Yes, and this is probably what one would find in the pioneering works. However, the fund industry (mutual, pension, etc) has had an enormous effect on this dynamic. These people don't get bored. They're happy to sit on a profitable position until the cows come home. And get fed. And milked. Therefore, unless they have a good reason for selling, they're unlikely to do so. Why should they? They're content to sit on it for three months until the next earnings report comes out. Or six. Or nine. (We've endured more than a year of drift at times.) And, of course, they are very unlikely to do anything other than what everybody else is doing, and if everybody else is sitting, then they'll sit, too. A strong bounce is nice, of course, but its absense doesn't mean disaster. On the other hand, anyone trading breakouts has a much keener interest in follow-through than someone who trades retracements (because he's so much farther away from the logical stop), and he would do well to bone up on alternatives in case he keeps getting faded and/or stopped out.
To keep experiencing the novelty and freshness of the market, and to keep from being trapped by your preconceptions, it's important to keep distinguishing between the tape and your interpretations of the tape. View as neutral both the events and your inclination to impose your interpretations on them. You enter the market without expectations, surrendering to it rather than struggling with it for personal gain. Ultimately, you are able to fine-tune your responses. -- Ari Kiev
031804 Lest we forget, the day before quadruple witching . . . [Note: it occurs to me that one line may need a bit of translation, at least until readers get used to my abbreviations: R repr by lngthy conges zone frm PD plus PD LSL Resistance represented by lengthy congestion zone from previous day plus the previous day's last swing low Now back to our regularly scheduled program . . . ]
One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, 'I just lost my money, now I have to do something to make it back.' No, you don't. You should sit there until you find something. -- Jim Rogers Trigger-happy traders are prone to shooting themselves in the foot. -- Brad Barber and Terrance Odean
031904 I don't know that much can be gained by analyzing the price and volume behavior on a quadruple-witching expiration, so today's will be a guest analysis. I don't recall where I got this and I neglected to jot down the author. If anybody recognizes this, let me know so that I can attribute. ----------------------------------------- The story plays out on the 3-minute chart. The open . . . dropped down to the low of yesterday afternoon. The first down arrow on the chart shows a wide range bar closing on its low on very increased volume (compared to the prior bar). Selling was clearly swamping the buying. Volume increased on the drop, but fell off on the retest of yesterday afternoon's low, signaling a potential bottom. Look at that bar on the low. It closes well off the bottom. And the volume has shrunk. Selling is no longer dominant (though confirmation is still needed). The next bar has a nice range up and closes on its high. Volume has dropped off, and that is good for the bulls. That and the next bar--also an up bar with increased volume--confirms the change in direction. Note that the volume falls off on the pullbacks. This is decidedly bullish. Volume expands with price as the market moves higher and contracts on retracements. Also, look at the price bars on the pullbacks. Their range also contracts. So, you have price bar range expansion with up closes on expanding volume and price range contraction coupled with volume contraction on the retracements. Note also where the closes are on the retracement bars-- midrange, for the most part, rather than on their lows. Selling is weak on the retracements. All this action is bullish behavior. [Italics mine -- Db] Look at the first down arrow in this up trend. It occurs around 10:30. It closes on its low and volume increases! This is the first hint that selling is coming into the picture. The next bar is up and volume increases, but then look what happens. Volume is heavy but the price action is showing weakness. With that increased volume, if this was still going higher, you would expect the bars to expand in range and close on the highs. But you get just the opposite. Range is contracting, the close is poor, and it occurs on increased volume. It can mean only one thing: selling is swamping the bulls' boat. Next, we move up to the high of the day. This is right into the 935 resistance area from the daily chart. Look at the volume and price action here. Volume expands for several bars, but the price won't go higher. That weakness we saw earlier starting with that first down bar on increased volume at 10:30 is now coming into play. Also, the average volume is lower as we make a new high. So, background weakness in the form of 1.) the 10:30 - 11:00 price/vol action and 2.) the overall volume - price divergence is seen clearly in the details of the individual bars. Note where I labeled the "No Demand" bar and its accompanying volume. We get a higher close on low volume. There is no demand or buying to drive priceshigher. The no demand event occurs again later. The noontime countertrend starts right on time. Look at the bar and volume at the turnaround. Like the waves, monotony is good. The market moves up a bit, but then goes into a lot of chop. Although there is an upside bias, volume is very low and the price bars are contracted and few close on their highs. All bearish action. Look at the last 3 bars in that area occurring around 1:00. They try to push it higher (probably gunning for stops), but volume isn't with them, and the buyers get swamped. Another no demand event. Just before 2:00 there is another attempt to rally. But, you can see the price and volume action shows weakness. The first bar highlighted by a down arrow shows a midrange close on increased volume. If they were going to take it up, that increased volume should have resulted in an up close. Compare this attempt with the rally that occured in the AM. As the market falls, the average volume increases. On the bars where price expands to the downside, volume expands, showing a consistant relationship. Note the two retracement areas in the downtrend (highlighted by the down arrows). Both the price action and the volume contract. This is nice bearish action. The bottom of this move is reached at the AM low. The price action and volume is a repeat of what we have been seeing, as is the push into the resistance at the 925 area ...
Traders often hear about the potential benefits of preparing actionable trade plans prior to the next trading day. The goal of such preparation is to make yourself immune to mental edge breakdown. One of the greatest threats to your mental edge is coming across something that's unexpected during the trading day. Seeing an unexpected price move (especially one you perceive to be a big move) is likely to stress and panic you and therefore cause your psychology to shift into an emotional, reactive state. An effective way to prevent this is to prepare with possibility mapping. Possibility mapping is a process which will mentally prepare you to expect the potentially unexpected, and therefore will allow you to numb, in advance, any potential emotional responses. . . . With such preparation, you've already "experienced" tomorrow's markets. Therefore, you virtually eliminate the chance of mental edge breakdown due to unexpected scenarios. . . . In addition, reviewing and comparing your possibility mapping records with your trade diary will help you find key patterns in your trading, identify areas in which you might have a lack of preparation and ones in which you have strengths. -- Innerworth
Another look at the daily First daily chart: http://www.elitetrader.com/vb/showthread.php?s=&threadid=29005&perpage=1&pagenumber=111
DB, Thanks again for this thread. It's been an enormous amount of help in understanding the principles you wrote about in the pdf files. I mark up my charts as the day goes, then wait for your posts to compare the two. Today you mentioned supply saturating demand near the end of your chart. I was wondering if, on the ES chart attached, you would say the same about the circled candle and the action there about? Thanks, jd