indicate weakness.

 

[dbphoenix]

A. Where and how would you draw your DL at this point?

B. How are you defining "break"? (To those who are just tuning in, defining a break is a bit more sophisticated for those who've reached this level due in part to the fact that they have a lot more observation time under their belts)

 

[manraygun]

Since price looks to be in an up channel, I'd use the bottom of it as my demand line. If the break of the DL occurs above the previous swing high, I'd consider letting it run until it fell to that point, then exit.

 

[superfly]

Danger

zone 4402.75-4400.25

below 4400 the bullish perception might not hold, beware of the flashsnap gap

 

[dbphoenix]

Don't become distracted by channels. Channels are in your head. Swing points are in the market. Focus on those.

A break of the DL at this point would be at or about 4340/50. Are you willing to let price drop that far?

 

[manraygun]

No. Exit at 4370, the 50% mark of the swing high and low.

 

[manraygun]

Or the swing high of 4392. Now I'm not sure how to decide.

 

[dbphoenix]

Not sure is fine. Not sure is a good beginning.

Consider that the current trend began on August 24 (actually it began seven years ago, but . . .). The next swing low is September 29. If one entered down there, he'd have every right to feel smug and self-satisfied. But neither would he want to experience a 350pt downdraft to his starting point.

A more practical and realistic place to start is the swing low on 9/29 and use yesterday's swing low to draw your DL. The later you enter, the higher your price risk, and any entry around here is very late. There is therefore no rationale for being a hero. But it's important to judge the market by its own action and exit when it tells you to rather than sweat over one's entry and how much at risk his profits are. Focusing on the latter almost guarantees that the wrong decision will be made.

Once this is drawn, you'll see that the DL crosses the vertical axis at about 4360, which is just below the entry for the long. During the next session, unless everything goes to hell over the next five hours, this intersection will be at or about 4380. An exit here would provide a profit. But would that profit be all there is? Is a break of the DL at 80 "important"? (By Monday, barring a significant disruption, the intersection will be about 30-40pts higher.)

Therefore, where and how will the market tell you that longs are in trouble? At what point or level is it more prudent to exit, stand aside, and let everybody work things out before you make another entry decision, and what can you do to ensure that you're focusing on the market and not on your own fears?

 

[EldnitJ]

Thanks Db and manraygun for this thread. It really helps a beginner to better understand the method. Much appreciated!