Trading the NQ

The above chart appears to have sparked some interest, so I'll provide a blow-up of what's contained inside that hinge so that one can see the choices he has in playing this sort of thing. Or at least playing it in terms of trading price.

Every trader is forced to read price from left to right when he's observing or trading a live streaming feed. One cannot trade what's past. Or passed. Nor can one trade what hasn't happened yet (though one can prepare for it). But newcomers and struggling traders almost invariably forget all that when examining static charts. Rather than read the chart from left to right, they read it from right to left, and the first thoughts coming to mind begin with "if only". This makes the process of review pretty much a waste of time.

In this case, one doesn't know what's ahead, so, if he's following the SLA rules, for example, he'll be tracking supply and demand, perhaps with supply and demand lines or perhaps just in his head. He'll exit on the breaks and trade the opposite side. And exit on the breaks and trade the opposite side. And during all this, he'll rack up multiple small wins and multiple small losses and multiple BEs (breakevens). And at some point, he will likely say the hell with this and stop and head to the kitchen. During which price will take off without him and he's screwed up again.

All of which can be avoided by paying attention to the sense of the SLA and not getting entangled in mechanical rules (much less "confirmations" from MAs or Fib or an oscillating something-or-other). In this case, if one is trading in real time (technically, trading couldawouldashoulda isn't real trading), he will not be able to avoid the fact that his stops are being tripped a lot, or that his wins are sort of pitiful (or that his losses, though mercifully small, are being racked up as well). At this point he can either slump in a frustrated funk or turn his attention away from himself and whatever frustration he may feel and look at what's in front of him. In the example, presented here, he backs away from the trees (prompted by all the exits and small wins/losses) and looks at the forest. And when he does that, he understands the sense of what has been behind price's lack of progress in moving either up or down and his consequent lack of progress in making some money.

This particular hinge provides a good example of the difference between seeing the sense of what's in front of him and being OCD about mechanics. In this case, the median is not quite the median and it's definitely not the mean. But the line as drawn does approximate that level toward which buyers and sellers are dovetailing in order to arrive at their respective estimations of value. And this can be done in time for the trader to notice that a move upward away from this level "fails" and that a move downward from this level also "fails", and that the move downward is considerably less severe than the preceding move up. So what are his choices as price works its way back toward the "value line"? Enter a sell stop below the low of the move downward and a buystop above the high of the move upward. One can see from the previously-posted chart above how all this works out.
 

Attachments

  • Image120.png
    Image120.png
    23.3 KB · Views: 196
Today began with a range, or rectangle, or box. It's all the same. And those who've read the SLA material know that the trader has two choices: enter on the RET after a breakout, either upside (1) or downside (2). Then stay in until either the selling or buying is exhausted. Then reverse off either of the two RETs (there's only a tic's difference between them).
 

Attachments

  • Image4.png
    Image4.png
    27.3 KB · Views: 196
Yes. You'll notice, however, if you read the chart left to right, that yesterday was one giant hinge, which helps to account for price being so contained today. I'll post a chart later, after the close.
 
Yes. You'll notice, however, if you read the chart left to right, that yesterday was one giant hinge, which helps to account for price being so contained today. I'll post a chart later, after the close.

The hinge I saw had price get out and bounce around the apex. It's within the TR I have drawn on chart. Is that what you're talking about?
 
The hinge I saw had price get out and bounce around the apex. It's within the TR I have drawn on chart. Is that what you're talking about?

There is no trading range, at least not at the time you've drawn your chart, since price never revisits the potential upper limit nor the potential lower limit. It rather makes a high and a low, then consolidates, which is where the hinge is formed. Price does eventually test the potential upper limit, but not until well after the open. The trade, however, is the bounce off the median of the hinge, at the open. If one is daytrading it, that is.
 

Attachments

  • Image10.png
    Image10.png
    17.4 KB · Views: 186
A word to the wise: the hinge discussed yesterday and the decisive break this morning of the stride that has propelled price over the last couple of weeks coupled with doubts among The Money that Trump won't be able to deliver on his tax cut promises suggest that better ops will be found on the short side than the long. The "line of least resistance", in other words, may no longer be up. Give the trees their due, but don't ignore the forest.
 
An excellent review session, for those who've been studying this. Just about everything is here, in one chart:
 

Attachments

  • Image17.png
    Image17.png
    22.6 KB · Views: 193
Uber hinge. As I point out in my book, the longer price takes to break out of a hinge, the more likely it is that it will range, tightly, than stage a dramatic move one way or the other. This is due to the fact that, the closer price gets to a potential apex, the closer buyers and sellers are to an agreement on value. And the closer traders are to agreeing on value, the less likely price will depart from it, at least to an extent that presents an irresistible trading opportunity.

Markets are dynamic, of course, and in five minutes something may happen that prompts a dramatic change in the perception of value. But, barring that, the best course is simply to sit on one's hands and wait for that change.

(I'm posting an online chart because I'm too lazy to open up my program)
 

Attachments

  • Image2.png
    Image2.png
    12.6 KB · Views: 165
And for those who are short of funds, don't forget the Q. While forex pairs can drift sideways for years, the NQ/Q has quintupled since 2009.
 

Attachments

  • Image8.png
    Image8.png
    24.5 KB · Views: 211
NQ hourly

This also provides the trade entry for the Q, since the Q doesn't trade 24/5.

Given that price spends much more time ranging than trending, traders do themselves a disservice by not knowing how to trade ranges.
 
Putting the above range in context. Note that the medians of the hinge and range are virtually identical:
 

Attachments

  • Image1.png
    Image1.png
    21.4 KB · Views: 148
When one is faced with ranges, he can expect to see at least a few hinges, since they both represent a search for value. The hinge, of course, is a bit more urgent. Recognizing them in real time generally means an attractive trading opportunity. Since the big money isn't quite sure what it wants to do next, the trader can't know either, but he can follow the big money's tracks.

If the trader were using the SLA, he'd be out of his long after price forms a double top and breaks its stride. If he's awake and notices the higher lows and lower highs in real time, he can plot a short off this hinge and catch the drop through 86. The trade was good for about 20pts.

The blue line represents the lower limit of the daily range. The dashed red line in the first chart -- the opening 100m timeframe -- represents the median of this range. The hinge in the second chart -- the "zoom-in" -- should be self-explanatory.
 

Attachments

  • Image10.png
    Image10.png
    53.2 KB · Views: 182
Another occurs in the second third of the session, and this one is trickier. The trader is out of his long due to the break in stride and The Money has settled in around the lower limit of the daily range (and because it's the daily range, more professionals are watching it). This could go either way, and given the location of this hinge, professional traders could spend some time trying to fake each other out.
 

Attachments

  • Image13.png
    Image13.png
    53.9 KB · Views: 185
Top