Indicators Or Price

[SOCRATES]

Socrates,
when the knowing in advance starts. Obviously not before one comes to the side of the road and observes the traffic for a while. otherwise why bother looking left , right and left again. You would simply know what is coming and how far they are and the time left for you the cross the road. So using your road crossing analogy it can be argued that nothing is known in advance.
regards,

Oh yes it is.

When you are totally familiar with the road, you KNOW when it is busy or not.
You KNOW when there is traffic...you can hear it even if you don't turn your head to see it. You KNOW whether it is fast moving or slow moving. You know whether the movement is meaningful or not. You KNOW if it is going to continue and also HOW FAR.

You KNOW all these things.

You KNOW what is going to happen in advance.

Then when you are able to do this, you do not jump in and out all the time just for the sake of it, for the sake of doing something and for the sake of arguing and boasting ...sorri I have sudden incoming communications traffic...later.

 

[dbphoenix]

Parroting Williams ? You must be JOKING musn't you ?

That is what you do and Sebastian Manby does, not me !

In every other respect all you post above is kindergarten stuff as well, for beginners.

The tragedy is you like to try to dumb down everyone you can.

But not with me you can't. I will simply not let you and from a great height above you I drop it when it pleases me, and that is what you do not like.

You ought to curb your ego, and if you did, you would be able to cross the glasswall that separates us. I cannot do it for you. You have to push your own envelope on your own, but one day...and I cannot tell whether it is weeks, months or years you may wake up. The chances are that with your current hobby horses you never will.

The usual Teflon Bertie . . .

Tapdance all you like, Albert, but the fact remains that you just don't know how to do any of it, which is why you are incapable of explaining it to anyone except in the most cryptic terms.

But you are right about one thing, Bertie. I can't dumb you down. One cannot, after all, fall out of bed if one sleeps on the floor.

Db

 

[the blades]

Listen Sheffield....You cannot complain because always I am very kind and patient with you etc., but those who understand, do so immediately, and those who do not, never do.

Besides, you know who it is I post for, and it is not for those who do not understand that they do not understand....

Sometimes I post for those who do not understand but want to persuade the newbies that they do, and when I rattle the cage with my little stick as I walk by...well...you know...Zupcon appears with the rule book in defence of the majority.

Some day he also will finally learn.

Kind Regards.

:?:



UTB

 

[TheBramble]

Indicators or Price - An Empirical Analysis and Comaprison - Part 1

I’m going to split the analysis into a number of posts. It’ll make it easier for me to layer the analysis and for everyone else in avoid overt tedium at trying to hang onto context and even consciousness while reading a mega-post.

Part 1 (this post) will look at the overall business cycle and establish where we currently are within it using analyses drawn across a number of discrete financial markets. Part 2 will look at the market and sector specific to the supplied target instrument (GOOG) and the target instrument itself, using the overall business situation to give additional support to the lower level analysis. At this point we will have a clear view of the probabilities for movement in the stock itself, key levels and potential development. Part 3 will use the review from the first two posts to establish a specific trading position which will include criteria to both enter and stay out of the stock. It will highlight key price developments together with volume activity (which tells us what the professionals are doing and their intent) which will serve to provide us with a basis for constructing our own trading position. Further, using just the price, time and volume data, we will establish initial stop and three target areas for taking profits, or scaling out, with probabilities associated with each of the targets being hit. There will be a clear indication of what price and volume action will constitute an exit situation at all points during the trade as well as fixed trailing stops which will be linked to price and time rather than just a fixed or percentage amount. It will also highlight why volatility stops are normally not that useful in any timeframe. Part 4 will detail the sets of indicators (which is what this thread is all about) that would be required within the context of the business cycle and market and sector cycle phases that would be required to provide us with the same entry, stop and profit positions. That will be the most effort intensive part of this process. One which will I hope be the most useful in forever banishing indicators to the realm of those who you will be taking your profits from. Part 5 will then compare the process of the price, volume and time data only analysis with that required to produce the indicator sets. Hopefully, I will have been able to completely convince you that indicators serve no additional or improved ability over working with the base data itself. Indeed, they will tend to take you away from that which you should be giving your direct attention and awareness. Let’s get cracking.

