So I just read what Db wrote in Niko's thread.. and it hit me! "Edit: I should also point out that the lines are intended to be aids, not indicators. If one starts focusing on the lines instead of on price, one may as well plot a bunch of moving averages. The lines are nothing more than a gauge of supply/demand imbalance. They do not provide support. They do not provide resistance. The behavior of price is always of primary importance. If the lines determine what you're doing, get rid of them." I am for sure way focusing on the lines. I guess I really wanted to use the crutches of this SLA method, but in a sense, it would completely tie me up. So now I will go over the chart again and forget the lines but focus on the behavior.
Behavior...., as it relates to tradingâ¦, is not only what price (buyers/ sellers) do (meaning where price ends up - each bar / each session)⦠(Which btw where it ends up - is what one sees studying charts) But also how it acted getting there (the battles / the fervor / the lethargy / the directness of its trajectory ) And though never I would dissuade anyone from studying a chart⦠Just realize..., pouring over a static chartâ¦, youâre witnessing less than half the story / less than half information being imparted - on any given bar / session Above is one aspect Anotherâ¦, is bias â no way to get around it when looking at a competed chart â realize it exists - and take extra precaution to ensure it doesn't taint your decisions Finally â it a whole lot easier to be objective and make rational decisions when price is not acting like a Mexican jumping bean What one may... or may not do - while totally calm and detached - has the very real potential to NOT resemble..., even remotely..., any action(s) they may..., or may not take during a session Not to mention..., you have the benefit of already knowing the outcome Something for pondering as you study the ole charts RN
RN.. I agree with you 100% plus another 10% for tip because of how well you state it. I remember very well reading somewhere that you aren't big on back testing, and I can certainly understand why. I can't remember where I said it, but just in the past week I made the comment that looking at these charts in hindsight is almost garbage. When you are right there, you really have no idea, it doesn't look the same, your feeling is completely different. Watching that bar form takes you on a rollercoaster sometimes, and yet 5 bars later you kick yourself for not getting in on that bar. But you know that when you were in the middle of the bar, it wasn't nearly as clear as now when price has moved 10 points higher and left that bar in the dust. So in essence, I want to develop the ability to read this behavior, to see if the supply or demand is stronger. Knowing where you are in a marco sense, and then seeing where the zones of activity or support and resistance are to give you a probable area to get to is I think the other trick to this game. Thanks very much for your post... it confirms my suspicions and steers me in the right direction!
When you're right there and have no idea, it's because you haven't done the work, which includes studying old charts and determining where and how price changes from up to down to sideways. If you're "kicking yourself" for not getting in on a particular bar, you're already dwelling in hindsight but with no purpose other than to berate yourself. If you don't want to follow this mechanically, then observing, backtesting, forwardtesting, and simtrading at minimum are necessary. If you don't want to do that either, please post charts showing your entries and exits so that we can keep track of your progress.
Yes, it is true that I haven't done nearly enough work. The "kicking" comment is mostly derived from greed. I know its hindsight, so not much I can do about that. I just think that with a nice 10 point gain and an entry way below where price is now, you have both breathing room and a profit already. I certainly hope that it has nothing to do with berating myself or any of the other ideas proposed where people deep down inside actually want to fail so they are proved right. I do like a mechanical approach, heck, its at least a good start, but as a result of today, I think I need to set up more rules. Db, what do you specifically think of my retracement question? I know 40D replied to me a few weeks back and he used a retracement on a tick chart off a reversal to get in on a trade. So is there anything wrong with this logic? Or is it inappropriate to use a tick chart for entries if I'm using a one minute chart for everything else? I mean even price moving 50% against you can still be called a retracement as long as it then continues in the original direction, no? I do like how you said in another thread that you will concentrate on behavior, I think this will work well because each person has different charts and data feeds so its hard to match it all up, but understanding how you read behavior and sharing it with us is the key I think.
There are only two ways to determine rules: (1) observing, backtesting, forwardtesting, simtrading, and (2) simtrading. The latter can go on for years, particularly if there's no chart review. But chart review is hindsight. Whatever questions you have about rets and so forth can be obtained by reading the threads I've begun or by research and testing. There is no retracement "schematic". As for understanding how I read behavior, there is no such thing as an understanding transplant. If you want to understand rather than mimic, you'll just have to do the research and testing.
