How do I know if it is a pullback?

[jeff88]

There have been many times it seems, now that I am looking, where the market has gone below it's support level and then got right back up through it. Take a couple week ago for a prime example. On 12/16 the macd was way down, chandemomentum was down, dmi, linear regression, and stochastis full. All of the indicators were saying the stock market was plummeting, and yet it rebounded. How is one to know if the market is tanking or not?

 

[counter_violent]

There have been many times it seems, now that I am looking, where the market has gone below it's support level and then got right back up through it. Take a couple week ago for a prime example. On 12/16 the macd was way down, chandemomentum was down, dmi, linear regression, and stochastis full. All of the indicators were saying the stock market was plummeting, and yet it rebounded. How is one to know if the market is tanking or not?

It would help if you can gather statistical information...even in it's simplest form....breaks that deliver, breaks that return to support or resistance, breaks that return to test support and resistance then go in direction of the original break and breaks that turn all the way around and go opposite direction, V's.
Once you have the benefit of stats, it's much easier then to determine probability trades and how to manage them.

 

[tomorton]

You can't be 100% right with TA, even if your methodology and analysis are 100%, sometimes the market will offer a surprise. But then the game isn't to be 100% right all the time, its really to be right enough, enough of the time, and to not stay wrong when things go against you.

So I think a quest for definitive prediction of price action is always going to be a) unnecessary and b) bound to fail but, if you want to as accurate as possible, it could be worth going right back to basics - how do you define support level? how do you define break-down? why depend on these lying indicators? what's the time-scale for plummeting?

 

[DionysusToast]

There have been many times it seems, now that I am looking, where the market has gone below it's support level and then got right back up through it. Take a couple week ago for a prime example. On 12/16 the macd was way down, chandemomentum was down, dmi, linear regression, and stochastis full. All of the indicators were saying the stock market was plummeting, and yet it rebounded. How is one to know if the market is tanking or not?

None of that is going to help you right now.

All of those things are just looking at price - and you are already looking at price.

Stop thinking about charts for a minute and think about money. No-one wants to keep money under the bed. No-one gets paid if money isn't invested. So money gets invested.

Quite a few emerging markets took a hit last year and money that is no longer there went back to "safer" havens. So a lot went back to the US.

The US has been making money available almost for free. A lot of that also went into the markets.

Money has to go somewhere and sell-side finance has everyone sold on it going into the markets.

So what would it take to reverse that? Lots of people getting spooked? Possibly... Lots of people needing to take out their money because they are running out? Absolutely... especially if interest rates skyrocket.

Does it look like the latter is on the cards? I'd certainly not want to keep shorting it trying to find a top on the offchance that now is the time. Where else will the money go?

Here's the last 10 years on the SPY.

10 years ago we were at $118. 8 years ago we were at $157.

The last move down to $180 wasn't much of a pullback at all in the grand scheme of things. The numbers with "M" and "B" are millions & billions of shares traded. The other numbers are cents moved. The volume and size of that pullback isn't much to write home about at all.

From a participation perspective, the move back to $180 wasn't that significant. It felt pretty brutal compared with recent history though. That is true.

My opinion is that we are far more likely to move sideways in the next 5 years than to really go back down to the low $100's.

After all - where will the money go?

 

[forker]

There have been many times it seems, now that I am looking, where the market has gone below it's support level and then got right back up through it. Take a couple week ago for a prime example. On 12/16 the macd was way down, chandemomentum was down, dmi, linear regression, and stochastis full. All of the indicators were saying the stock market was plummeting, and yet it rebounded. How is one to know if the market is tanking or not?

You don't and you shouldn't think of it in that way. If it's a against the trend you should always give weight on risk in favour of the trend and assume it will resume. Take the trade and book profits when you can. If the trend resumes climb on board and go with it. Ebb and flow is your friend.

 

[millsy500]

There have been many times it seems, now that I am looking, where the market has gone below it's support level and then got right back up through it. Take a couple week ago for a prime example. On 12/16 the macd was way down, chandemomentum was down, dmi, linear regression, and stochastis full. All of the indicators were saying the stock market was plummeting, and yet it rebounded. How is one to know if the market is tanking or not?

