S/R and the Mirror of Erised

This is a discussion on S/R and the Mirror of Erised within the Technical Analysis forums, part of the Methods category; Originally Posted by dbphoenix Incidentally, Szimba, what is one way you could determine whether or not this is an SC, ...

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Old Aug 11, 2006, 7:50pm   #73
 
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Quote:
Originally Posted by dbphoenix
Incidentally, Szimba, what is one way you could determine whether or not this is an SC, in real time, without volume?

Db
Without volume, I would just guess.
I call selling climax when in a long downtrend fear hits new high among traders and all those who feared are rushing to sell. This has to effects. The first is that the sellers are not waiting for better bids, but hit the actually best bid to unload whatever they want, so the fall of the price is accelerating, creating the longest bar in the trend. The second is that in a selling climax everybody involved who previously just monitored price action and therefore activity (volume) will be the highest.
(Selling climax is also the first point where one can buy if he has a trading plan for it. The really big institutions have to buy here, because they can not buy size easier later in tha base or in the uptrend.)

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Old Aug 11, 2006, 7:54pm   #74
 
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Originally Posted by firewalker99
You say volume in itself has no meaning and have to look at what happens to price. Ok, but in your earlier posts (ET forum, NQ charts) and PDF files, I've noticed you did mark individual bars with arrows indicating the volume on that bar.
Yes, and I've also said, repeatedly, that the trading day consists of series of buying and selling waves propelling price up and down. The bar chart is one means of illustrating those waves and that movement. Any given bar may have a number of waves contained within it. If the beginner chooses to ignore all of that and focus on the bar without regard to anything that's come before or that will come after and without regard to all the trading activity that's taken place within that time interval to create that bar, there's nothing I can do about that other than provide a lengthy disclaimer at the bottom of every chart. I've found it easier to simply eliminate volume entirely.

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if the shape, length and number of bars don't matter at all then you could just draw a line on your chart instead of bars or candlesticks?
Many people do. Try it.

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Doesn't a WRB on high volume with price rising have meaning just as a couple of up and downbars where price goes nowhere mean something else?
It means that buying pressure is greater than selling pressure. A couple of up and down bars that go nowhere mean that buying pressure and selling pressure are equalized. The market couldn't care less how you choose to display that.

We seem to be departing from S/R here. If you have any other questions specifically regarding PV, I'd prefer that you ask them in the PV thread

Db
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Old Aug 11, 2006, 8:00pm   #75
 
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Originally Posted by firewalker99
Anyway, I added a chart with volume, as you can see there was quite some around what I called a potential SC. At point 14 again there was high volume.
What bothers me though is the extremely high volume around 1500, shouldn't one assume this is a serious sign of weakness because a lot of people where selling within that bar? In what way do you include volume in your analysis?

In the light of volume I still wouldn't call 5 as SC, because the trading activity is the same as four bar earlier and the bar's range also not unusually high. But that is me.

Your second question was answered by Dbphoenix. Effort-effect.

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Old Aug 11, 2006, 8:09pm   #76
 
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Originally Posted by Szimba
Without volume, I would just guess.
I call selling climax when in a long downtrend fear hits new high among traders and all those who feared are rushing to sell. This has to effects. The first is that the sellers are not waiting for better bids, but hit the actually best bid to unload whatever they want, so the fall of the price is accelerating, creating the longest bar in the trend. The second is that in a selling climax everybody involved who previously just monitored price action and therefore activity (volume) will be the highest.
(Selling climax is also the first point where one can buy if he has a trading plan for it. The really big institutions have to buy here, because they can not buy size easier later in tha base or in the uptrend.)

Szimba
That definition is fine is it's worked for you and continues to work for you, but consider more deeply what you're saying about trader behavior, and be careful not to confuse "SC" with "hammer". You are correct with regard to everything you've said about seller psych and the SC. But consider that the SC often takes place before the lowest low. In this case, there was a lot of unloading in the bar that is four bars before the lowest low bar (and for everybody else, I'm using "bar" because that's the way this activity is illustrated here; if it were a dot chart, I'd refer to the particular dot or dot cluster). Therefore, even though the lowest low bar is not the longest, price does close well off the low, and you could hypothesize an exhaustion.