The Business Cycle

This is a top-down analysis. I start with a view on the current position we are most likely to be in within the overall business cycle. The business cycle lasts about 4 years in its expansion phase and about a year in contraction. Expansions range from red hot surges and yehaaa cowboy rides to the summit right through to soft pastel-blue lukewarm meanders up the gently sloping rolling hillside of Market Valley. Contractions range from slowdowns consisting of little more than consolidation to a full blown recession.

Before I get into that I need to explain my view on cycles in the markets.

There are cycles of fairly determinate length and amplitude, but operating at various phases and amplitudes at all times. This being the case, the impact these cycles have on the markets (and they don’t all impact all instruments in the same way) at any given time is complex and can be considered random in that just because ‘it’ looked like ‘this’ ‘then’ doesn’t mean to say it ever will do what it did last time when it looks like that again. Contrary to a number of narratives on this topic, the cycles lengths do not ever represent harmonics of each other that are in any way useful or definable or most importantly, usable for trading purposes. There are pauses or inversions which few of those who have ever written on the subject ever take into account, or if they do, have been able to deal with demonstrably, convincingly or effectively – basically they fudge the issue and use that as a reason for you to invest in their latest software/new book etc… Luckily, we don’t need to know where we are within each of the cycles as we are only interested in the resultant waveform location, momentum and bias at this current point in time. Right NOW basically. The longer the timeframe you are considering the more solidly it will conform to the current resultant waveform characteristics. The shorter the timeframe, the more subject it will be to other factors which will temporarily knock it off axis. At the tick end of the spectrum you’re operating in a largely Brownian Universe. Even just 1 minute out the degree of order solidifies to a fairly tradable degree. At anything past 60 minutes it’s all relatively well ordered. Further out than that and it become a largely predictable affair and all the more boring for that. Right, that’s dealt with an army of textbooks on cycle theory in one short paragraph. You’re welcome. I’m going to get a degree of disagreement from the Elliotticians, Gannites, Deltas, Market Matrix etc. acolytes and that’s a good thing too as reasoned debate is the name of the game and I’d love someone to come and convince me out of my current view. I really would.

There are four primary or high-level financial instrument groupings that have specific relationships to one another and give us clues as to where we are currently in the business cycle. The mighty Dollar, Bonds, Stocks and Commodities. We can use Gold as the leader for commodities and although I’m not going to cover oil, those looking to maximise the bang for their buck will be looking at precisely that instrument as we get toward the end of the expansion cycle. (Are we there yet Dad? Maybe. Just maybe. Even very possibly maybe, but I’m getting ahead of myself).

The Dollar has an inverse relationship with Commodities.

Gold leads the commodities.

Bonds lead stocks and generally trend in the same direction. Stocks lead commodities which generally trend in the opposite direction. When they don’t, any of them that is, something is very likely about to change.

Bond yield and bond price are inversely related (obviously) and therefore interest rates are inversely related with Bond prices. We wont be covering interest rates directly, but knowing interest rates trend with commodities is something we’ll hang onto for later.

From just the above you will have already worked out that bond prices are inversely rated with commodities.

A falling Dollar will eventually lead to rising commodities (particularly Gold) and will have a bearish impact on Stocks and Bonds. A rising Dollar will do the reverse, cause a fall in commodities (particularly Gold) and have a bullish impact on stocks and bonds.

As we move to the end of the expansion phase on the cycle (which is an average of 45 months), bonds will turn down first followed by stocks. As we move into the much shorter contraction phase (average of 11 months), commodities will turn down and moving to the end of the contraction phase we see bonds begging to pick up followed by stocks as we move into the next expansion phase.

So where are we right now at this level of the analysis? Before I get onto that, it’s taken me longer to type all of this so far than it takes be to do the analysis at this level each week. At this level of analysis, I take maybe 10 mins each weekend to just keep in tune with major levels development and to update my view on the cycle location, momentum and bias. That’s all it needs. Quite seriously, reading this post and the next four will take you a hundred times longer than it will take you to do the actual analysis on any instrument of your choice should you choose to follow up on this analytical process for your instrument(s) of choice.

Let’s check the Dollar first as a useful backdrop upon which to paint the rest of the action.

