If You Can Draw A Straight Line . . .

Playing the pattern usually entails following a relatively rigid set of rules: flags, pennants, head-and-shoulders, wedges, 2Bs, 123s, N4s, N7s, hooks, springs, and on and on. Playing the behavior involves understanding what it is that traders are doing that prompts the "pattern" to form in the first place, where they're doing it, what buyers and sellers are trying to accomplish. If one understands this, he is more likely to trade it profitably than be yanked around by other traders into a state of immobilized frustration.

Briefly? No. However, if you're interested, there's a 20-post arc regarding hinges that explain them as well as anything that comes to mind (it may take a few seconds to load): http://www.traderslaboratory.com/fo...off-way-discussion-archive-58.html#post58307. If you want charts, just do a search at TL or here using my name and "hinge". If you want even more than that, leave off my name; this becomes a popular means of entry for those who stick with trading price and many other traders have posted charts.

 

30 and 40 were the limits of the trading range. 35+/- would be the midpoint of that range. Midpoints can sometimes act as support or resistance if price has broken out of the range and subsequently returns to it. Those who focus on the pattern may think that the trade is a failure because price didn't hold its place outside the range after the breakout and never notice that the midpoint is acting as a trampoline (price may also begin bouncing around inside the trading range again, in which case the trader is back to trading reversals until the next breakout).

In any case, having pegged 30 as support is confirmed when price retraces to that level before resuming its plunge. This can be seen in real time but will likely be missed if one is unnecessarily rigid regarding the limits of whatever trading range or congestion price had broken out of.

 

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So if you've posted something and no one has commented on it, it may be because nobody has seen it, not because whatever you posted is of no interest. So feel free to call attention to a post that you think may have been missed, particularly if it involved a question. If that gets missed as well, just send me a PM. If you can't send PMs either, contact Magna. If that doesn't work, just keep posting until you're no longer moderated.

 

This morning's activity may provide a more illuminating example of the last two questions I addressed (two up and three up from this post) regarding midpoints and trading behavior rather than patterns.

Note first that there was an extremely tight range before the open up to 0830. Price then dropped to 28 (and understand that these figures are +/-; exactitude isn't important; you needn't whip out your calculator as you might if you were creating rules for trading a pattern). Even though this was before the "open", it still had the eventual result of determining an opening range, as so often happens in futures. At the "open", price then rose to 33 (again, +/-). After that, it plunged below 28.

At this point, price rallies or retraces its downmove back to the midpoint of this opening range at just under 31. If someone were to create a pattern out of this with the attendant rules, he might decide that price had retraced so far that strength was indicated, and he'd pass on the trade. The trader who focuses on the behavior, though, would note the immediate failure of buyers to get past that midpoint (midpoint as resistance) and wouldn't quibble about a couple of ticks. It's the failure that matters, not the precise level reached by price. And if he were watching this in real time and focused on the flow, he wouldn't need a tick chart to see that price falls well back off its swing high (the wave that reaches toward 31) and wouldn't need more bars to confirm what he thinks he sees.

I hope this clarifies the importance of midpoints as potential support or resistance. As far as trading behavior vs trading price, this clarity doesn't occur just because an explanation is offered as it involves a perceptual and conceptual readjustment, and that occurs only after repeated exposure to the trading activities themselves, if it occurs at all. It may help to think about how one would view all this activity if he had no exposure to patterns whatsoever. This state of mind is one reason why beginners who haven't been exposed to vendors find trading this way so much easier than those who have been discombobulated.

 

I again see strength coming back in SLV. I know I have not given a conclusive position, but the analysis is the result of how price is behaving and at times signal become uncertain and appropriately the exposure needs to be reduced. For now SLV is again showing upward strength and also the fact that the mini low was held.

Were it possible to give just one signal and direction and enjoy the fruits I would do that, however, trading unlike our normal life isn't structured unless we create structure out of this chaos for our own control and comfort.

SLV Daily:



Of course keep in mind there may be small nicks and bruises along the way but the objective is to catch a larger move that gets us something a bit more substantial in profits.

Gringo

 

FSLR had bad earnings and dropped. I wasn't playing this and don't play earnings but the weakness was becoming evident two weeks ago.

http://www.elitetrader.com/vb/showthread.php?s=&postid=3847525#post3847525


Here's the current FSLR chart:





Gringo

 

I'm long with the break of the SL as well.

From my perspective the last test of 18.70 was also a break of the hinge that failed - another reason to go long.

