Trading the NQ

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Old Sep 17, 2017, 1:24pm   #76
 
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dbphoenix started this thread Those who have read Trading Price and the Wycoff Method have a better understanding of what I look for in a chart and of the annotations I make than those who adopt a more standard view of charting. Given the number of people who are following this thread, therefore, it seems appropriate to review just what is meant by "technical analysis" not only as distinct from "fundamental analysis" but also as distinct from all the misinformation that circulates among the trading/investing community about just what technical analysis is and the information it is expected to provide.

A spreadsheet is a record of a company's financial behavior. It may be restated into a P&L or an income statement or whatever, but it usually begins as a spreadsheet. It tells you (or at least is supposed to tell you) where the money is coming from, where it's going, what management is doing with it, how it's being husbanded. A good detective, often an accountant, can tell you with impressive accuracy just what's going on in that company by tracking the flow of money hither and yon.

A chart is a record of a stock's price behavior or, more accurately, the behavior of those who are interested in buying or selling whatever it is that's being traded. It tells you who's interested in buying it, how many buyers there are, what price they're willing to pay (there have been many reasons advanced for the collapse of the Nasdaq in 2000, but the chief reason for the collapse was simply that the market ran out of people dumb enough to pay those prices; when the selling began, there were no buyers left on the field). It also tells you the same things about whatever sellers there may be in the house. But rather than do it with cells in a spreadsheet, it does it with a bar showing the opening price for the day and the low, high, and closing prices for the day. Combined with the number of shares/contracts/etc traded and a knowledge of the psychological and sociological significance of the relationships of these elements to each other, one can reach some pretty accurate conclusions about demand and supply. And since demand is what makes the price go up, this is worth knowing.

That, in its simplest form, is what a chart does, and the purpose of technical analysis is to assess and evaluate this behavior, the behavior of price, the behavior of traders, in order to determine to the best of one's ability the state of the balance between demand and supply. By conducting this assessment and evaluation, it is assumed that one can gain some sense of which camp is in charge, buyers or sellers. Some chartists go beyond this into "patterns", and as long as the link is maintained between what is perceived to be a pattern and the behavior that the pattern is supposed to illustrate (e.g., a "double top"), the pattern can provide a sort of shorthand or tag or hook that enables the trader to make a quicker decision. What happens more often, however, is that the link between the pattern and the behavior the pattern is supposed to illustrate is forgotten, and the pattern is followed doggishly, for no explicable reason, and patterns often degenerate into the silly.

Many chartists ignore behavior entirely and focus on "indicators", forgetting that it is the nature of traders' behavior that the indicators are supposed to indicate. They devote their time and efforts to finding just the right indicator and just the right settings, sometimes for years. But because they ignore the behavioral element, their analysis doesn't work well, or at all, and they become disenchanted with the effort and rant that "technical analysis doesn't work". They may even convince themselves -- depending on how badly they've been burned -- that anything having to do with "technical analysis" in any way whatsoever is just so much hokum and not worth the attention of the serious student of markets and investing.

But technical analysis is not indicators. Nor is it patterns. It is rather an analysis of the behavior of traders and investors that the indicators and patterns are supposed to reveal but rarely if ever do. And if one ever learns to trade emotionlessly, the truth of this becomes self-evident as one is able to assess and evaluate the emotional states and responses of those who remain easily manipulated by price movements. One accomplishes this by observing the efforts of other participants, the results they achieve, and their reactions to those results. At that point, one is in a much better position to profit from the confusion and gullibility of others. And while this may seem malicious, the lack of preparedness in others is not one's personal responsibility. Negotiating the currents and cross-currents is more than enough to occupy one's time and attention.
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Old Sep 17, 2017, 4:26pm   #77
 
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But technical analysis is not indicators. Nor is it patterns. It is rather an analysis of the behavior of traders and investors that the indicators and patterns are supposed to reveal but rarely if ever do. And if one ever learns to trade emotionlessly, the truth of this becomes self-evident as one is able to assess and evaluate the emotional states and responses of those who remain easily manipulated by price movements. One accomplishes this by observing the efforts of other participants, the results they achieve, and their reactions to those results. At that point, one is in a much better position to profit from the confusion and gullibility of others. And while this may seem malicious, the lack of preparedness in others is not one's personal responsibility. Negotiating the currents and cross-currents is more than enough to occupy one's time and attention.
I like this bit in particular
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Old Sep 18, 2017, 4:37pm   #78
 
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dbphoenix started this thread An early-bird trade that doesn't travel far plus the main event, all done by 1000.