Based on the charts supplied by Timsk we can see with a purely visual inspection (remember, no indicators or even trendlines at the moment) that all three cycles (major, intermediate and minor) are down and have been since Nov 05. There are key levels at 83.25 and 82.50. What do we think we know about a falling Dollar? Commodities (particularly Gold) should by rallying and this has bearish indications for stocks and bonds. But bonds leads stocks and commodities, so if this is the case, we should be able to see this already, in bonds at least. Before we look at Bonds, lets’ take a look at commodities generally and Gold specifically, they should be rallying if we’re on the right track.

The commodities index is indeed up across all three cycles. We have tight support at 402 and 400 with a major key level at 392 to be breached before we need to reconsider our bullish position on the commodities generally. What of Gold?

Gold is up on the major but down on the intermediate since May of this year. Is this a top or just an intermediate down? We have no idea and we don’t need to know as we are only ever working with what has happened and where we are right now. What we do know is that there are key support levels for Gold at 640, 615 and 540. A breach to the downside of 640 will be a warning of a potential switch to a major down cycle commencement and a tested breach down through 615 will be a confirmation of a new major down cycle. But this is just a superficial treatment of Gold and is in no way sufficient analysis for taking any position on Gold itself, we are just using this to establish our position in the current business cycle. And remember, Gold leads the commodities so a recent (May 07) downturn, if it is a major cycle downturn, is just a heads up for a potential commodities downturn generally.

So indications so far we have a falling Dollar, rising commodities (as expected from their normal relationship) with a potential heads-up that commodities may be about to turn down, led by Gold which may indeed be heading down on its major cycle.

Lets have a look at the 10-year Treasury Bonds. Bonds generally lead stocks and commodities, so if we’re still on the right track, they should already be heading down if Gold is about to (or has already started to) turn down as the bellwether of the commodities.

The Bonds are indeed down on all three cycles and has been since Jun 05. So what are Bonds telling us about how far we are into the expansion/contraction phases of the overall business cycle? We can see they have been down since Jun 05 which is 24 months. Bonds start to fall typically 12-18 months into the expansion cycle which indicates we may be 36-42 months into the 45 month expansion cycle. Stocks are led by Bonds so depending on what they are doing, we should be able to place a little more accurately our current position in the business cycle.

We will look at that as we head into part 2 of this analysis.

 

[searchlight]

Oh yes it is.

When you are totally familiar with the road, you KNOW when it is busy or not.
You KNOW when there is traffic...you can hear it even if you don't turn your head to see it. You KNOW whether it is fast moving or slow moving. You know whether the movement is meaningful or not. You KNOW if it is going to continue and also HOW FAR.

You KNOW all these things.

You KNOW what is going to happen in advance.

Then when you are able to do this, you do not jump in and out all the time just for the sake of it, for the sake of doing something and for the sake of arguing and boasting ...sorri I have sudden incoming communications traffic...later.

How one becomes to be totaly familiar with the road?
regards,

 

[neil]

Road Sense

How one becomes to be totaly familiar with the road?
regards,

Answer:
Buy the "Highway Code" and study it assidously, then practice when traffic is light.

 

[zupcon]

Answer:
Buy the "Highway Code" and study it assidously, then practice when traffic is light.

But be careful where you get the highway code from

I hear that there are some fake copies doing the rounds

regards
zu

 

[laptop1]

It funny, I give some good points with regarding volume, but nobody comment on it even DB over looked it.… Because everyone was to intrigued with the narrative comments of SOCS

So I have delited my post #55.The same with tony's post #64 another good post with regards to the big picture, sadly most will ignore it.

As you were

 

[roguetrader]

How one becomes to be totaly familiar with the road?
regards,

One sweeps it.

 

[trendie]

exellent start, TheBramble. I understood most of it.
Not a secret analogy in sight.
something that can be done by oneself without recourse to private gold-leaf ledgers.

by the way - welcome back!

 

[timsk]

It funny, I give some good points with regarding volume, but nobody comment on it even DB over looked it.… Because everyone was to intrigued with the narrative comments of SOCS

So I have delited my post #55.The same with tony's post #64 another good post with regards to the big picture, sadly most will ignore it.

As you were

Ladies & Gents . . .
As laptop1 infers in his post, the thread is at something of a crossroads. The weekend bun fight can spill over into the new week and the thread will eventually peter out and die like a number of others before it. But there is an alternative. The Degrees has given us all something very concrete to get stuck into and, between us, we can get the thread back on track by focusing on constructive comments about his analysis. Clearly, Tony has gone to great deal of trouble, so let's put old rivalries aside and give his post the attention it deserves. That way, who knows, some of us might actually learn something.

