Learning to read Price Action with P&F Charting

Okay – I’ll play. I see you posted three charts and asked for thoughts. I’ll do the composite. Then you do the Industrials. We’ll flip a coin for the Transports.

A few abbreviations or terms I may use:

1. Double Top Buy Signal (DTBS).
2. Double Bottom Sell Signal (DBSS).
3. Bullish Support Line (BLSL) always solid.
4. Bullish Resistance Line (BLRL always dashed.
5. Bearish Resistance Line (BRRL) always solid.
6. Bearish Support Line (BRSL) always dashed.
7. Positive Chart: Trading above BLSL.
8. Negative Chart: Trading below the BRRL.
9. Chartcraft Price Objective (CPO) is derived from the first column of X’s following the lowest column of O’s while still on a DBSS.
10. Breakout Price Objective (BPO) is derived from the first column of X’s creating the first DTBS following a previous DBSS.

First, you want to look at the last mayor pullback low that occurred on 10/9/02 at 2050. These major lows create very reliable overall price objectives. The Chartcraft PO was 3400 (((9*3)*50)+2050) and the Breakout PO was 4950 (((19*3)*50)+2100). I always start with the Chartcraft count. If it’s taken out I go to the breakout count. This chart had a high of 4700 on 7/16/07 and I don’t believe at this time that it’s going to go beyond that for a while.

The chart is currently positive (trading above the BLSL). Notice the first BLRL off the bottom beginning at 2550 and the second BLRL beginning at 3000. These two trendlines very often form the two primary P&F channels before a stock/index runs out of steam. Notice how most of the run from December 03 to January of this year was in the upper channel, and the last couple of months in the lower channel. There was activity in the third channel for a brief time, but ordinarily they never last too long in channel three.

Note how often pullbacks stopped on or very near the BRSL’s. It’s amazing how often a stock or index will reverse on these trendlines. (The majority of my purchases are bought on a pullback and very often it’s at a trendline.)

My conclusion: In the long term, this index has “Ran its race” for now. The major move started back in 02 and it’s out of steam. Really, it’s been trading sideways since late 06. In the short term the current column of X’s is sitting dead on the first BLRL and it would not surprise me to see a high pole warning here followed by another sell signal. Unless and until such time as the massive resistance at 4600 and 4750 is breached, this baby ain’t going nowhere. The BLSL is the solid line and it has been in charge since the early 90’s. Would not take much to penetrate the BLSL and turn the chart to negative; making the BRRL the big boss for a while.

Ebb and flow. Upthrusts, downthrusts, accumulation and distribution. Nothing changes.

We’ll see.

 

CWU, excellent post. We are all lucky to have you aboard this thread. You have clearly demonstrated your command of P&F principles to be first class all the way. Just from your one post a novice can learn a great amount of knowledge in the practical application of P&F. I hope that you will continue to post here on this thread.

 

Welcome to the thread CWU. Impressive knowledgeable post. Don't be a stranger.

 

I am unable to see the copy/pasted charts from the beginning of HolyGrail's posts. Is it because the post is too old?

Anyways, can someone explain the details of the SUPER GREAT failed double top/bottom?

Thanks

 

A synopsis of trading pnf is here.

http://www.clalloys.com/pnf charting.pdf

 

i believe it is any signal which has a failed signal first then a reversal in the opposite direction of the failed direction so sorta like a shakeout (for longs) or a fakeout (for shorts) example (not the best) get a high low chart today of dell and i believe the previous O column has a shakeout to the bottom side (which you would interpret as a sell signal BUT IT FAILED) along side a triple top formation, hasn't broken yet and even today with the massive rally(then later selloff) dell did almost nothing so NOT THE GREATEST STOCK OR EXAMPLE wait for holygrail he will probablyy give u a better example.

ONCE AGAIN THANK YOU HOLY GRAIL FOR STARTING THIS THREAD IT HAS HELPED ME IMMENSELY IN MY DECISION MAKING as well as provided a vast amount of very valuable information/examples.

edit: once again my dell example is just an idea to give u the formation, now that i look at it not the best looking chart either. Only quick one i had on had that i could think of sorry.

 

Great explanation staffpro.

AKAM provides us with many examples including one currently.

Edit: I do want to mention that it is not only a shakeout formation, it is a shake-in formation. It is basically a buy or sell signal that makes you think the trend is either going to continue, or reverse, only to do just the opposite. It is a very strong signal, as are all FAILED pnf signals.

 

A really nice podcast done by the P&F authority Tom Dorsey can be found at this link. I think all people will like this one and its free.

http://media.dorseywright.com/rss/DorseyWrightPodcast7.mp3

 

Since we were talking about failed signals I wanted to show one that I traded today on NQ. It was a failed catapult and it was good for 5 points. (actually good for more, but I wussed out after 5. This was on the NQ .5 chart.

 

How do you know exactly when the pnf signal starts to fail?

Do you simply enter into both short/long positions after every pnf signal and cancel the failing/not entered one?

For AKAM, can you give example of where you would place your entry points, both long/short for each of the signals?

The catapult example you showed, in hindsight it looks obvious it failed. But when did you exactly notice that it was failing? After the last O column? by then it would be too late to enter.


Thanks for the great guidance HolyGrail.