Newcomers should start with post #69.
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Old Sep 18, 2017, 4:57pm   #79
 
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Those who have read Trading Price and the Wycoff Method have a better understanding of what I look for in a chart and of the annotations I make than those who adopt a more standard view of charting. Given the number of people who are following this thread, therefore, it seems appropriate to review just what is meant by "technical analysis" not only as distinct from "fundamental analysis" but also as distinct from all the misinformation that circulates among the trading/investing community about just what technical analysis is and the information it is expected to provide.

A spreadsheet is a record of a company's financial behavior. It may be restated into a P&L or an income statement or whatever, but it usually begins as a spreadsheet. It tells you (or at least is supposed to tell you) where the money is coming from, where it's going, what management is doing with it, how it's being husbanded. A good detective, often an accountant, can tell you with impressive accuracy just what's going on in that company by tracking the flow of money hither and yon.

A chart is a record of a stock's price behavior or, more accurately, the behavior of those who are interested in buying or selling whatever it is that's being traded. It tells you who's interested in buying it, how many buyers there are, what price they're willing to pay (there have been many reasons advanced for the collapse of the Nasdaq in 2000, but the chief reason for the collapse was simply that the market ran out of people dumb enough to pay those prices; when the selling began, there were no buyers left on the field). It also tells you the same things about whatever sellers there may be in the house. But rather than do it with cells in a spreadsheet, it does it with a bar showing the opening price for the day and the low, high, and closing prices for the day. Combined with the number of shares/contracts/etc traded and a knowledge of the psychological and sociological significance of the relationships of these elements to each other, one can reach some pretty accurate conclusions about demand and supply. And since demand is what makes the price go up, this is worth knowing.

That, in its simplest form, is what a chart does, and the purpose of technical analysis is to assess and evaluate this behavior, the behavior of price, the behavior of traders, in order to determine to the best of one's ability the state of the balance between demand and supply. By conducting this assessment and evaluation, it is assumed that one can gain some sense of which camp is in charge, buyers or sellers. Some chartists go beyond this into "patterns", and as long as the link is maintained between what is perceived to be a pattern and the behavior that the pattern is supposed to illustrate (e.g., a "double top"), the pattern can provide a sort of shorthand or tag or hook that enables the trader to make a quicker decision. What happens more often, however, is that the link between the pattern and the behavior the pattern is supposed to illustrate is forgotten, and the pattern is followed doggishly, for no explicable reason, and patterns often degenerate into the silly.

Many chartists ignore behavior entirely and focus on "indicators", forgetting that it is the nature of traders' behavior that the indicators are supposed to indicate. They devote their time and efforts to finding just the right indicator and just the right settings, sometimes for years. But because they ignore the behavioral element, their analysis doesn't work well, or at all, and they become disenchanted with the effort and rant that "technical analysis doesn't work". They may even convince themselves -- depending on how badly they've been burned -- that anything having to do with "technical analysis" in any way whatsoever is just so much hokum and not worth the attention of the serious student of markets and investing.

But technical analysis is not indicators. Nor is it patterns. It is rather an analysis of the behavior of traders and investors that the indicators and patterns are supposed to reveal but rarely if ever do. And if one ever learns to trade emotionlessly, the truth of this becomes self-evident as one is able to assess and evaluate the emotional states and responses of those who remain easily manipulated by price movements. One accomplishes this by observing the efforts of other participants, the results they achieve, and their reactions to those results. At that point, one is in a much better position to profit from the confusion and gullibility of others. And while this may seem malicious, the lack of preparedness in others is not one's personal responsibility. Negotiating the currents and cross-currents is more than enough to occupy one's time and attention.
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Old Sep 18, 2017, 5:28pm   #80
 
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dbphoenix started this thread And for those who have no money, the Q. Same setup, same dynamics.
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Old Sep 19, 2017, 12:53pm   #81
 
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dbphoenix started this thread Keep a vertical line chart showing the daily movements of any of the well-known averages. Use these to indicate when the market is in a trading area or whether it is moving to another level, upward or downward. You do not care which way it goes, or when; but you need these averages for a broad picture of the market . . .