Tim.

 

[Charlton]

exellent start, TheBramble. I understood most of it.
Not a secret analogy in sight.
something that can be done by oneself without recourse to private gold-leaf ledgers.

by the way - welcome back!

Plea to the mods

Let TheBramble complete his analysis

Charlton

 

[rols]

Plea to the mods

Let TheBramble complete his analysis

Charlton

I second that.

Vive le Bramble!

 

[searchlight]

Ladies & Gents . . .
As laptop1 infers in his post, the thread is at something of a crossroads. The weekend bun fight can spill over into the new week and the thread will eventually peter out and die like a number of others before it. But there is an alternative. The Degrees has given us all something very concrete to get stuck into and, between us, we can get the thread back on track by focusing on constructive comments about his analysis. Clearly, Tony has gone to great deal of trouble, so let's put old rivalries aside and give his post the attention it deserves. That way, who knows, some of us might actually learn something.

Tim.

Totaly agree. I have just deleted my last post, after I've seen yours. I feel it is proper that this tread should concentrate on the , The Degrees work from now on.
regards,

 

[SOCRATES]

The usual Teflon Bertie . . .

Tapdance all you like, Albert, but the fact remains that you just don't know how to do any of it, which is why you are incapable of explaining it to anyone except in the most cryptic terms.

But you are right about one thing, Bertie. I can't dumb you down. One cannot, after all, fall out of bed if one sleeps on the floor.

Db

 

[jacinto]

Totaly agree. I have just deleted my last post, after I've seen yours. I feel it is proper that this tread should concentrate on the , The Degrees work from now on.
regards,

good decision. hope others follow suit and allow The Degrees do what was on offer.

 

[TheBramble]

Anyone spot the typo in the title of my previous post on this thread? I only just did. There's NO WAY I'm going to change it. It's simply too precious to be accidental. We're all inmates.

Part 2 after end of trading tonight.

 

[TheBramble]

Indicators or Price - An Empirical Analysis and Comparison - Part 2 - Market & Sector

Mercifully, a much shorter piece this time, so ahead of schedule....

As a recap of where I left off on part 1, we have a falling Dollar, Gold has led the commodities rally and could possibly be topping out, with bonds on a long haul down. We next want to see if Stocks are also in a downtrend to complete what we are beginning to build as a picture of the standard business cycle and an attempt to locate where we are in it.

The Nasdaq 100 index is up in all three cycles and has been since Sept 06. The Technology sector is also up across all three cycles and has been since Aug 06. GOOG itself is up in its primary trend, down on the intermediate and up on the minor. Something is out of whack.

Bonds normally lead stocks by anything from 4 to 11 months and typically Stocks will trend after Bonds. This isn’t happening. The Bond downturn occurred in Jun 05, that’s 24 months ago. Stocks ‘should’ have followed the Bond lead by turning down any time from Sept 05 to May 06. There was a halt to the rise from Feb to almost the end of 06, and certainly GOOG had the steam taken out of it and a far from smooth ride, but this was not the development of a down trend.

We can jump in at any point along the standard business cycle and in principle describe why what is happening is happening. This would be a good place to start to uncover why GOOG (and stocks generally in the technology sector) aren’t ‘doing what they should’.

Let’s start with the Dollar, out current Dollar which is falling. This is normally due to falling interest rates (long term not short term). Interest rates (US) rose steadily up to the middle of last year and have stabilised since then. So they’re not falling, nor rising. Bear that in mind. If US interest rates are not falling, what is making the domestic currency and domestic currency denominated investments, less attractive? A falling Dollar should eventually lead to falling commodity prices. Not yet it hasn’t. Which eventually leads to rising bonds (nope) and Stocks (yes, but “shouldn’t” be).

What about the cycle as it develops through the secondary phase? The falling Dollar (now) pushed commodity prices higher (now) and Bond prices lower (also now). The lower Bond market eventually pulls Stocks lower. This is where we are at right now. Clearly there is/are other factors which have prevented the normal response of stocks to follow Bonds lower.

Inflation or expectation of inflation would do this. Underestimation of Risk would also do this.

