All time highs Q

[Shakone]

Suppose you are long a position and the market has reached new all time highs, so there is no resistance above. When do you exit your position and for what reason?

I read about over-extended markets, but I can't really understand what this means in practice or how one would tell that they are overextended.

And a follow up question. Suppose you are short and at an X-year low. Perhaps you haven't been that low in 5 years, or 10 years or maybe even 30 years. Is there a point in time at which you ignore the past data as support and resistance?

 

[montmorencyt2w]

I suppose that the short answer would be "when it stops making higher highs".

I believe some people use MAs in this situation, although I am not sure if they really tell you any more than eyballing the chart would.

If it's the kind of market that might be in a bubble (think of the NASDAQ in the early 90s), is the slope of the uptrend precariously steep? Is there evidence of increasingly frenzied buying on high volume? That could be the sign of an uptrend coming to an end, or a bubble bursting. You may miss out on the last of the uptrend, but it's better than giving back profit as it plummets down.

Once you are out, it is possible that the apparent frenzy calms down and the normal gentle uptrend resumes. You could then re-enter at this point if there were no other obvious counter-indications.
(Although not if it's the kind of market that "everyone" is buying; that's a sure sign to keep away).

 

[Calinor]

I don't understand why the slope is meaningful. the slope changes depending on how you scale your chart, so how can you base anything off the slope? How can an angle be important if it changes when I stretch my graph, buy a wide-screen monitor or adjust the timeframe?

 

[montmorencyt2w]

Good point about stretching graphs etc, but if you compare like with like, keeping the same screen, scale, it should be possible to make a meaningful judgement.

Gently steeping slopes are generally thought to be more stable and sustainable, whereas extremely steeply sloping ones are not. Don't bother getting your protractor out; it's just an eyeball thing, like trends in general really. Find some old charts and see if you can spot the pattern of bubble before bust, versus long steady trend. On the other hand, if you don't see this, you can trade accordingly; trade what you see.

 

[montmorencyt2w]

Actually there is a pretty good example of an unsustainable uptrend on the monthly chart of crude here in this article (credit to "Nine" for pointing me to this guy):

Fishing for "Home Run" Trading Profits (Part 3) - MoneyShow.com

Now I might not have noticed at the time (there was a lot going on in that period!), but in hindsight, it's not difficult to see that the upsurge in crude was unsustainable at that rate for very long, notwithstanding the fundamental pressure up, which was, at least originally, genuine enough. Of course, the world financial system was virtually in meltdown during that period, so no wonder things got a bit mad. I hope some people managed to keep their gains on crude then (I wasn't even in it ). I don't have a chart to hand, but if I remember correctly the Wall Street crash of 1929 was not dissimilar.

Edit: More from this guy, which actually addresses your original question to some extent (and doesn't necessarily agree with what I wrote - fair enough - he's been at it longer than I have! ):

Median Line Trading Techniques

Edit2: p.s. some folk here might have called that potential short at the end of the 2nd chart a pinbar trade (I'm not sure if it's actually a perfect pin, but no doubt the pinbar traders would at least have been preparing a short beforehand). - Correction, I guess it's actually more of an inside bar trade, but I don't think that's the important thing, which is just to recognise that congestion/hesitation and expect something to happen soon.