Your vertical line chart of these averages should also show the volume of the day's trading -- the total sales for the day. This is very important because it aids in forming your judgment of the prevailing trend. Your individual stock [or futures, ETFs, whatever] chart should also show the volume of the day's trading in that stock, so that you may observe whether this volume increases or decreases on the advances and declines. Increases serve to emphasize the bullishness or bearishness. Decreases warn you of a probable reversal in direction. [NB. Today, of course, we also have access to intraday volume, and everything Wyckoff says above applies intraday as well.] . . .

The upper and lower boundaries of these trading swings represent the points (at the tops) where supply overcomes demand and (at the bottoms) where demand exceeds supply. Unless the action of your stock indicates that it is going out of its present trading range, your purchases should be made around the bottoms of these short swings and your sales, long or short, around the tops. This seems a simple thing, but very few people can do it . . .

If it is swinging between 30 and 35 you should give increasing attention to its buying opportunities as it approaches 30, and its selling as it nears 35. This does not mean that you are to buy or sell at or near those points, but that you are to watch out for chances for profit indicated by the action of your stock on the [chart]. You never know, when a stock approaches the upper or lower levels of a trading range whether, this time, it will go on through; so you do not take a position until you have all the facts assembled . . . (Richard Wyckoff)
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Old Sep 19, 2017, 5:12pm   #82
 
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dbphoenix started this thread A test of patience, endured by knowing what to look for.
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Old Sep 20, 2017, 2:37pm   #83
 
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dbphoenix started this thread Nice example of mean reversion as well as "value":
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Old Sep 20, 2017, 3:29pm   #84
 
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Nice example of mean reversion as well as "value":
The mean is also a time saver if one is aware what not to do.
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Old Sep 20, 2017, 4:12pm   #85
 
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The mean is also a time saver if one is aware what not to do.
There is also the "rubber band" aspect of mean reversion. This morning provided a good example. Rather than search for esoteric means of determining support and resistance, look how price reacts to being pulled -- or pushed -- away from the mean. This morning price fell 7 points away from the mean, rallied back to it, then rallied further 7 points away from the mean to the upside, then returned to the mean.

Does this apply in every circumstance? Of course not. But when a clear-cut case of mean reversion presents itself and price appears to be reversing and reversing again and reversing yet again for no apparent reason, it pays to have this rubber-band phenomenon in the back of one's mind and start watching the volume to see how traders react when they are at or near the ends of their tethers.
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Old Sep 20, 2017, 6:09pm   #86
 
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Old Sep 21, 2017, 7:57pm   #87
 
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Old Sep 22, 2017, 4:07pm   #88
 
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Old Sep 23, 2017, 11:44am   #89
 
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dbphoenix started this thread About fear . . .

Traders will find it next to impossible to work their way through the typical book on trading without being exposed to the subject of "controlling one's emotions". Indeed, the conventional wisdom demands that controlling one's emotions is absolutely essential to trading success. And, technically, that's true. If one has them. But, contrary to conventional wisdom, emotions are not an unavoidable component to trading (granted, those who insist that emotions are unavoidable consider the selection of a shirt or of sunny-side up vs over easy to be emotional decisions, but this is about neurotic behavior: addictive, compulsive, illogical, irrational, obsessive, self-defeating, self-damaging behavior; revenge trading is neurotic behavior; cutting profits short and letting losses run is neurotic behavior).

By "emotions", the Wise are referring to The Big Three: Fear, Hope, and Greed. And withstanding all of these, much less controlling them, can seem insurmountably difficult. Hope, however, is only the fear that all will not turn out as expected or anticipated, and greed is the fear that one will either "miss" all that a particular opportunity may provide or that he will miss the opportunity altogether. Fear is the nexus.

But fear of what? Left to its own devices, fear can be invasive and seem all-encompassing. But if we examine it closely, we can see that "fear", with regard to trading, can be reduced to two elements: fear of being wrong (ego damage) and fear of losing money (destitution). Focusing on fear in this manner makes it manageable, even dispensable. Why? Because if one has a thoroughly-tested and consistently-profitable trading plan, there's nothing to be afraid of. If one follows it.