For the stocks to be rising so long after they should have in theory have bowed to pressure from Bonds there is in my view a very high propensity for stocks to readjust themselves in line with other current market dynamics. Like a band that’s got stretched way past its normal range of operation, it will snap back sharply.

Based on the pivot point for a Stock reversal being overrun by 13 months and given the point in the business cycle Bonds normally start to turn down in the expansion phase, there is ‘not enough’ time for the contraction phase to complete its work within the average 11 months. Of course, all averages exist only theoretically and an 11 month average could consist of a thousand 2 months and a thousand 20 months. In reality, the modal frequency of the contraction phase is closer to a 9-13 month range.

With this pronounced downward potential and given the timeframes discussed this suggests we can assess a high probability downturn in stocks generally, and therefore GOOG as well, between now and September. Does that mean I wont be taking any long trades on GOOG for now? Yes, it rather does. Will I be taken any short trades on GOOG? Yes I may do, under very specific conditions and with criteria that are appropriate to the dynamics of the market. Which is precisely the detail we will be getting into, as promised in the first part of this analysis, in the next part of this analysis – part 3 “Establishing a Trading Position”.

While I’m here, just take a note of the following. Nasdaq 100 Index (NDX) up on all three cycles with decreasing relative volume and action narrowing and constricting. There is a new local R/S at 1925, a new Support at 1875 and an old Resistance at 1850. What’s noticeable by its absence is the lack of anything special denoting professional interest at the ‘significant’ level of 1900.

The Tech Sector Index (XLK) is up on all three cycles since Aug 06. Decent support at 26.25, 25 and 24. After 22.5 it gets into a potential vacuum or void, but we can discuss that when we get into the detail.

GOOG itself has been leaking volume (interest) since Jul 06. Decreasing volume on increasing prices, but the price action is getting thinner. The question is when and where do we get ready to short? No idea yet. But note these key levels for GOOG. They can be either short triggers or targets depending on how the price and volume action unfolds and will be fully discussed next time.

400/450. 440/490. 500/510.

 

[TheBramble]

Part 3 - Establishing a Trading Position

Long post. Grab a coffee. Pot. (I meant a pot of coffee, but maybe that would be a better option altogether…)

Based on the analysis carried out in my two previous posts on this topic, my current position is that there is a far higher probability of GOOG turning down, and doing so substantially, within the next 10 weeks (before end of Sept 07) than there is of substantial gains to the upside. This isn’t to say that some will profitably trade GOOG to the upside during this period. Or that it wont steam on up to breach 600, 700 or even higher. But the probabilities do not favour it. You yourself may well have a system and methodology to effectively achieve significant gains to the upside over this period, but the probabilities are definitely and empirically against you. However, all of this analysis is after all, just my view - you will of course make your own trading decisions.

Just a little more waffle then I’ll get onto the nitty gritty of establishing a trading position on GOOG.

My entire perspective on this instrument is governed by what is happening with the Dollar (and to a secondary extent long term interest rates), Bonds and the Commodities led by Gold. They are all doing roughly what you’d expect them to be doing toward the end of the expansion phase of the standard business cycle. The only item that isn’t performing to schedule is GOOG, or more to the point, stocks generally. They should in theory have followed Bonds down over a year ago at the latest. They haven’t. The only two factors which can be seriously considered as potential cause for this anomaly are underestimation of risk and, in my view the more likely, fears of inflation significantly above the current level.

The fact is, we don’t really care what the cause is, we just know that stocks are out of whack and are unjustifiably high and rising. In GOOG’s case, rising on lower volume, which is a distinctly a bearish indication. While I’m always ready to challenge any (all) dogmas and the standard Business Cycle is no exception, there has been convincing data to suggest, subject to the occasional wobble, the business cycle exists because it exists. Deep.

So, we don’t know is precisely when GOOG will fall, or how. It could just drift sideways, or fall at a steady pace or plummet or exhibit a final exhaustion rally as professionals unload onto the euphoric public. As we don’t know which of these will occur we have to plan for what each of them will ‘look’ like and decide of what position to take, if any, based on which one of them occurs. One almost certainly will. And I have a distinct preference based on experience which one it will be, but it wont do to flavour my analysis to you with my personal bias based on analytical techniques which as far as I can tell do not fit within the empirical schema, so I’ll have to guard against giving anything other than demonstrable basis for my positions.

