Last Journal

Discussion in 'Journals' started by steve46, Jul 18, 2006.

  1. Hey:

    I would prefer no other posters for this please

    I simply want to offer a couple of observations regarding the use of LRC and channels in general.

    Then you can do what you want with it.


    Here is the first chart which is a weekly chart

    Although this chart goes back a few years, I am most interested in the channel that starts back in January of 2004, lasting to the present day.

    As you can see, during that time we have been in an uptrend on the weekly time frame and currently we are at a decision point, that my teacher used to call an "impasse". We could correct down or we could move back into the channel to continue the up move that has been in place for so long.
  2. Okay so this is a chart showing price on a daily time frame.

    As you can see, on this time frame the channel direction is "up"

    The size of the channel is approximately 1 standard deviation (for the blue lines) and approximately 2 standard deviations (for the black lines).

    The horizontal lines represent my own analysis of support and resistance

    The lowest of the horizontal lines shows yesterday's intraday high (Monday, July 17 2006).

    The two lines above mark out a channel. While I am not willing to detail the rules for finding this particular support/resistance channel, I can tell you what the general principles are

    In a nutshell, I believe that the markets are imbalance driven. Specifically they swing from one extreme to other, from overbought to oversold. This is the gross representation of what happens. If we go one level down in granularity, what we can observe is that price "oscillates" between value areas, kind of vibrating in these areas (what we used to call "consolidation), just wiggling around within a five or ten point range until investors, funds, banks, and finally retail decide to move to the next level. For these players, it is a matter of time frame and perception of "opportunity" or "value". On the longer time frames, it is the big players who first decide where value lies. Once they decide, they come in quietly to accumulate a position. When they have put a specific amount of money to work, they wait trying to find a trigger event to move the market as they wish. Along the way the smaller fish, jump on, each perceiving value in a slightly different way. The mid-size and smaller fish play the game on a shorter time frame and finally the retail and pro daytraders who play on the intraday basis, look at price in term of seconds, minutes and hours. It is because there are so many agendas that the markets, especially the index futures have become so "noisy" and difficult to trade.

    As you look at this chart, notice that again I have channels in place. The same channels as on the longer time frame. If you look at the volume representation, you will notice that the last several days have been "distribution days". That is to say that price has wiggled around in the same place or dropped on significant volume. For me this suggests that the probabilities are high that we will head lower, not higher. I could be wrong. I am talking about very simple probabilities.
  3. Now we go to the 60 min chart and you can see the way that price tested Monday's high, but could not "take it out". Sellers
    came in and marked it down. After that it was a case of "buyers strike". Sellers weren't trying to sell it down, it was just that there were no buyers interested in taking it up.

    Again if you check out the volume you can see that the second through fifth bars (hours) the buyers steadily left the building and the rest of the day was dominated by "net" selling.
  4. Finally we go to the 5 min chart.

    Here what you see is the LRC framework providing a basis for trading the day.

    As you can see, price opens below the midline of the LRC and then "tests" that midline. It succeeds in taking out the midline and then moves to test the previous day's first hour range. If you look at the volume you can see that buyers disappeared at this time. Price slid back down to re-visit the midline (as if often does) and then dropped back into the previous range on net selling (notice the volume "selling spike") that is always necessary to sustain a wide range bar.

    After this price settled into a 4 point range as the floor marked it up and down and the bigger players moved to accumulate their positions for the rest of the week.

    The final question of course is "are we still oversold"? and "how badly"? and finally, which way will it roll? Will big players take it down to 1220? or will they decide to put money to work and take it up in a strong impulse move past 1250, and then past 1258 on the way to another leg up.

    One helpful technique is to compare the volume for today (Monday) with the volume on the preceding days. Notice how dead today was compared to the prior two days.
  5. Here is another chart with 5 min candles. What I have done here is to put in the daily pivots. Notice that the daily pivot, seems to bisect the trading range that composed most of the day.
  6. and on this last 5 min chart we have all three pivot systems in place, daily, weekly and monthly pivots.

    In addition I have put in a 10 period ADX tuned to the previous day's cycle.

    What you can see here is the way that price "revolves" or "cycles" around specific price points, specific pivots, and how it can be put into a useful context by putting in a simple indicator like the ADX. Notice how the first ADX spike lines up with the low of the day. There are no further signals until near the end of the day. This is an adaptation I have made just for trading during the summer months. The signal I use is when the ADX "rounds over" and heads back through the outlined channel. Look at the charts and you can easily see how the indicator is used to indicate not only the strength of trend, but shows you just when a trend is transitioning from up to down.

    In general, I have learned to make money during the first hour of the day and then to wait or to stop trading for the rest of the day.
  7. OKay then I appreciate your patience and hope some of you will get something of value out of my charts and commentary.

    I wish you good luck now and in the future

    The rest is up to you.