TRAP: It's the Trend, Stupid! It is really all about trend. Just as the most important thing in starting a business is location, location, location, the most critical part in maintaining a fat trading account is trend, trend, trend. We can't talk about the concepts of Macro and Micro without first speaking about trend. No doubt, everybody knows what a good trend looks like. However, it's worth noting that not all trends were created equal. More importantly, it depends on the eye of the beholder. But, first, how should a trend be interpreted? The common fallacy surrounding a trend is that it is a formation of either higher highs or lower lows. This, however, does not address the issues of momentum and time. So, again, the whole notion of trend harks back to the principles of PMT. I, for one, do not see a trend as a mere display of higher highs or lower lows. Rather, I see it as a display of either increasing or decreasing strength; or, better yet, gaining or waning weakness. It's a constant tug-of-war between the bulls and the bears. This is what determines the final product that we call trend. [edit] Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!
Great thread! It took me years to work out that for all the exploration of perfect entry points, it is the context / environment in which they occur, which gives the edge. Keep it up, I am enjoying the ride.
Today's price action serves as a good example of Retro. Earlier in the day, I posted where I believed HOD will likely occur. ES initially went down to fill the overnight gap and then reversed course and bounced hard. Lo and behold, ES stopped cold at 848 (number 1 below) and came tumbling back down. At that time, I thought there was a good chance that ES could test the lower 810 area. It apparently went down as low as 817 (number 2 below), which coincides with the low of this morning. That took place at 2:30 PM, which meant there was still an hour and half left in the day, and you don't need all that time to score 7 more points to land at the LOD. As such, I thought there would be another reversal to the upside, possibly up to 832 (number 3 below), followed by another downward cycle going into the close. The market in fact did make a U-turn. However, the downward trend never materialized as the momentum fizzled (number 4 below). As you can readily assume, the retro part of the equation was in place. Both HOD and LOD were implemented. Moreover, HOD and LOD were monitored with the Macro in place. While the former panned out as predicted, the latter did not. While we were within the vicinity of LOD, the Macro never quite supported our claim as the prevailing trend was running out of steam.
Saliva, How are the keltner bands and bollinger bands used? Is this something you will cover later on? Are they just there to help spot failures and reversals? Thanks!
Saliva, You talk about momentum, how are you identifying momentum, this has been very difficult to establish in my experience using the standard momentum indicator or ROC and neither are on your chart, is it purely price action at the resistance leves or are you using another indicator of some kind? I see you are using a moving average and some bands, do you use them to gleam momentum? I understnad that this may be stuff you are intending to cover in the future but thougth I would ask.
Boll/Kelt is not officially part of PMT/TRAP. I mostly use the combo of the two indicators to detect momentum. How I use these two indicators is somewhat different than you would with ordinary indicators. What I specifically look for are the relationship between the two. For example, in a strongly up trending market, you will find the upper Kelt touching the upper Boll; in a strongly down trending market, you will find the lower Kelt touching the lower Boll. If so, are they coming together or diverging? Of course, there is more than this, but I believe this should suffice for now.
Momentum, next to price, is perhaps the most important and yet the most neglected aspect of trading. You can never trade successfully without first understanding the concept of momentum. I will certainly try my best to divulge what I know, although this might prove to be more difficult than I had originally thought. As far as indicators are concerned, yes I do use the combination of Bollinger and Kelter bands to detect momentum (see the above post).
Why do Keltner & Bollinger divergences usually indicate a reversal? I mean, considering the formulas of each, what is the underlying reason behind this?
Saliva, Thanks for your response. From your example chart, it seems as though you don't really need the keltner bands. Rather than when both bands are touching to show momentum strength, couldn't you just assume strength is there when price is hugging the bollinger bands? Also, when the keltner bands and bollinger bands diverge, isn't it the same as price failing to touch the outer bollinger band? Just some observations. Thanks again.