There is of course a (low probability) possibility of GOOG rising to be of sufficient interest to Timsk in his chosen timeframe, but as this is so unlikely, I’m not going to establish a setup and trading structure for this eventuality. Point to be constantly kept in mind during all of this is that this analysis is very specifically focused on a specific instrument and specific timeframe. Were I to carry this analysis out at a different timeframe, at a lower level of time granularity for instance, I might well be looking to suggest a limited upside within the current profile and dynamics of GOOG itself in addition to any downside positioning.

Boring bit over. Unless it isn’t for you yet.

{An analysis of GOOG by a GOOG-tyro like me. LOL. The analysis is just fine in principle, but GOOG ain’t my bag - Where is Daphne Brown when you need her…}

Let’s take each of the down trend commencement scenarios (actually 3 down trends and one consolidation though the consolidation is least likely, actually, almost impossible given price/volume action over the last 15 months and I’ll explain why I think so in a bit) one at a time and decide what constitutes an entry setup, what your initial stop should be, your three target levels with approximate probabilities of them being hit and target dates for reaching them together with a strategy for sensibly trailing your stop to catch the best risk:reward profile for that form of price/volume development.

Drift Sideways

You don’t want to have an open position in this situation. Not only do you not want to initiate a position, you don’t want to keep an old long (or short!) open in this situation. Your trading profitability is not just a measure of how much you take off the table in net profit. It’s a factor of how much net profit OVER a period of time. Although I’m advocating a short position, going into a ranging area, you simply don’t know how long you’re going to be tied up. So you have indeterminate earnings (can’t say when they’ll be freed up) and continual exposure. Avoid.

Locking in for $1000 for 6 months does not stack up against clocking $50 for 5 mins. All other things being equal. Trust me on this.

All of the data which I am supplying is specific to GOOG and based upon its performance and profile and the way it has handled dynamically since birth. Don’t paste these data up for eternity. 6 months (even 3 months) down the line they could well be different. This is just for NOW.

A drift sideways will be price action ranging in a (for GOOG) $20 channel with low volume and no propensity on either bounce off either channel boundary proxied by anomalous volume. It must persist for at least 25 primary timeframe trading bars (days in this case) You could plan on trading a breakout and the mechanics of that are well enough known for me not to need to reiterate them here and now. And as we’re discussing my analysis of what will most likely occur I’m discounting this to a very, very low probability. Why?

A consolidation range at this point for GOOG has a low probability because volume has been dropping on GOOG for 19 months and the price has continued to rise, albeit relatively sluggishly. Each time selling comes in it is absorbed (by pros), but with increasingly less enthusiasm by them. It’s getting tougher and tougher to make what little volume there is provide any genuine impetus to the price action. Note the use of the adverb ‘genuine’. Narrower ranges and closing off the highs. There is diminishing professional intent to take this much higher. Distribution is on the cards. While it is possible to distribute after a long rally into a range, given the overdue nature of the correction, and the high profile GOOG has with ‘the public’ the first significant fall will frighten the crowd to head for the exit. If this scenario does occur play the range as you would any range but don’t wait for the re-test. There wont be one, there can’t be. If it does range, then short the first break through the bottom of the channel (minimum three touches to top and bottom to constitute a valid channel and the breakout must occur on HIGH volume for it to be a valid breakout). Your three targets from this situation will be (and I have to get algebraic here as I have no idea what the highest price GOOG will have achieved by the time the breakdown occurs,. But whatever it is, call it GOOG_HIGH. Let’s use this convention for all of the scenarios to follow too. Where I invent a new all-capital term, it should be self evident what I mean. If it isn’t, shout.)

Short the break down through the bottom of the channel.

Break through (GOOG_BOTTOM_CHANNEL) immediately on break – do not wait for re-test.

Initial stop is GOOG_BOTTOM_CHANNEL+(0.75% GOOG_BOTTOM_CHANNEL).

1st Target 16% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 5 bars of break. 89% probability of price and time target being hit.

2nd Target 37% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 7 bars of break. 81% probability of price and time target being hit.

3rd Target 56% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 10 bars of break. 63% probability of price and time target being hit.

