Price Patterns.

[Paul71]

How many participants does it take to make a market?

 

[superfly]

How many participants does it take to make a market?

more then 1

 

[Paul71]

more then 1

Ok. Which player or participant controls the market?

A) The one with most 'intelligence'.

B) The one with most money.

 

[superfly]

Ok. Which player or participant controls the market?

A) The one with most 'intelligence'.

B) The one with most money.

Controls?!

Which player is better equipped to facillitate the market: A.

 

[counter_violent]

depends what point of reference you are using

Yes exactly.

We can all use different terminology to describe either the same or similar things....and in the same way we can look at charts and see the same or similar things....but the essence... the interpretation...the knowing what the price action is telling us.....this is the difference between who knows what and who is who in the jungle...so to speak.

So an example might be ...turning points in price action as points of reference, to an untrained eye they mean nothing....it's like saying ...well price goes up ...price goes down ...so what !......it means nothing to the newb...

To the semi skilled trader who has done some work they are studied to a greater degree and some worthy progress is made ...but still they fail to see the relevance in the big picture....the question then becomes ....is it a turn in trend , or is it a retracement.....with all the usual hesitations ....shall I close ...shall I open .....guesswork.

This is enough for now ...for I know that You know what I'm saying ....the fact that you use the term "blow offs" tells me this

So lets see how this develops and more importantly , who uses what words and in what context and what interpretation.

cv

 

[Paul71]

Controls?!

Which player is better equipped to facillitate the market: A.

With all this in mind, can 2 or more large institutions have the same interests in the same market without working together?

Do large institutions go head to head within the same markets?

Let's say two institutions have employed the best 'intelligence' they can get thier hands on who would come off better,...the one with more money?

Which institution controls the pattern?

 

[superfly]

With all this in mind:
1] can 2 or more large institutions have the same interests in the same market without working together?
2] Do large institutions go head to head within the same markets?
3] Let's say two institutions have employed the best 'intelligence' they can get thier hands on who would come off
better,...the one with more money?
4] Which institution controls the pattern?

My answers:
1] although volkswagen and toyota have the "same" interest, they do compete for the "same" car-market client
2] see 1
3] the one with the most economical business model and execution
4] human emotion

 

[andycan]

Yes exactly.

We can all use different terminology to describe either the same or similar things....and in the same way we can look at charts and see the same or similar things....but the essence... the interpretation...the knowing what the price action is telling us.....this is the difference between who knows what and who is who in the jungle...so to speak.

So an example might be ...turning points in price action as points of reference, to an untrained eye they mean nothing....it's like saying ...well price goes up ...price goes down ...so what !......it means nothing to the newb...

To the semi skilled trader who has done some work they are studied to a greater degree and some worthy progress is made ...but still they fail to see the relevance in the big picture....the question then becomes ....is it a turn in trend , or is it a retracement.....with all the usual hesitations ....shall I close ...shall I open .....guesswork.

This is enough for now ...for I know that You know what I'm saying ....the fact that you use the term "blow offs" tells me this

So lets see how this develops and more importantly , who uses what words and in what context and what interpretation.

cv

:cheesy:

 

[barjon]

Well, I'm pleased to see that a truce has been called and accepted

In order that everyone can get back to discussing price patterns without diversion I'll housekeep the thread. However, I do think it would be wrong to delete all the comments that relate to personalities since they represent a debate rather than merely an exchange of insults so I will split them off to a separate thread.

good trading

jon

ps: it's here http://www.trade2win.com/boards/showthread.php?t=23446

 

[firewalker99]

Ok. Which player or participant controls the market?

A) The one with most 'intelligence'.

B) The one with most money.

None. Both need to agree upon a common price first, in order to make any transaction possible.

 

[firewalker99]

Controls?!

I think your reply assumes that nobody can "control" the market, which I'm inclined to belief also. Some can definitely influence market and price behaviour, having certain goals in mind. Controlling (by definition an intentional act) an environment which entails millions of participants spread around the globe without explicit agreements nor coordination feels like a step too far imho.

Maybe the occurence of patterns is nothing more than a byproduct of the aims of those who like to be in control or have more intelligence/money (whichever your view is). What's more important, is when do you see/discover those patterns (they are pointed out the easiest in hindsight).

So another question then, how invisible is Adam Smith's invisible hand in the stock market?

 

[andycan]

maybe view it a different way

60k + can post here on T2W what ever they like (within reasons of profanity)
one can talk about pretty much any subject...thats your rights given here.
some will agree, other wont and there will be arguments, discussion and off topic protests, so in fact you intentions of starting a particular thread was your plan, then you have to account how members will react to certain situations or comments, so your initial thoughts appear to go to plan and to a degree you have control, but then a moderator (no disrespect) changes the goal posts, he/she decides that the thread needs to move from the initial topic to another, he bans a member who has been contributing, they decide to close the thread
are you seeing my point?

markets are not manipulated in the traditional sense but they do give it a nudge, wait, see the reaction, another nudge, large order comes in, the markets are sideways the emotional traders jump in seeing a potential breakout, bids ask start moving fast the nudgers nudge a bit more and so on and so on
was the intention to make a pattern no necessarily but did they use it to their advantage, i let you decide.