It seems the point of studying "old charts" is being missed entirely, but I've addressed that elsewhere, so I see no benefit in treading again over well-worn ground. Suffice it to say that if one doesn't include the study of old charts in his process, he is going to be spending one hell of a long time developing a trading plan.
So I couldn't be watching it live today, but my chat window was open and I was able to follow all the action. Yes this was in hindsight, but it was still an interesting exercise to now match up what was being said in chat to where I was in the chart. I've had quite a bit of a roller coaster this past day or two. Keep in mind that it was just over two weeks ago where I decided that I needed to focus, to just follow one instrument, to try and learn one method and see how far it would take me. I have spent months the posts here on ET, and specifically reading Al Brooks, and as excellent as I think he is, after these several months I knew it was still too much. As NoDoji said once, or something similar, Al Brooks is the calculus of price action. The detail was just too much at the moment. At any rate, moving onto Db wasn't that much of a stretch because I was still using barely naked charts, bars instead of candles, no moving average versus a 20 EMA, but the idea that we are watching price was shared. Db did bring something different to the table though that I hadn't yet encountered. It would be inappropriate to say that Brooks doesn't use channels, but Db somehow makes them come more alive and seems to give them so much more importance. I have spent the past two weeks trying to figure out how to put everything together, before I even knew all the parts. First you have the idea of just watching price, is it going up or down. Then you have the idea of trend lines, supply or demand. Next there are also channels thrown in. To complicate things, you have channels on multiple time frames, anything from monthly to the 1 minute bar interval. Then you absolutely have to throw in the mean of these channels, because where would you be without the mean if you want to follow the Auction Market Theory which seems to work oh so beautifully. Now lets not forget watching the 50% of a move as a possible zone that might mean something. So then we move into the idea of what price have the most trades occurred at? (this may be another way of saying the mean, but saying it like this makes it sound different somehow). It shouldn't be forgotten that with channels, the upper and lower channel lines are diagonal, as well as the mean of the channels. But areas where the most trades have occurred at operate on horizontal lines, or even rectangles if you want to draw a box around this tight trading range (don't forget about the mean of this trading range as well!). Now here is little old me starting out thinking that the most important levels to look for would be the previous day highs and lows, or perhaps the overnight highs and lows!!! Not saying they won't make a difference, but I now know that they are just one small piece of the puzzle, and there is a reason why they don't make their way onto Db's charts. What I'm saying is that at the outset, I didn't know all the pieces yet, and the above list might not even be all of it, but the above list now does help me to see how it all fits together. Following the "minutes" from the chat today, it was incredible to see how price bounced off the lower hourly trend channel line. Sure it could have gone through, but this is what is considered the extreme, and a place to look for trades. In fact, when you look at the charts Db posts, you cannot help but notice the uncanny regularity of price obeying trend channel lines and their means. So this is where I am at now. I can see what hopefully are the major nuances of learning to trade. I am not going to pretend to understand them sufficiently enough, but I can certainly see how trend channels on multiple time frames capture a particular behavior of price. I will use these charts to plot where we are in the current trend, starting with the daily as Db does, and working my way down. I will make myself aware of the areas of where price is potentially likely to go (ie. the extremes of the channels or the mean). The tricky part comes in learning to read the price action. As each bar forms, as each tick goes by, does it look like buyers are in control or sellers? Do we have higher highs or lower lows? The trick is not in just getting in when price is in the middle of nowhere because it appears to be going up or down. The trick is in getting in when price is at the extreme, at one of these levels. Then with an acute sense of learning to read price action, a decision will be made as to whether price will favor one direction or the other. And then of course, the trade is on. Getting in is safest on a retracement, maybe a point away so that you are swept into the trade, but this detail can be worked out in backtesting, or forward testing as well. I do believe that the point is that if you are at the bottom of a trend channel and price stops and turns around on its way to the mean 30 points away, just getting in is of most importance. If price doesn't do what you expect it, just get out. If I get out too early, I will learn from this. The idea is that I will continue to watch price to see if it looks like buyers still want to buy or sellers still want to sell. So although I don't have the intricate nuances of my plan written down, this is the general nature of trading the NQ as I have learned to see it thus far. I have to learn to draw these channels in myself without going to Db's first, and I have to spend more time just watching price. But at least I feel as if I know what I'm looking for now. I have read many times that trading really is quite simple and its the individual that complicates it. Hopefully my presentation of the ideas I have learned and will employ is sufficient to consistently extract money from the market.
