So regarding number lines. Many people here are confusing number lines with a trade signal. Number lines do NOT give trade signals. For starters, let's break down what we are actually looking at. A 30 day number line is a composite look at the previous 30 trading days. That's 6 weeks of data! In the market world, that's a long time. So we don't want to over react to individual data points. The analogy I've used on here is the number line is like your overall health. Your health stays pretty constant over time. If you get sick, in most cases, it's usually gradual. And when you get better, it's usually the same. The number line is the "big picture". It's the forest not the trees. The real value in number lines is two fold. One, area of focus. In a world of endless trading products, the number lines direct you towards where you should be putting your focus. For example, rbob. Rbob has been confirmed for a long time now. Heating oil and WTI have been all over the map. But the 30 day told you to focus on gasoline. It's given you the best signals and the best trades and the best follow through. Which leads us to the 2nd point....follow through. Number lines are the only thing I have ever seen in the trading world that gives you a look forward into potential follow through with no endpoint. In other words, you are not just buying something and selling it at resistance where the resistance level is your target. The number lines are giving you a probability on price extension. I could buy anything in the world. And at times, almost everything might move together. But all products do NOT have follow through, even in bull or bear markets. Your time and focus in this world is very valuable. In the end, we're all dead. So time is a constraint and therefore you should not give it freely. If you are going to commit to a product and a position, you better make sure there is the potential for follow through. And that is what the 30 day is for. It says if product XYZ is confirmed, even though it's stalling at a level or might look weak for a day, don't bail! That is where the value is. Products with choppy number lines fail. And heaven forbid you are fading an opposing number line, well not sure what you are expecting to happen there. Now let me be clear about this. A strong number line does NOT mean you buy something in free fall. If something is making new lows everyday you don't just buy it. That is why we have A levels. These are the levels that violate our thesis. The A levels are the markers on the playing field. As long as the market stays in between these levels, we deem the price action to be normal and can rely on the number lines for bias. But if these levels are violated, it simply means the number lines are probably lagging. And therefore the value of their output is less. So the number lines direct our focus and define our opportunity. The A levels define our risk. Together one can construct positions on price levels to enter that maximize their return based on a given level of risk.
LOL. Thanks for this post. I am a bit confused about resets. Is it logical to reset the 30 day when a new quarter starts or just let it roll? Similarly, I thought at some point there was discussion on resetting the momentum line when the month begins. Could you please share your thoughts on this? Also, at some point you had mentioned how a 30 day could be used to confirm or reject a monthly A level while the momentum line could confirm or reject any trade. So based on this and the many other posts, let me point out a few scenarios that I think would be ideal conditions to execute on a bias based on the monthly A levels and the number lines. It would be great if you could comment on this. 1. Price fails at a monthly A down and I am looking to fade and get long. At this time, I am looking for the 30 day to NOT be confirming down and ideally, I am looking for the momentum line to confirm on the upside if I am getting long on a good intra-day or weekly A up or I am looking for the momentum line to NOT be confirming on the downside if I am getting long on an intra-day or weekly failed A down. 2. Price blows past a monthly A up and starts basing or consolidating above and I am looking to get long. I want to see the 30 day confirming the upside and ideally, I want the momentum line to also confirm on the upside if I am getting long on a good intra-day/weekly A up or I want the momentum line to NOT be confirming down if I am getting long on an intra-day/weekly failed A down. So basically, my starting point is price action around the monthly A level. To confirm price action, I use the 30 day number line. If confirmed then I am looking at the price action on the smaller sessions and I use the momentum line to confirm in order to execute on the trade. Am I close or way off in my understanding of these relationships? Thanks.
Hello Mav, You have provided some really outstanding posts recently and I know we are all very appreciative. Old slow me can read them many times and get a little more insight each time. Great stuff man and good 4th of July to you and your family.
Thanks for this. I was really scratching my head when I saw gold confirmed on the nl last night and my thought process went something like this. Humm gold just confirmed NL wtf! But price action/chart looks like shit with almost no confimed weekly A ups But with the NL's you see things that are not so obvious. Hummm Greek is voting on a refrandum this Sunday Hummmmmmmmm If they vote no gold is gonna sky rocket. But if they vote yes it seems to be priced in already. Yes that's it! That's what the NLs are telling me! I'm gonna load up on gold Shit stock markets closed today can't buy GLD and not enough margin in my futures account. Oh well have a beer
OK, I think you are confusing the different types of number lines. So the longest one or the macro one if you want to look at it that way, is the 30 day. The 30 day shapes our bias, our potential for the trade and our focus. The monthly number line re-sets every month. But the main purpose of the monthly is simply to confirm or reject monthly trades. For example, if the ES makes a monthly A up, our assumption would be that the price action should be positive. But if the monthly number line is zero, it's telling you that while "price" is moving higher, the product itself is NOT acting well. This is not a breakout I would want to chase. The 5 day number line is a momentum line. Because of it's short duration, it's giving you the very near term data. We use the 5 day to confirm momentum. The reason for this is because as you recall, the 30 day number line's value has two terms affecting change, the most recent data point and the furthest data point. Meaning the 30 day could be increasing in value solely from numbers dropping off from 6 weeks ago. Because of this fact, we use the most recent 5 days to verify if the increase in the 30 day is coming from the most recent 5 trading days or from old numbers dropping off. Each number line serves a different purpose and usually address the weakness of the others while having it's own weakness in some other area. It's the combination of all 3 that form a complete picture. I should reiterate that the 30 day number line should form the basis of ALL your trading. It should start there and reverberate out. The 30 day gives you your focus and your bias. From that 30 day, you have your A levels. And those A levels exist on many different time frames introducing the time variable. Let's dig deeper into this. Say a product has a +40 number line (using extreme values here) and let's say this product is way above the QTR A up. Is there a chance to enter? Well, let's dial down to the monthly levels. Well, it appears as though price is way above the monthly levels as well. Is there a chance to enter? Well, let's dial down in time to the weekly levels. Let's say we are also way above the weekly levels. Can we enter? Let's dial down to the daily levels. There we go. There is an entry on the failed A down even though price on paper looks very very extended. So what is the lesson here. The more extended a move is in time and price, ACD forces you to reduce your time and tighten your stops. Each lower time frame carries tighter stops and shorter time periods thereby reducing your risk. If you have to, you can dial down to the most granular level which is a single day to find the appropriate risk and time level. The other beauty here is, time eventually let you in. As time moves forward, new levels are formed even if price never retraces! That's the real unicorn here. Every 3 months we get new QTR levels. Every month we get new monthly levels and all you have to do is wait a few more days and you get a chance to lean on a weekly level and if you are really impatient, wait till tomorrow to get your daily level. Time is one of the biggest hidden value variables that 99% of traders on ET ignore and to their own detriment. Remember, value exists in time, not in price!!!!!!!!!!! Very very very few people understand this. Once this gets into your head, a whole new world will open for you.
Hello LT, Good questions that have provided excellent Mav input. Really great input. Let me be the first to lay a "Like" on ya
Yay, I got my first "like". This is probably the best content on ET right here. I am extremely grateful. I will definitely be more vocal in the future and pick the master's brain whenever I can .