Markets do that all the time, break a support level and pullback through it, I usually try and get positioned before the breakout these days, I find trading breakouts especially mid trend a bit retail. Also a better understanding of order flow would pay off , you want to trade on the right side of order flow.

 

[Atilla]

None of that is going to help you right now.

All of those things are just looking at price - and you are already looking at price.

Stop thinking about charts for a minute and think about money. No-one wants to keep money under the bed. No-one gets paid if money isn't invested. So money gets invested.

Quite a few emerging markets took a hit last year and money that is no longer there went back to "safer" havens. So a lot went back to the US.

The US has been making money available almost for free. A lot of that also went into the markets.

Money has to go somewhere and sell-side finance has everyone sold on it going into the markets.

So what would it take to reverse that? Lots of people getting spooked? Possibly... Lots of people needing to take out their money because they are running out? Absolutely... especially if interest rates skyrocket.

Does it look like the latter is on the cards? I'd certainly not want to keep shorting it trying to find a top on the offchance that now is the time. Where else will the money go?

Here's the last 10 years on the SPY.

10 years ago we were at $118. 8 years ago we were at $157.

The last move down to $180 wasn't much of a pullback at all in the grand scheme of things. The numbers with "M" and "B" are millions & billions of shares traded. The other numbers are cents moved. The volume and size of that pullback isn't much to write home about at all.

From a participation perspective, the move back to $180 wasn't that significant. It felt pretty brutal compared with recent history though. That is true.

My opinion is that we are far more likely to move sideways in the next 5 years than to really go back down to the low $100's.

After all - where will the money go?

Agree strongly. The market has an intrinsic preference to rise. When they do everybody makes money; intsitutions and investors. When markets fall, most people lose money and it's very bad for business.

However, pull-backs and tear downs are inevitable and right now PE ratios are well above long-term averages. Free money and negative interest rates seem to be skewing the markets, not helping - trying to pencil in when the music will stop.

Also, if all money is invested and everybody is bullish then there is no more money left to invest. When volume also dries up and starts to fall this effects businesses that make money out of commission on trades. That's not good for business either.

fwiw, I favour low beta and high dividend paying defensive stocks.

Re: technicals and extent of pull backs; I look at Fibonacci levels coupled with price and moving average cross overs to identify key consolidation; R/S areas. Pivot Points are also very good and they often match Fib levels to indicate strongest area of R/S.

 

[malaguti]

Re: technicals and extent of pull backs; I look at Fibonacci levels coupled with price and moving average cross overs to identify key consolidation; R/S areas. Pivot Points are also very good and they often match Fib levels to indicate strongest area of R/S.

Agree and I also find volume levels decrease on the pullback, increase back into the trend. Thats the biggest giveaway for me

 

[The Blueprint]

You can't be 100% right with TA, even if your methodology and analysis are 100%, sometimes the market will offer a surprise. But then the game isn't to be 100% right all the time, its really to be right enough, enough of the time, and to not stay wrong when things go against you.

So I think a quest for definitive prediction of price action is always going to be a) unnecessary and b) bound to fail but, if you want to as accurate as possible, it could be worth going right back to basics - how do you define support level? how do you define break-down? why depend on these lying indicators? what's the time-scale for plummeting?

This is a simple but very good comment. Even when we've been trading for many years and feel experienced in the market, we can still fail to see what is right in front of us. It sometimes isn't so much going back to basics, as going back to what's logical.

When I speak to other traders who are struggling to make sense of something that's happening in the market, or cannot figure out how/why their strategy isn't working (or even what strategy to use) I always suggest to think of things logically. Think again about what the market is really showing us when you strip it down to its bare bones - what are the current movements therefore telling you and, in that case, what signs would you look for to feel comfortable predicting the next movement. When you start thinking of it in basic terms rather than a magical picture with MACDs, RSIs and whatever other indicators predicting trends and reversals, things become a lot clearer.

Re-reading that response, I think I may have been as ambiguous as an ancient mystic. It is 6am and I've been up all night, so I'll excuse myself. Hopefully it makes sense enough what I am trying to say, otherwise I'll clarify.

 

[Atilla]

This is a simple but very good comment. Even when we've been trading for many years and feel experienced in the market, we can still fail to see what is right in front of us. It sometimes isn't so much going back to basics, as going back to what's logical.

