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You know by now, of course (2015), that the failure of price to reach the lower limit of the channel in June '13 presaged a more severe upmove through the upper limit, after which one could draw a trendline and channel going back to the June low, a channel in which we remain today. But none of that would have compelled you to go long in June.
Looking at all of this in the rearview mirror, June was not the buying opportunity it now appears to be, nor was March '14, nor April '14 – those three points were required to draw the trend channel that we've been working with since. And as the channel didn't exist at the time, there was nothing for price to "bounce off of". Rather the first opportunities don't appear until August/September and October. At least within the context of this channel.
If one backs up even further, however, the landscape changes. Rather than looking for a short, we find that price appears to be exiting what was then the current channel, and long trades of breakouts are more likely:
In real time, December '13 would look like an overbought condition, and a short would be called for. This would be stopped out quickly, and given the subsequent higher high, another short opportunity would not come up until March/April. This would also be stopped out and price would exit the channel again. Given that price makes a higher high in June, the more likely course is a long, which could be taken then or in August, and as we now have the necessary swing lows and swing high for a trend channel dating from June '13, we can short the rejection of it in August/September, or go long when price tests the lower limit of it in October, which is also a test of the upper limit of the previous trend channel.
(to be cont'd)
Can you help answer these questions from other members on NexusFi?
So what good is all this if the bounces aren't bounces in real time and the trading opportunities which seem to have been there really weren't? If one backtests properly, if the current trading environment is approached by entering the pool at the shallow end, step by step, rather than jumping in the deep end with both feet, there are sufficient opportunities to be found in the present, not to mention the future. But the present means little without context, the past.
Let's back up a bit, to 2007:
By early September, one would have had the choice of leaving his supply line alone or drawing a more severe one that followed price downward toward November:
The choice is whether to hold on and exit only when absolutely necessary or exit sooner after the more severe supply line is broken in December. Volume can help here. Note how active trading is from September through November. And one needn't even know in real time that this is climactic. One needn't exit his short just because a line is broken. One needn't even draw it. He can hold onto his short until the low is tested is March, on less activity, then buy the reversal. He can even wait and buy the retracement in May. Or July. He needn't wait until his earlier supply line is broken in September. Unless he's stubborn.
If one knows how to monitor the progress of the balance between demand and supply, with or without the help of demand/supply lines, he will be in a much better position to take advantage of these opportunities than those to whom price behavior is a total mystery. Back-testing helps one to understand how this trending-balancing act works, which is at least to some extent what back-testing is all about, not just a wallow in couldawouldashoulda. And until the day comes when price exits the current channel, one way or another, trading the upper and lower limits is the only course that makes any sense, at least if one is trading a mean-reverting instrument. That is, it's the only course that makes sense unless one is trying to trade a channel that isn't really there.
There's the perfect hinge, the semi-perfect hinge, and the hinge that isn't a hinge at all. This is a semi-perfect hinge, which is the sort you'll run across often in a less-than-perfect world.
What matters is not the shape but the behavior. The range was established yesterday afternoon, then price made a series of higher lows until midnight, at which point traders attempted to make a higher high and failed to do so. All of this behavior provides information.
Then, having failed at that, price falls but makes an even higher low. Traders try to rally again, but fail again, creating another lower high. All of this behavior creates the hinge, which illustrates the efforts of buyers and sellers to determine fair value.
We've already fallen out of it, but there's been no drama. Unless and until the ES moves away from 20, I doubt the NQ will be able to mount an attack on 4700. We'll soon see.
Some people wonder what I think about and look for before and during the trading session, poor things. It starts with a post I made not long ago about learning how to draw an apple (you can probably find it with Search). But if the market is the territory and the plan is the map, there are signposts that I watch for that give me a pretty good idea what's going on, what's on traders' minds.
For example, take the chart I posted earlier this morning. The signposts here are the upper and lower limits of the hinge along with the apex:
Now let's look at how it all unfolded at and after the open using the 1m chart.
First, price reached and reversed at 60. After it reverses, there's plenty of time to determine the halfway level of the downmove. This is a signpost that will help gauge strength and weakness:
Price then rallies all the way to the apex of the hinge:
When it does, we can determine the halfway level of the move up to that apex:
It should come as no surprise that the car should pull over at this level and that everyone should get out and stretch their legs.
Then price resumes its journey and pulls over again at the opening low:
We then idle for almost an hour. Then it's time for lunch.
It appears that the news from AAPL was not good, and as AAPL is the most heavily-weighted stock in the NDX and the second most-heavily-weighted in the SPX, it's not likely that we're going to reach the upper limit of the weekly trend channel (got close, though ). We'll see how things look in the morning.
Edit: Reviewing the most-heavily-weighted, only four in the NDX are showing strength and only one in the SPX. I let price drive the wagon, but it's interesting to find out where all that mud and potholes are coming from. Greece, for example, put us on a treadmill for days.
). We'll see how things look in the morning.