Buying here, though, would be extremely aggressive since it would be after all a counter-trend entry. However, if you'll remember what I've said about supply lines and Sperandeo, there is a relatively safe entry with a tight stop which you could make even if you didn't incorporate "volume" (see below).
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Old Aug 11, 2006, 8:54pm   #77
 
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Thank you for the corrections and insights!
As for the buying points, Mamis (and probably others before him) says the first point to buy is the SC, the second is the retest of the low, the third is the BO and fourth is the retracement.
I plan to go backward in this list when developing my trading plans.

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Old Aug 11, 2006, 9:39pm   #78
 
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Originally Posted by Szimba
Thank you for the corrections and insights!
As for the buying points, Mamis (and probably others before him) says the first point to buy is the SC, the second is the retest of the low, the third is the BO and fourth is the retracement.
I plan to go backward in this list when developing my trading plans.

Szimba
Remember, though, that Mamis has three categories of risk. It's up to you to balance them all.

Db
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Old Aug 11, 2006, 10:29pm   #79
 
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Originally Posted by dbphoenix
Buying here, though, would be extremely aggressive since it would be after all a counter-trend entry. However, if you'll remember what I've said about supply lines and Sperandeo, there is a relatively safe entry with a tight stop which you could make even if you didn't incorporate "volume" (see below).
Looking at the chart, it looked like a familiar pattern and I scrolled back in my charts of the last couple of days&weeks and found what looks - to me - a very similar (potential) selling climax. To mark the similarities I draw a trendline and marked a possible entry point. The first part of the chart shows just up until that point. I don't want to trick anybody, so I attached the complete chart of the day also. You can see what happened... Next at 1330 there's what I thought the real SC, but at 1445 volume peaks once more. In both cases the downfall accelerated and especially at 1320 I see a long downbar.

I don't think there really is a way to tell whether or not it's a SC. But perhaps you don't need to, if that's not what you're going to trade. But if it is, and as you suggested there is a relatively safe entry point, than I'd like to know your or Szimba's views on this chart as both of you seem to have a handle on this.
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Old Aug 11, 2006, 11:08pm   #80
 
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Originally Posted by firewalker99
Looking at the chart, it looked like a familiar pattern and I scrolled back in my charts of the last couple of days&weeks and found what looks - to me - a very similar (potential) selling climax. To mark the similarities I draw a trendline and marked a possible entry point. The first part of the chart shows just up until that point. I don't want to trick anybody, so I attached the complete chart of the day also. You can see what happened... Next at 1330 there's what I thought the real SC, but at 1445 volume peaks once more. In both cases the downfall accelerated and especially at 1320 I see a long downbar.

I don't think there really is a way to tell whether or not it's a SC. But perhaps you don't need to, if that's not what you're going to trade. But if it is, and as you suggested there is a relatively safe entry point, than I'd like to know your or Szimba's views on this chart as both of you seem to have a handle on this.
And that's the difference between trading in real time and "trading" in hindsight.

I'll address this since it's been posted, but if there are any more posts which have to do with PV, please post them on the PV thread, as I requested earlier.

Since the typical recoil appears to be 15, I'd be out if price recoiled to that extent, which would put me out at BE, and prepare to re-enter if price found S at that level. If it didn't, and since I know nothing about this instrument, I'd slalom it if for some reason I had no choice but to trade it, shorting the drop below S, SAR at the HrL @1345, SAR again at the LrH @1400, SAR again at the HrL at 1530, then trail the stop below the SPs, MOC, none of which would require any plotting of volume or S/R or calling climaxes or bottoms or tops.

On the other hand, if I didn't have to trade it, I'd study it, at least two or three hundred charts of it in order to cover the entire market cycle, get to know it, the people who trade it, its average daily range, its MAE and MFE, where S/R lie, what stops work best and so on.

Again, if there are further questions in this vein, please post them to the PV thread.

Db
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