The novice is to be envied. He has nothing to unlearn and has no preconceptions. If he is curious, able to concentrate, is reasonably intelligent, and is able to work without investing his ego in either the process or the result, fear has no opportunity to intrude. And if he is working with the aforementioned plan, trading emotionlessly becomes a matter of course, like changing one's spark plugs.

The "experienced" trader (struggling, perhaps failing), on the other hand, not only knows a great deal that isn't so and thus has to be unlearned, he is also a bundle of neuroses, obsessively questioning his perceptions, his decisions, his actions (or, just as likely, his inactions). And running through his head almost without pause are the voices: so and so says, or I read somewhere that, or I took this seminar once that, or this book said, or but the ADX says. He has spent embarrassing amounts of time (and often money) in a search for instructions as to where EXACTLY to draw the line, EXACTLY where to enter, EXACTLY where to exit. This search is in large part what makes Pivots and Fib and Gann and MAs and so forth so seductive. One doesn't have to think about just where it is that price (traders) really react. All the trader has to do is draw the calculated lines. This search for exactitude also motivates the search for the EXACT stop and exact TYPE of stop that the trader should use, along with the EXACT trigger and the EXACT target. But if it were all that simple, one could package it into a kit and sell it (4x Made Easy and Weekend Seminar -- lunch included). Learning how to trade properly from the beginning, with the aforementioned trading plan, would have enabled the struggling trader to avoid all this turmoil and become consistently profitable, if not at the outset, then close to it. But there's no going back, this side of amnesia, so wanting to is simply wishful thinking.

All is not lost, however. Though the struggling trader can't go back and start over, he can reprogram himself, rewire himself. This may take more discipline than he's capable of, but it's either that or continued losses and eventual bankruptcy.

(to be cont'd)
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Old Sep 24, 2017, 12:11pm   #90
 
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dbphoenix started this thread 2.

The reprogramming begins with becoming intimate with fear, nuzzling up to it, licking its ear. Unless and until one addresses fear directly, eyeball to eyeball, he will find it impossible to bring about its evaporation.

First, realize that the fear of being wrong and the fear of losing money can be consolidated and simplified further by becoming acquainted with their father: the fear of the unknown. By this I'm not referring to the fact that the outcome of any particular trade is unknowable; I'm referring to the fact that the struggling trader rarely understands just what it is that he's looking at.

Second, one must know just what it is that he's looking for. If he doesn't know what he's looking for, ipso facto he won't recognize it when he sees it. If he doesn't recognize it when he sees it, he of course will not what to do with it. And if he doesn't know what to do with it, it's a cinch that whatever he does will very likely be the wrong thing (fear of being wrong). And not only will he be doing the wrong thing, he'll be doing it at the wrong time. And doing the wrong thing, especially if he's doing it at the wrong time as well, he will very likely lose money (fear of losing money).

Third, the task then becomes to transform the fear of the unknown into a confident ease with the known. And one accomplishes that by developing a (you guessed it) thoroughly-tested, consistently-profitable trading plan. In order to realize a consistently-profitable trading plan, one must thoroughly test the elements that go into it. In order to thoroughly test those elements, one must define them precisely (e.g., what is a "range"? what is a "breakout"?). And once one knows exactly what he's looking for, he will know it when he sees it. And when he sees it, he'll know exactly what to do with it. Fear becomes irrelevant. The trader may in fact be so focused on his plan that he isn't even aware of fear's departure.

The trader who develops his own plan is in an arguably superior position due to his creating it step by step, block by block, from raw data. The fact that he is developing it himself and the process that he goes through in order to do so guarantee that he will have confidence in it. Whether or not he has the discipline to follow his own plan is another matter, but at least he will have no reason to distrust it.

Some "systems" are pre-packaged, ready-to-go, turnkey. All one has to do is follow the rules. But damaged traders are the least likely to follow the rules of a plan they didn't put together. Given that they are unlikely to develop their own plan from scratch, though (if they were, they would have done it already), a pre-packaged system may be their best shot, especially if it doesn't cost anything, e.g., CANSLIM. Nor does one have to have a fancy, bells-and-whistles charting program to trade the simplest of them.

(to be cont'd)
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