When I speak to other traders who are struggling to make sense of something that's happening in the market, or cannot figure out how/why their strategy isn't working (or even what strategy to use) I always suggest to think of things logically. Think again about what the market is really showing us when you strip it down to its bare bones - what are the current movements therefore telling you and, in that case, what signs would you look for to feel comfortable predicting the next movement. When you start thinking of it in basic terms rather than a magical picture with MACDs, RSIs and whatever other indicators predicting trends and reversals, things become a lot clearer.

Re-reading that response, I think I may have been as ambiguous as an ancient mystic. It is 6am and I've been up all night, so I'll excuse myself. Hopefully it makes sense enough what I am trying to say, otherwise I'll clarify.

The market isn't showing / telling you anything. The market is what it is. Same as a piece of rock is what it is. If it is disloged from its base and starts rolling down a hill it's rolling down a hill. Not telling you anything as it rolls down the hill or where it may come to rest. One may get ones ruler out and start drawing lines, projecting where that spot may be based on speed and direction and there lies ones forecast.


Not disputing what you have said but clarifying the perspective.

When trying to get into the zone, increasingly, I like to think of my self as a sponge and the market as fluid and volatile.

As a dry sponge, the more I absorb the market, the better I am fullfilling my function in mopping up pips sloshing around the up and down moves. This is just a mental thing... The sponge doesn't have a brain or an opinion. It only has a purpose to collect, mop up fluid. It's purpose is to collect excess left over spillage as the market moves.

Tai Chi is also well cool along with Yoga

For example this moves indicates to me the market is likely to be moving up.

This move says market is turning down

 

[neil]

Simplicity rules

This is a simple but very good comment. Even when we've been trading for many years and feel experienced in the market, we can still fail to see what is right in front of us. It sometimes isn't so much going back to basics, as going back to what's logical.

When I speak to other traders who are struggling to make sense of something that's happening in the market, or cannot figure out how/why their strategy isn't working (or even what strategy to use) I always suggest to think of things logically. Think again about what the market is really showing us when you strip it down to its bare bones - what are the current movements therefore telling you and, in that case, what signs would you look for to feel comfortable predicting the next movement. When you start thinking of it in basic terms rather than a magical picture with MACDs, RSIs and whatever other indicators predicting trends and reversals, things become a lot clearer.

Re-reading that response, I think I may have been as ambiguous as an ancient mystic. It is 6am and I've been up all night, so I'll excuse myself. Hopefully it makes sense enough what I am trying to say, otherwise I'll clarify.

Plus -some times "simple" is best, Someone once said to go across the room and look at the charts on your Pc screen, Are they pointing up or down?

 

[The Blueprint]

The market isn't showing / telling you anything. The market is what it is. Same as a piece of rock is what it is. If it is disloged from its base and starts rolling down a hill it's rolling down a hill. Not telling you anything as it rolls down the hill or where it may come to rest. One may get ones ruler out and start drawing lines, projecting where that spot may be based on speed and direction and there lies ones forecast.


Not disputing what you have said but clarifying the perspective.

When trying to get into the zone, increasingly, I like to think of my self as a sponge and the market as fluid and volatile.

As a dry sponge, the more I absorb the market, the better I am fullfilling my function in mopping up pips sloshing around the up and down moves. This is just a mental thing... The sponge doesn't have a brain or an opinion. It only has a purpose to collect, mop up fluid. It's purpose is to collect excess left over spillage as the market moves.

Tai Chi is also well cool along with Yoga

For example this moves indicates to me the market is likely to be moving up.

This move says market is turning down

Yes you're absolutely right, thanks for clarifying that.

Interesting pictures too. The 2nd move is more of a money management technique for me, as I'll inevitably put my back out and not be able to trade for the rest of the day by attempting that. However, if the market turning down looked like that, I might find the motivation to continue.

 

[Atilla]

Yes you're absolutely right, thanks for clarifying that.

Interesting pictures too. The 2nd move is more of a money management technique for me, as I'll inevitably put my back out and not be able to trade for the rest of the day by attempting that. However, if the market turning down looked like that, I might find the motivation to continue.

Yes very true

If I could get on those turns and ride it all the way down then I'd be well and trully be happy. Catching those moves these days are rare indeed.

Perhaps with increasing volatility we may catch one or two.