Hi NoDoji, Is it possible to post a chart illustrating that daily lower trend line? I've seen quite a number of your five minute and one minute charts but I don't think I have ever seen one of your daily charts. Thanks.
Very interesting as always, NoD. I didn't know before you use high time-frame levels/structures. According to the topic of the thread: what do you think drives the price in this case described by you? Technical levels acting as a self-fulfilling prophecy, attracting market participants? And what kind of behavior creates these patterns/levels?
I draw trend lines on hourly and daily charts which appear on my intraday charts. I consider those to be key levels in a strong trend and will trade the trend aggressively until price gets there at which point I watch the PA to see if a reversal pattern appears. When Thursday's CL daily bar low was taken out around the open Friday, I watch the 5-min chart to see if a trend day sets up. The 10:20 ET bar confirms the daily bar break and there was no potential trend reversal signal until the 12:30 ET bar. The reason price tends to gravitate toward these key levels once a signal is confirmed is because traders who want to initiate a position are looking for the best value and traders who are caught on the wrong side of the action want to cut their losses.
Market Patterns?.....LOL "Fooled By Randomness" - Taleb http://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219/
If you're concerned about the concepts covered in his book, consider testing your trade ideas via automation. You'll find out very quickly whether you're the only one seeing those bunnies in the clouds.
Great explanation as always, but what are the reasons behind market participant actions in this case? TA pattern itself acting as a self-fulfilling prophecy? Or something else?
The reasons are that if a certain line in the sand is crossed, technical analysis of similar price action over the past N decades indicates that price will continue moving in the direction of the breach until price gets to, or close to, the next key S/R level in line to be tested. So if you're looking to buy low, you wait for that next level and watch the reaction there to decide whether to buy or not. Chances are pretty good that initiating buyers will sit on the sidelines until that key level is approached, initiating sellers will want to get in close to where the line in the sand was crossed, and longs who don't want to risk the full excursion to that next S level will sell part or possibly all of their position, all of which tends to accelerate the downward momentum.
imagine buying hotdogs for a nickel and selling em for 6 at the stadium, what happens surrounding that 5 95 markup instead of a nickel markup, marketing, they give you a ticket a seat a ballgame 60000 fans and tv crews,cheerleaders halftime shows, without all of that you would find out where you could get them for a nickel and tell the other guy ..something... if they didnt make these trendlines work, give the idiots in the seats something intellectual to feel about themselves,and instead just take all their money at once, the game would be over.... there is no way appl is worth 98 then 103 then 98 in the span of 30 minutes, without all that action ,without moving the ball of yarn, the cat would just sit there in one word, marketing