 

[rainman2]

mr. marcus

I have the utmost respect for your posts, as your previous posts show a depth of understanding that is quite incredible, but most of us play the statistics game, to make up for a lack of deeper knowledge.

The question whether the deeper knowledge is even necessary to trade is a moot point.

I dont need an understanding of latent heat capacity of water to make a cup of tea.

Let's say I have a setup based on the head and shoulders pattern. Let's say that setup is a "h n' s" on the 30minute, price has moved up 100 ticks in 2 days and there's a full moon. This setup tells me to short a break of the neckline. This setup gives you 45 pips of profit 65% of the time. This setup has a 15 pip stop. WOW, an edge!!!! Let me just automate this and watch my bank account grow. Now, if that's a perfect scenario for you, knock yourself out, but me, I want to know why that setup didn't work the other 35% of the time.

Enter mr. marcus.

What I think he is trying to say,imo, is that you can't just look at the pattern itself, but you must also look at the professional and weak hand involvement that created that pattern. And if you can understand that professional and weak hand involvement, then you can anticipate what price will do next( be it a breakout or failed breakout).

Now, going back to the head and shoulders setup armed with the knowledge of what the market participants are feeling about current price, I may or may not short that break of the neckline based on what the intent of the pros is. This may do 2 things: 1) increase my winning percentage on that setup and 2) anticipate a failed breakout and now define a new setup to go long.

End of the day, whether I realize it or not, I am learning how price moves and that is the GAME.

 

[dbphoenix]

mr. marcus

I have the utmost respect for your posts, as your previous posts show a depth of understanding that is quite incredible, but most of us play the statistics game, to make up for a lack of deeper knowledge.

The question whether the deeper knowledge is even necessary to trade is a moot point.

I dont need an understanding of latent heat capacity of water to make a cup of tea.

Let's say I have a setup based on the head and shoulders pattern. Let's say that setup is a "h n' s" on the 30minute, price has moved up 100 ticks in 2 days and there's a full moon. This setup tells me to short a break of the neckline. This setup gives you 45 pips of profit 65% of the time. This setup has a 15 pip stop. WOW, an edge!!!! Let me just automate this and watch my bank account grow. Now, if that's a perfect scenario for you, knock yourself out, but me, I want to know why that setup didn't work the other 35% of the time.

Enter mr. marcus.

What I think he is trying to say,imo, is that you can't just look at the pattern itself, but you must also look at the professional and weak hand involvement that created that pattern. And if you can understand that professional and weak hand involvement, then you can anticipate what price will do next( be it a breakout or failed breakout).

Now, going back to the head and shoulders setup armed with the knowledge of what the market participants are feeling about current price, I may or may not short that break of the neckline based on what the intent of the pros is. This may do 2 things: 1) increase my winning percentage on that setup and 2) anticipate a failed breakout and now define a new setup to go long.

End of the day, whether I realize it or not, I am learning how price moves and that is the GAME.

Given the interest in the H&S, the following, abbreviated, penned by a trader some years ago, may be of interest:

The head-and-shoulders top is a tenet of classical charting theory. It suggests that buying in a bull move is composed of three waves - smart money, dumb money and dumber money. Underneath each of these waves is drawn a 'neck-line', which represents the approximate points at which prices fade off the peak of each wave.

Wave 1 consists of smart money and forms the left shoulder. It represents the activity of a syndicate of buyers operating 'in secret', quietly accumulating shares. These buyers have a 'real reason' to pick up shares, one derived from research. These buyers are not momentum investors (as at this point there has not been enough momentum to attract their attention).

Wave 2 consists of dumb money and forms the head. These buyers missed the first big move up, the strength of which attracted their attention in the first place. They take advantage of the fade in prices off the peak of the left shoulder and use it to aggressively accumulate shares.

It is during the fade off the top of wave 2 that the syndicates responsible for the first leg up start to unload shares. Since they have been vested in the stock from the beginning, they recognize when things are getting 'frothy' and are scared by the frantic buying of the momentum crowd (who are more concerned with missing 'the next big thing'). It's sort of like the end of a party where all the suits have gone home and you are left with a bunch of milling drunks. Prices fade back to the neckline.

Wave 3 consists of dumber money and forms the right shoulder. This last group of buyers missed both waves 1 and 2 and looked at the fade in prices as yet another buying opportunity. These investors consist of both new money and those who entered positions late in the second wave and are thus sitting on paper losses. The volume in wave 3 is typically weaker than that forming the head and the left shoulder. So the rise in prices here is short lived due to the fact that it is even less grounded that the rise that formed the head. Once prices fade off the right shoulder, the formation is confirmed when prices break below the neckline.

This addresses how price is moving and, to some extent, why it is moving as it does, including the who of it all. And all of this is tied up in the perpetual question of whether or not that drop off the head constitutes a retracement or a reversal (the what do I do about all of this part of the problem).