As with all time targets they are as important as price targets. Remember, bang for your buck. If the price isn’t WHERE you expect it to be WHEN you expect it to be, your analysis doesn’t have as a high a probability of success. You may well elect to let it run ‘a bit longer’, but there are always other (fatter) fish to fry.

You will trail your stop using 50% the highest daily range (we’re trading Timsk’s daily GOOG here) of the previous 200 days. Maths bods among you will be quickly trying to work out based on my initial stop recommendation and the trailing stop calculation where the B/E occurs and at what point you start to move your stop. Save your time, you can’t establish that until (if) the trade initiates. With a breakout from a range in this stock at this point, I have to say, it’s the least inspiring and least likely trade to occur. I actually wouldn’t take it even if the setup occurred. Remember, bang for your buck involves period of time as well as net profit.

Why the 0.75% and the 200 day range etc? Because that’s what GOOG has historically done in that context in the past. The reasons it did what it did back then are most likely the reasons it’ll do it again at those levels as I mentioned before.

Fall at a Steady Pace

Falling at a steady pace is your softest and safest probability. It’s also 2nd favourite to occur. (NB there are two almost joint favourites coming up). The price will drift off the highs GOOG_HIGH over days and weeks and volume will be light. This is the professionals’ distribution of choice and requires all other markets to be quiet to positive. Any hint of bad news, especially on a Friday will be an indication of the deal being blown and you can expect one of the two options still to be defined to unfold. There’s no way to handle a steadily falling trend than to wait until you have your lower high and lower low. A genuine trend reversal. It’s safe. Boring. Although this will be the pros action of preference there is too much other tension in the markets, brought on by this over extension of stocks rising into the contraction phase to give it a very high probability of occurring.

Short the confirmation of the lower low (low lower and close lower than previous low close).

Initial stop is LOWER_LOW_CLOSE + ((GOOG_HIGH – GOOG_SECOND_HIGHER_HIGH) * 0.5)

1st Target 11% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 10 bars of break. 91% probability of price and time target being hit.

2nd Target 27% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 15 bars of break. 71% probability of price and time target being hit.

3rd Target 43% of GOOG_HIGH-330 down from GOOG_HIGH. Reach within 25 bars of break. 56% probability of price and time target being hit.

You will trail your stop using 35% the highest daily range (we’re trading Timsk’s daily GOOG here) of the previous 100 days.

Plummet

A Plummet in price is (almost) joint favourite with Exhaustion Rally. You wont get any warning, the price will, just like it says on the tin, plummet. This is where we get to the key levels mentioned in part 2.

You’re looking for a virtually straight down move through the key 510 level. Don’t enter yet. This move needs to occur in one trading day, two days max. Volume will be high. There will be a re-test to the underside of 510 on lower volume. It will then slip below and close below 500 in between one to three bars (days).

Enter short if this occurs.

Initial stop is 507 (yes, a constant and good for this analysis only at this point in time).

1st Target 23% of GOOG_HIGH-330 down from 500. Reach within 5 bars of break. 94% probability of price and time target being hit.

2nd Target 46% of GOOG_HIGH-330 down from 500. Reach within 8 bars of break. 82% probability of price and time target being hit.

3rd Target 67% of GOOG_HIGH-330 down from 500. Reach within 13 bars of break. 76% probability of price and time target being hit.

You will trail your stop using previous bar’s close.

Exhaustion Rally

An Exhaustion Rally is the favourite in terms of probability. You will get a warning, which is quite literally priceless. We are still using the key levels mentioned in part 2.

This is the ‘public participation’ part of the professional sell-off. News will be good. Very good. It will consist of either a one bar (day) climax or spread of 3-4 days. The volume will be extremely high for the one day event and if spread over a number of days, the volume will rise exponentially. You are waiting for the bar (day in this analysis) after the highest high in both price and volume. You need to wait for this bar to form and you will miss the top.

Enter short when after the one day or multi-day sell-off has occurred and virtually all stock has been transferred to weak hands. The day after has seen low volume and a down day with the close toward the bottom of the price action.

I need to caution that this particular stock at this particular time may exhibit a major down day with high volume. Don’t be fussy about the level it might have dropped off from the high, there’s plenty more downside to come. If the move down after the sell off is significant and on significant volume, wait for the minor rally before going short. Wait for the minor rally to finish and for the price to have dropped back down below the level where the minor rally commenced.