So since my last post, I have been actively watching both yesterday and today, trying to incorporate everything I've learned so far. Funny thing today was that it was difficult to see where the levels were on the way up. I have been trying to plot these channels in my MultiCharts platform and am having a bit of difficulty. Db obviously won't be making these charts forever, so while he is, I have to take advantage of watching how he does it and then seeing if I can do it as well. Kind of like how any baby animals watch the mother hunt and mimics her movements in play since he will have to do it himself one day. It may sound silly that I am focused on this, but knowing what I know now, you can't get anywhere without having the channels for the daily and hourly charts along with the means drawn in. Trend lines are easy to draw, and I have the option to draw an equidistant channel, but this doesn't give me the mean. Do I just draw in another trendline and eyeball where the midpoint would be? I tried using the Regression Channel tool since it gives me 3 lines, but it doesn't plot the mean in the middle. The best I have come up with so far is using Andrew's Pitchfork. It has the mean at exactly 50%, but it hard to fine tune it. The reason of course why this is such a big deal is because as these channels are diagonal lines, their value changes every day. So its important to get them drawn correctly, and to look to see where they are each day. I am attaching my version. Not sure why the second swing low that is used for the bottom line has the channel line going through it ever so slightly, but I am trying to match up Db's lines as precisely as I can and I notice this in his charts. I mostly bring this up now because after I looked at Db's charts from this morning, it was difficult to see on the hourly chart where midpoint was at this moment since the line wasn't extended. So dare I say, at open, I was going in blind, not really knowing what numbers I wanted to have in the back of my head. I wake up early enough to analyze and prepare, but the drawing tool was just finicky today. I can certainly see that 22 (or 25 on my chart), was the level that was being tossed around in chat, and this is exactly the midpoint of this hourly chart. Further to this, since we were at an area where price hasn't yet ventured, it was also difficult to try and figure out where other trading activity had taken place. Niko did ask, and Db's sensible answer was to look for a change between buying and selling or demand vs. supply, so that answers yet another vital question. I find chat is really good for this. The ghost thread gives you the big picture, the blueprint so to speak. But the chat answers so many minor things that together really fill in so many important nuances, but I am getting to that. Since I'm so new, I can get thrown off very easily, and when I joined the chat, there was talk of shorting. So in my head at open, all I had was shorting on my mind. When price started to go higher, I kept looking for the evidence of a short. Of course we are supposed to trade what we see not what we want to see, but just putting it out there that its an acquired skill I do not yet have. The first circled area on the chart was pointed out by Db as the place to have taken the long, which is after all the perfect SLA setup of a defined uptrend since the buyers are in control along with a retracement. But since the short was on my mind, and not being up to speed with my prep work due to my damn channel drawing issues, all I could do was watch price. I could see right off the start that this rise was parabolic, and my expectation was that it would be dropping. Once again, Db did point out that this was a perfect example how some parabolic moves don't need to end in a crash.... so that is noted! (what a wonderful contrast to the end of the day where the price recovered after the drop) So after we reached the ledge area of 10 to 15, Db pointed out that 15 was rejected, as seen in the second red oval on my chart. So once again, I'm thinking, ok... here comes that short! Now obviously that rejection didn't last. Nothing wrong with Db pointing it out of course, but traders clearly had something else on their mind a few minutes later when price went higher. The third oval highlights another point that Db made, asking if anyone saw this rejection. I know I shouldn't get into patterns, but this spike clearly stands out, at least on my 30 second chart. Its obvious that price went higher, couldn't hold, and dropped right back down again. So being able to visualize this and understanding that this price level for the moment was rejected is another idea to keep in mind. I have to remember to be open to price doing anything. Here 15 was rejected, but soon after it was surpassed. It was also interesting to hear Db about wanting the price to drop below 12/10. The fact that price rose so dramatically means that there wouldn't be a place for price to rest on the way down. Gosh I wish I was this insightful! After I left for a few hours, the price certainly bottomed out close to the end of the session. I'm glad I left the chat open since there was some great discussion about the down move. Anyway.. so not a bad week. Certain things are making more sense, and the more I watch, the less anxious I feel if I was thinking to hit the button to enter a trade. Lots to review over the weekend, and looking very forward to Monday morning.