Thanks for pointing it out, gringo! I was watching closely.

Lets see how it pans out...

 

• By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent. The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep. The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.
  
  Jeremy Grantham

 

What he says

 

5 signs Wall Street’s zombie apocalypse is at hand

By Brett Arends

A reader writes:

“Please help me. I have just finished watching ‘The Walking Dead’ on AMC and ‘World War Z’ in the cinema, and I’ve started to suspect that my money manager may be a zombie. I’ve been watching business TV and I think a lot of the people on Wall Street must be zombies as well. How can I be sure? Are there any tell-tale signs?”
— Yours, Terrified in Tuscaloosa

Dear Terrified,

Thanks for your email. I think you are on to something.

Some of us have suspected for a number of years that the Zombie Apocalypse has begun. (Have you noticed, for example, how few people actually think any more? They’re just walking around like… well, like zombies.)

It’s especially bad on Wall Street. Actually, a zombie epidemic would explain a lot—especially the tendency of financial commentators to be so nonsensically upbeat.

If you study zombie-lore from Haiti, you’ll find that classic zombies have lost all free will. They are basically automatons, doing the same things, over and over again, mindlessly.

Does that remind you of the denizens of any Street you know?

Unlike a zombie, most M.B.A. money-managers can actually form complete sentences, but what they have to say isn’t much more intelligent than the grunting of a B-movie monster. Here are five phrases that are a surefire giveaway you’re dealing with a financial zombie.

1. “Mmmmwwaaaahhhh.... Cash on sidelines... market going higher.”

You can pretty much switch on any business program on TV during market hours and hear this sentence being repeated like a mantra. Guess what? There is no “money on the sidelines” waiting to come into this market and magically drive share prices further up. There can’t be. Why not? Because every time someone buys a share, someone else has to sell it to them. As a result, the share and the cash simply change hands. No money has “come into” the market at all.

This is a matter of simple logic, yet the cash-on-the-sidelines mantra refuses to die. What is the explanation? Zombies!

2. “Aaaarrrgghhh... great rotation coming... out of bonds... into stocks.”

This is a first cousin of the “money on the sidelines” argument. This argument is that “everyone” is loaded up to the gunwales with bonds and that they are all going to sell their bonds and buy stocks. Alas, the premise is nonsense for exactly the same reason that the “cash-on-the-sidelines” argument is nonsense. “Everyone” can’t sell bonds and buy stocks, because every time someone sells a bond, someone else has to buy it, and every time someone buys a stock, someone else has to sell it. The cards change hands, but the deck remains the same. Zombie!

3. “Ggggurrrrrrrrrr... households in good shape…debt trouble over.”

To be honest, for a while when I heard this I just assumed the speakers were smoking weed or dropping acid. Now I know better. Notice the glassy eyes, the pale skin?

According to the U.S. Federal Reserve, U.S. households in the first quarter of 2008, at the peak of the bubble, collectively owed $13.8 trillion in mortgages and consumer credit. In the first quarter of this year, the figure was—drum roll, please—$12.8 trillion.

That’s right. After five brutal years of financial crises and bailouts, bankruptcies and foreclosures and economic recession and write-offs, while the federal government has piled on the national debt to keep the wheels rolling while the private sector “repaired” its balance sheet, the great American household has managed to reduce its debt levels by just 7%. (Yippee!) Debts today are still at the same level as they were at the end of 2006.

4. “Gggwaaaarrrr.... corporate balance sheets so great....”

Once again we can get the details from the Fed. U.S. business debt just surpassed household debt for the first time in living memory. U.S. (nonfinancial) businesses today owe about $12.9 trillion, compared with just $9.9 trillion at the start of 2007. Zombies like to point to the large amount of cash that corporations hold in their bank accounts, although quite a chunk of this is being held offshore to avoid taxes. Zombies rarely point out the other side of the equation—the spiraling debts.

In total, U.S. nonfinancial corporations today have debts equal to 50% of their net worth, says the Federal Reserve. As recently as 2006 that figure was 40%. The average since the Second World War: 37%.

5. “Nnnnggghhh... stocks... willl... earn... 9% a year.”

I’d be testing the patience of my readers to go into this canard yet again in too much detail, but it is yet another zombie mantra. No one making this claim, without any reference to stock market valuations, has engaged their brain at all. They might just as well be shuffling down the street, eyes wide open, arms outstretched.