Initial stop is BASE_OF_SELLOFF + ((GOOG_HIGH - BASE_OF_SELLOFF) * 0.1)

If the price has dropped significantly then the initial stop will be large. You must not play with this. Calculate your risk and position size and compare with the potential reward and make a decision. But do not play with that initial stop or your normal risk calculations. Either take the trade or not. Either it fits within your R:R profile or it doesn’t. Do not fiddle the factors.

1st Target 56% of GOOG_HIGH-330 down from BASE_OF_SELLOFF. Reach within 6 bars of break. 99% probability of price and time target being hit.

2nd Target 66% of GOOG_HIGH-330 down from BASE_OF_SELLOFF. Reach within 13 bars of break. 89% probability of price and time target being hit.

3rd Target 87% of GOOG_HIGH-330 down from BASE_OF_SELLOFF. Reach within 23 bars of break. 78% probability of price and time target being hit.

You will trail your stop using 50% the highest daily range (we’re trading Timsk’s daily GOOG here) of the previous 7 days.

Any questions so far?

The 300 ‘thing’ I’ve use a lot in this analysis as a basis for constructing targets. It’s the last level at which major volume (for the context being analysed) occurred and represents a MAJOR level upon which all pivots rest in this timeframe. There’s a lot of stuff like that in this post that I haven’t spelt out.

Actually, as I look back over this before physically posting I realise I have left so many items undeclared and assumed. I was just about to go back and justify/explain the basis for all the percentages, values and constants and thought, hang on a mo, I’m doing all the work here! Which is fine, but if you guys & gals are really interested and reading this all with genuine intent, you’ll have some questions. You can’t not if that’s the case. Great! Fire away. If you don’t – also great. It’s fine either way. But if you don’t have questions to address the gaps which I know exist in what I’m saying above then that means you ain’t reading it with as much interest as I have in doing it. I’m keen on you understanding the underlying basis and general process I’m using rather than the end result of this specific analysis. It’s not a hoop jumping thing, but I’m not going to continue to put in this effort if it isn’t going anywhere. I shall not be offended, these are long posts by any standards, and if you’ve got this far, well done, but if you’re not hanging on enough to know there’s something missing, there’s not a lot of point me hanging in either. If it is worthwhile or useful I’m happy to carry on, but we can always do something else.

The reason I ask is that I’m just about to go into part 4 of the analysis which is describing the indicator setups you’d need to put yourself in the same place you are now based on the analyses I’ve done purely on price, time and volume. I don’t have the weekend free this weekend to do it so it’s going to spill over and well into next week out of trading hours and in addition to everything else I do other than trade. Happy to do it even if it’s just Timsk hanging on (you aren’t you Timsk!), but it’s a lot of effort.

Finally, for this post, why am I doing all this? Laying myself open to public review of what I do, exposing the bare underbelly of my trading persona and potentially putting myself in a position to be shown to have been quite wrong in retrospect – shock horror. I’m doing it so that those who know more than me can put me straight and I can improve my analyses of the markets. I just hope they step up, in their hundreds, and challenge the bits they are more expert in than me. Please, feel free to poke a stick at anything I’m doing here. That’s the whole point. Quid pro quo.

 

[Charlton]

Long post. Grab a coffee. Pot. (I meant a pot of coffee, but maybe that would be a better option altogether…)

I’m doing all the work here! Which is fine, but if you guys & gals are really interested and reading this all with genuine intent, you’ll have some questions. You can’t not if that’s the case. Great! Fire away. If you don’t – also great. It’s fine either way. But if you don’t have questions to address the gaps which I know exist in what I’m saying above then that means you ain’t reading it with as much interest as I have in doing it. .... It’s not a hoop jumping thing, but I’m not going to continue to put in this effort if it isn’t going anywhere. I shall not be offended, these are long posts by any standards, and if you’ve got this far, well done, but if you’re not hanging on enough to know there’s something missing, there’s not a lot of point me hanging in either. .....If it is worthwhile or useful I’m happy to carry on, but we can always do something else.

Tony

I'm sure there are a lot of readers interested in your analysis and the reason that you have not had much response yet is because there is a lot to read and 23 charts to observe. I myself have printed it off to read it over the weekend. I also think that readers did not want to interrupt the flow of the postings, so please do continue and I'm sure you will be getting responses/questions in due course.

Charlton