Not quite, no. You're thinking too much, and this particular thread requires as little thinking as possible without becoming entirely mechanical. You're approaching the murk of "what it all means", and that would more likely be appropriate to the Wyckoff Forum at TL. But I've learned that knowing what it all means, or at least talking around and through the subject, while it may make for impressive posts on message boards, counts for bupkus when it comes time to enter a trade and make money. Just look at all the threads on all these trading websites. Lots of "cracker barrel" trading, but are any of these people really living off their trading profits? I do believe, however, that understanding the basics is a plus if for no other reason than it helps make trading interesting, if not fun. Otherwise why do it? It's a dreary occupation otherwise, though in any case it beats working for somebody else. So . . . Though we talk about "price" and "price behavior", price is not an entity. You can't go out and buy one and bring it home and dress it up and play with it. Price is nothing more than the result of a transaction, and when we talk about "price", it helps to remember that. Price action "tops" not because supply overwhelms demand but because buyers are no longer willing to pay what sellers are asking. Sellers then lower their prices in order to entice buyers to buy. How much they lower their prices depends on how much they have to get rid of and how much they want to get rid of it. And when these prices come down, those who just bought may begin to suspect that they've been had, some of them to the point where they will sell what they just bought. And who buys? Just read these threads. There are plenty of people who think that the market is going ever-higher, who buy every dip, who encourage others to buy so that they can get rid of the dogs they are currently holding. And there are people buying all the way down, all the way to the bottom. If there weren't, there wouldn't be any transactions. No transactions, no activity. And there's always activity, unless and until something is delisted. So "failures", for example, are not just a failure of price to hold above a certain level (if we're talking about an uptrend). They are failures of sellers to find buyers and having to drop their prices rapidly in order to complete transactions. None of which is particularly relevant to this thread. If price for example breaks a demand line, you short the first retracement. You don't get all dreamy about why and about who's doing what to whom. Do that and you miss the entry. Contemplate the metaphysics after your session is over. Doing so may at some point enable you to hold on to a trade through minor retracements and hesitations rather than freak every time it moves against you a tick or two. But that comes later. Right now just focus on (a) what price is doing and (b) what if anything you intend to do about it.
Heroic may have taken off for the evening, so I'll give my take on it. This is easier to understand in real time than in hindsight, but if you focus on reading the line from left to right, perhaps it will make more sense. Imagine a "demand line" underneath the first three swing lows. This is broken after the lower high (the lower high is a bonus and provides a clue of its own). Once it's broken, you then look for the first retracement after this break. This occurs on the next swing, which although it makes a marginally higher-high fails rapidly and decisively, making instead a lower swing low. A short could legitimately have been taken here, but most people wouldn't, even though they might be trying to trade according to this approach. Instead they would more likely wait for the next effort and place their sellstop underneath, so that if price does fall, they've got their short. If it doesn't, then they can stand aside and see if price instead makes a higher high. In this case, since price has turned downward, a supply line can be drawn while the trader waits to see if his entry is triggered. But the supply line is drawn, preferably in the mind, after price has turned downward, not before. As to risk, it helps to remember that you've got four indicators of failure by now, so you're not exactly going out on a limb here. It also helps to remember that these are people, not just price prints, and they're just as nervous as you are, and generally far more clueless. Taking advantage of them just isn't all that difficult. P.S. You may also want to look at post #7.
Heroic, Your sketches are wonderful. Despite the entry in the third sketch looking better, and being better, I still would go for the entry in the first sketch. You are avoiding the first entry because you fear the second scenario to come into play, and scare you out of your position for a loss. But you are forgetting that not taking that first entry you might miss the entire move if price just drops from there. Even if you are wrong, how much are you going to lose? 1.5 points max, and even that barely when you learn to hold your nerves. This thread is about taking that entry. DL break and RET. There is nothing else to it. Byt not taking that first entry is a cardinal sin in this thread. You've got to learn to snatch that one of a kind bride when she comes your way. If you wait in hopes of a better option you might miss the boat and wonder about what could have been. Keep in mind the break of DL and RET has already identified the criteria that gives you winning chances. Don't make the system so tight as to miss the whole point of it. Pounce on those brides when they come your way. Gringo
DB, there seems to be a bit of a split in the ranks regarding the break of a S or D line, and exactly how much of a break is generally necessary for the subsequent pullback to most often move in the desired direction. It seems by what you write and show on your charts, that you do not consider it necessary when the demand line is broken for price to go below the last swing low before the ret. I just want to be sure I am not missing a nuance somewhere. EDIT: I think Grinco restated it for me just above. "This thread is about taking that entry. DL break and RET. There is nothing else to it." As an aside to anyone reading this, I would like to know how to post charts directly in a post, rather than as an attachment if someone could advise. Thanks, BWM
The retracement, however, occurs before the break of the demand line, not after. So there's just a suggestion of possible trouble, not an entry trigger.
For the purposes of this thread any demand line break is sufficient for an exit. If you have the stomach to handle it then a wiggle room can be given if price just jumps back above the DL. If the thought of a DL break is causing trepidation then press that abort button and regain your footing. You can always, always re-enter. I clean DL break is quite visible. Usually it's clear that some change in stride took place. Perhaps it's your lack of screen time or maybe I am just shooting this point in the dark. Seeing price for some time, you'll learn to identify when the break is real or not. Even if unsure, press that eject button. Gringo
No, I don't. But that's part of the process a trader has to go through, along with backtesting and forwardtesting and sim trading. Anyone who tries to employ this by doing no more than follow what I write isn't going to get very far, particularly if he never examines his risk tolerance.
Ok. I see what you mean. I had only eyed it. Drawing the DL makes it an iffy scenario. Ok, Heroic you keep doing what you are doing and disregard what I said. Although the part about the brides still holds. Gringo