Some will find it necessary to know who is doing what in order to know what it is that they are to do, if anything, about the events that are unfolding. Others won't care; they are interested only in the movement of price: does it make a higher high or doesn't it? is what appears to be a lower high accompanied by weak volume? whether one is using time bars or volume bars, do they tend to close toward their lows? Still others will focus on the behavior of the traders who are involved in this activity, since it is their behavior which is creating the pattern in the first place. Are they demonstrating greed? fear? doubt? anxiety? confidence? And still others may trade an indicator they've selected to tell them something about all of this activity, avoiding any direct involvement with price at all.

So with regard to the involvement of what is called "professional money", is it necessary to know what that money is doing? Or is it necessary only to know that the "effort" displayed in "wave 2" looks to be on the weak side and that there seems to be no effort at all displayed in "wave 3"?

And to distinguish all of this from an intellectual exercise, what does the trader do? Is he already in? If not, what sort of reward:risk calculation can he come up with at this point? If so, does he tighten his stop or give the trade "room"? Does he prepare to reverse? If so, how? And under what circumstances? And when? And is he better off drawing his lines and taking a purely mechanical approach? Or does he enhance the probability of making a profitable decision by studying the antics of the buyers and sellers as illustrated by the movement of price and the degree of trading activity?

Db

 

[Paul71]

Whenever i see a head and shoulders pattern in the future i will always remember:

Smart

Dumb

Dumber

You would think people would learn? Seeing as though H&S is a common re-occurring pattern...people obviously don't.

Thanks, Db.

 

[dbphoenix]

Whenever i see a head and shoulders pattern in the future i will always remember:

Smart

Dumb

Dumber

You would think people would learn? Seeing as though H&S is a common re-occurring pattern...people obviously don't.

Thanks, Db.

Yes, you'd think people would learn. But, on the whole, they don't. Which is why these (behavior) patterns occur over and over again. And not just in the financial markets. Look, for example, at real estate.

 

[jacinto]

Yes, you'd think people would learn. But, on the whole, they don't. Which is why these (behavior) patterns occur over and over again. And not just in the financial markets. Look, for example, at real estate.

DB,

If I may ask, how can this be related to a 1-2-3 pattern or lower top or lower high, however you want to call it (some traders tend to see this as the head and only the head + the right shoulder, and thus I have probably answered my question in a simplistic way) . Furthermore, if it is not a problem, to what extent can the answer address the following:

1) market intent
2) support-resistance
3) emotion of "dumber money" vs "smart money"

j

 

[rainman2]

Whenever i see a head and shoulders pattern in the future i will always remember:

Smart

Dumb

Dumber

You would think people would learn? Seeing as though H&S is a common re-occurring pattern...people obviously don't.

Thanks, Db.

Anybody want to play, Smart, Dumb, Dumber?

 

[dbphoenix]

DB,

If I may ask, how can this be related to a 1-2-3 pattern or lower top or lower high, however you want to call it (some traders tend to see this as the head and only the head + the right shoulder, and thus I have probably answered my question in a simplistic way) . Furthermore, if it is not a problem, to what extent can the answer address the following:

1) market intent
2) support-resistance
3) emotion of "dumber money" vs "smart money"

j

They're all related, going back to Wyckoff's buying climax and technical rally. Schabacker coined the term "head and shoulders" about that time. Then there was Dunnigan's work. But if one focuses on the behavioral aspect of the "pattern", all of the efforts to determine whether that "blow-off" top and/or that lower high are part of a retracement or of a continuation are essentially the same. Only the names change. And if one knows nothing of history, then the latest and greatest seems new. (You'll note that an extraordinary amount of attention is focused on how to draw the "neckline", but if one has assessed the situation correctly, how and where to draw the neckline is probably the least important decision that one has to make.)

Which is not to say that one can't find something at least novel to look at while this process is occurring and perhaps find something to increase the probability of the most profitable decision. But the "1-2-3" is not the grail, either.

As to S&R, this to me is what many people miss about the whole H&S or RET/CONT or 1-2-3 or hammer/shooting star business. While I haven't done an exhaustive study, it seems clear that those potential turning points which occur at S or R are far more likely to become reversals than continuations, though reversals can and do occur in midair, often after news events, and price of course can and does break through S&R and lead to some pretty impressive runs. Which of these dominates will depend to a large extent to the general market environment, i.e., are you in a raging bull or bear or having you been drifting sideways for a month or months or a year or years?

As to the emotional component, I'm not sure what you're asking, so rather than go on in what might be a completely irrelevant direction, I'll ask for clarification instead.

Db

 

[dbphoenix]

Anybody want to play, Smart, Dumb, Dumber?

I don't know what this is, but the volume's not right. It's essentially the same at the peak of each wave. That doesn't mean this isn't a short and can't be played as such, but if you're waiting for the "neckline" to act as your signal, you'll be waiting in line along with everyone else (if you see it, it's a safe bet that there are at least a few other traders worldwide who also see it) and will likely be screwed right along with them.

Db