Wow great insights! I had this somewhat similar thoughts about why acd levels work. My reasoning was that during OR time a lot of market participants initiate new positions. Then lets say half of them find themselves on the wrong side of the market. When price approaches a pain point (around our A levels) they might give up and puke which probably helps reaching target goals for other half luckier traders. It also presents opportunity for smart buyers, maybe some loosers reverse their positions, maybe some trend followers or other timeframe traders join in and voila we have failed a down. If hovever there is not enough support we make A down, but there are other traders who are long now because they though its a buying opportunity. Also it is probable that some smart money positioned and still building their shorts(someone has to keep price low for some time to make A down). That is of course not a very good situation to be long. However they are loading up to long side because of some support level, ma or whatever, but we already know its A down and its dangerous. Once that support is broken there might be nice move down. This could also explain why levels are less efficient later on. There are no critical mass of traders left by that time and their entries are now mostly outside OR so their levels are a bit different. It is not very helpful framework for trading but could be usefull for asking yourself a question - am i that unlucky guy/marginal buyer or am i getting in front of them? Your expanded version made me think about product selection more, and in general about market psychology. Thanks!
Mav, I have question for you and the other posters with regards to time it might seem a bit weird but I thought i might as well put it out their ; Does time really exist within the financial market ? Can something such as value of share price for example be right and wrong at the same time ? Apologise for the weird question just try-in grasp other people thoughts on some abstract ideas and thoughts.
During usdjpy drop US stocks actually went up considerably. Correlation didn't work. I am interested maybe you have some thoughts on that? What actually happened?
Now Robert....this is in the ebook. LOL. You can enter at whatever level optimizes your risk/reward. So if you are leaning against a given A level and your exit is another A level, then choose the appropriate level that provides an attractive return on risk.
Time actually is very important in most financial models. This is because money has different values across time. For example the cost of money i.e. interest. Bonds are priced off of their present value of future cash cash flows. A $100 a year from now is NOT worth $100 today. It's discounted by a time factor and possibly even a risk factor. In the ACD world, time is an opportunity cost. A big one at that. Example, say I put 10k into AAPL stock at time zero. At t+1 AAPL has showed no gain. But the other stock I was thinking of buying, NFLX is up 10% at t+1. This means the opportunity cost for holding AAPL was 1k. That's real money. Opportunity cost is one of the most important variables in finance and economics for that matter. It's because we are all faced with a capital constraint. We can't do everything we want, we have to make choices and those choices come at a cost. You always need to know what that cost is. Time is one of the most overlooked variables on ET. People on this forum just shout out predictions and calls with no regard to time hence the calls have no value.