Hello, I've been studying a lot of candlestick charts with trend lines and trend channels. Very many of them seem to "magically" touch the bottom of an upward trendline and then go back up. Like this example (once the blue line gets touched, the trend line is respected and the stock goes back up): I get the feeling that traders are watching the trend line, seeing the lower channel line get hit, and then saying "ok, now it's a safe time to buy". That in turn triggers increased selling interest, which drives the price up, and confirms the trendline. A lot of times the stock price bounces off of the lower trend channel with remarkable, repeated precision. I'm wondering if these trend lines are kind of like the tail wagging the dog: the trendlines are actually causing market behavior. Any thoughts on this?
Here's your essay test question -- worth 25pts. Imagine you are a director of trade operations for an institution "of size" and in the morning briefing, after the numbers are in, the headlines read, the earnings outted, you get a directive to move the institution's position such that you're going to reduce S&P500 long exposure by 4%. Knowing that such an order will affect market price (so much for Perfect Markets!), in one sentence, give us the order you make to your traders, by which they might reduce the firm's position to best effect. If you take that sentence, and read it aloud as you scan a chart of SPX candles, .... a lot of things will become rather clear.
You can if your main objective is to be right and not make money, but we all know what eventually happens to such traders. I use trend lines because they help me dictate beforehand when and where I should be buying or selling, and because I have found they increase my success of predicting price action.
If you are buying in concert with a trendline, then you are essentially buying at a higher low. Just curious, if a higher low is acting well but does not quite reach the trendline, does that mean you won't place a trade? (And should you be predicting or reacting?)
Everyone has different views on trendlines. I don't see them as absolutes, as that would be quite absurd. As with most technicals I merely see them as an area where price has a higher probability of going in one direction than the other. Yes I am buying at a higher low or a lower high, you can also view it as buying on retracements of the trend.
This is interesting. I truely have no clue one what that sentence might be. But IMO ill tell my traders to break up the orders and avoid moving the markets.
ANY line you place on your chart is just that... a line on YOUR chart. period. YOU are the one that brings meaning and usefulness to the line tool (and any other drawing or indicator). That said, like most WIDELY USED tools and indicators, if enough people are following/tracking on the same time or non-time based frame, it can/will invoke an acknowledgement/reaction on the chart. What immediately comes to mind are TL's of daily and weekly charts, and Fibonacci levels of obvious swing zones. When/if recognized by the masses, acknowledgment and reaction become "reasons" and "excuses". The S&P broke the February low, OMG!!! IndexZ bounced off the 200-day MA, whoohoo, everyone into the pool!! That kind of mass-reasoning is what perpetuates and elevates those tools and indicators to where there IS a self-fulfilling aspect that savvy traders will and do exploit. That exploitation "helps" the market suck-in as many as it can onto the wrong side. Look at the hatred of the latest nearly 10 year bull market. Did you read about any hedgies having terrible years or closing shop? How bout right now... the market is coming off historic highs, in an orderly fashion(for now anyway) I might add. Not giving a prediction, but I would not be surprised to see lots of people caught on the short-side of things. That's not a forecast or prediction, and when it would happen I don't know. But it would not surprise me, AT ALL. I trade intraday... Up, down, and all around... I'm flat at EOD, every trading day. I also use TLs on fast charts. Trade On!
Very good question. I will attempt to answer. Answer: Sell positions where it technically make sense and where others maybe selling at. Don't sell all positions, but anytime price touch a known/proven resistance sell positions til 4% of long positions are gone. Is my answer correct?