After winter comes spring and promise of new life. Tomorrow is a day for reflection and then comes a time for joy. Enjoy the long weekend everybody. <object width="420" height="315"><param name="movie" value="//www.youtube.com/v/s5LAMxM4OV0?version=3&hl=en_US&rel=0"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="//www.youtube.com/v/s5LAMxM4OV0?version=3&hl=en_US&rel=0" type="application/x-shockwave-flash" width="420" height="315" allowscriptaccess="always" allowfullscreen="true"></embed></object> Memories.
The first step for a trader is to determine the current trend of the market. Click on the chart for a non-scaled version. Line of least resistance is still down. Price tested the mean of the down channel at 3540 before markets closed last Thursday. Price tested 3410-ish last Tuesday. It's the third test. The previous test took place in the beginning of February and sent price on a rocket flight up to the upper part of the then active trend channel. This time it's different. Price has been swinging downwards in a more orderly fashion and for a longer time. The up channel is no longer in play. I see two main scenarios for next week. Price could continue to chew away at the mean of the channel in an attempt to reach the 3600 area. Or, what now seems to be more likely, price would fall and make another test for 3400. As can be seen from the composite volume profile there is not much interest in trading there so the rejections so far have been pretty swift. If price breaks down at 3400, next area to get through is centered round 3375. Then 3300 could well be in the cards. If this happens, the much larger trend channel (the blue dotted lines with a gray dotted mean, not fully seen on the above chart) will come in play. If one studies price with this channel in mind, it's now returning from an overbought condition. The other side of the channel is currently at about 3030 and we find the mean at 3330. Interesting times ahead.
Yes, maybe we'll have something like 2008-2009 all over again. I wish I knew then what I think I know now .
The above image shows part of a composite market profile chart (left) and a 5m time bar chart (right). The composite peaks (green) and valleys (red) were overloaded on the 5m chart before market open. I then ran a replay for the session (it's from last Thursday) as shown above. The day session is between the vertical dashed lines on the 5m chart. Note that the MP chart has not been updated with the new data; it's as it was when the market opened. It's interesting watch how price reacts to the MP levels. I know some traders use these levels as something to lean on for initiating a trade. My guess is many of these levels coincide with what you get from drawing means of channels and congestion areas (high volume nodes) as well as swing high and lows (low volume nodes). You get a similar result when using a composite volume chart to map the intraday levels. Usually, where price spends time is where there is volume. I've got filters in my trading plan for "the mean means" and avoid entering the market there as traders have temporarily agreed on price and it's difficult to tell where it will go. I'm going to look further at the market using the above type of charts and maybe I will change that rule. Edit: I always use a black background for my charts. I keep an extra chart with a white background (lines etc are automatically copied to it) for posting here. I can't have a white background while trading, it's far to strenuous on the eyes. Anyway there's too much work involved to get the MP charts to fit the "SLA chart style" so I won't.
Would it be fair to say that price continues to do (or not do) what it did (or did not) at that specific level? A picture of traders behavior. With other words, if few trades did take place at a level "before", then few trades may take place once the level is visited again (shown as a quick rejection or break through) at that level. I'm not "switching to MP" (whatever that would mean) but I've enjoyed playing with them. They're illustrative to a point.