The following charts display two examples from today's (June 7th, 2007) price action that I'm always trying to be on the lookout for in price action. I have to say I'm just beginning to trade them properly.
Well get to it already
Just before the big moves are made, the market does the best it can to shakeout and fake out as many people as possible. I dialed into the 1-minute chart to show more of the price action.
What Do You Mean by That
Notice the nice methodical "Stair Step" down pattern was from the double top high after 9:00 CT down to what could be a double bottom low at 1527. The second low comes in right at 9:30 CT. Then the market moves up above 1528 and does a head fake lower to get some more shorts to jump in.
Then there is an abrupt detour in the down trend and price drives straight higher. We make another top at 1530.50 price. I'm actually surprised that we did not go at least 1-tick higher as I'd expect some people had stops above the prior 1530.50 high. Enough people must have moved their stops to 1529.50 area. Would your have left your stop 4 points above and stayed in this down move?
Then note what happens on the way back down. Price hesitates at 1529 for those people that want in of this "up trend" we just had. Then price presses a little lower. The people long at 1529 are now "hoping" for price to come back higher and I'm sure a few more people get long at this "better price" before price is crushed down past the prior lows.
Also Note
Be sure to note the high in the NYSE Tick when price drives back up to 1530.50 just before the big drop. The Tick made a "higher high" when compared to recent Tick highs. This could mean a turn back higher, but also often signals the big "stop run" before a return to the prior trend. It is our job to figure out which one is being signaled.
Another One
Look at how complex the bottom is before the market goes nearly 10 points higher. The first low is 1509.00 at 12:42 CT. Then we have step one higher to 1512.50 at 12:47 CT follow by the retracement down to a potential "higher low" just missing 1510 at 12:49 CT. Now notice the 12:51 CT and 12:52 CT candles. A quick slam down and back up again for anyone wanting to get short as there has not yet been a "higher high" yet that may keep some people from getting short.
Price grinds higher to the 1513.50 high after 13:00 CT. Then the move down seemed to me to be a pop up in price followed by a quicker slam lower until we made a lower low. Then price went up 2.5 points, back down 2 points, up 2.25 points, back down 2, and then up 3.25 points. In this big of a down day, who would hold through all of that to catch the long move higher? I did not play in any of that chop.
Look what happened next. Price comes down 3.5 points. 1 Tick lower the the last of the three lows described above. I tried to to get long this last time down.
You What?
I tried to get long at 13:36 CT. If you look at the 5-minute chart, the 13:35 candle had lower over all volume. Call me crazy, it looked like I should try it. Well I did not get filled. Looking at a faster chart (not posted) price dipped below 1510.00 @13:36:23 CT, touched 1509.00, and was back above 1510.00 at13:36:38 CT. I had 15 seconds to place my order. Actually I tried for 1509.50 and price was only below for 5 seconds. I could have gotten in at 1510.50, but that is where I would have taken off my first half trying to let the second run for more profits. With only a few hesitations for people to get short at, price drove straight up 6 points.
Hope that makes sense. Let me know if I should mark up the charts more and what you would like to see as mark ups to help better describe the price action.
Trade Wise, Trade Well
John
3 comments:
Makes sense but it's a lot to digest at one time. Interesting stuff.
Hi FlatWallet,
I was worried I got too long winded and almost deleted the post to make it simpler. But as it was so late last night, I just went with it as it came out the first time.
The simpler version would be to tell people to study the price action at major turns in the market.
Look for moves that are "counter trend" moves that go 2 - 4 points against the prior trend. I'd call these "obvious" moves in that price will display the stair step pattern of higher highs and higher lows in the case of a turn higher out of a down move.
Then watch for a move that drives back to the original turn price. The hard part is that this drive may go beyond the first price point or it may stop short. These moves seem to be move "direct" price moves meaning that they have little to no stair step. Price will hesitate at key levels to allow traders to "see" a potential turns and get suckered into losing trades.
A key characteristic would be that the NYSE Tick usually will make a more extreme move. So in the first example where price turned lower, Tick made a Higher High than the recent relative Tick highs.
If there is a major move, price seems to power right back and go beyond the initial stair step price move before starting stair stepped price patterns. These moves can be 6 - 10 points or move from the turn.
It does take a while to see these and I don't always "see them right" in real time.
I was short yesterday at the first touch of 1530 and harvested a good portion of the first move down and got "dumb and happy" until I saw I messed up the second touch of 1530 and the move that I missed with it.
Trade Wise, Trade Well
John
Ok that seems a lot clearer to me. Good stuff, I will have to write down some of the pointers.
I used to beat myself up for leaving money on the table. But now I'm dumb and happy too. I have started scaling out of my positions, and this leaves me with very few losers everyday. And even if I leave money on the table, I say to myself that I will work on this over the next 5 years and get better over time rather than worrying about it on every trade now. It's resulted in less stress and less ulcers.
have a good weekend.
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