24trading Nakedr

Trading Naked
Trading By Price
Trading by price -- and "volume" (or trading activity) -- requires a perceptual and conceptual readjustment that many people just can't make, and many of those who can make it don't want to. But making that adjustment is somewhat like parting a veil in that doing so enables one to look at the market in a very different way, one might say on a different level. One must first accept the continuous nature of the market, the continuity of price, of transactions, of the trading activity that results in those transactions. The market exists independently of you and of whatever you're using to impose a conceptual structure. It exists independently of your charts and your indicators and your bars. It couldn't care less if you use candles or bars or plot this or that line or select a 5m bar interval or 8 or 23 or weekly or monthly or even use charts at all. And while you may attach great importance to where and how a particular bar -- or candle -closes, there is in fact no "close" during the market day, not until everybody turns out the lights and goes home. Therefore, trading by price and volume, or at least doing it well, requires getting past all that and perceiving price movement and the balance between buying pressure and selling pressure independently of the medium used to manifest or illlustrate or reveal the activity. For example, the volume bar is a record of transactions, nothing more. The volume bar does not "mean" anything. It does not predict. It is not an indicator. Arriving at this particular destination seems to require travelling a tortuous route since so few are able to do it. But it's a large part of the perceptual and conceptual readjustment that I referred to earlier, i.e., one must see differently and one must create a different sense of what he sees, he must perceive differently and create a different structure based on those perceptions. As long as one believes, for example, that "big" volume must or at least should accompany "breakouts" and clings to this belief as ardently as he clings to his rosary beads or rabbit's foot or whatever, he will be unable to make this perceptual and conceptual shift. If you can work your imagination and use it to travel in time, you will have a far easier time of this than most. Imagine, for example, a brokerage office at the turn of the 20th century. All you have to go by is transaction results -- prices paid -- on a tape. No charts. No price bars. No volume bars. You are then in a position wherein you must decide whether to buy or sell based on price action and your judgment of whether buying or selling pressures are dominant. You have to judge this balance by what's happening with price, e.g., how long it stays at a particular level, how often price pokes higher, how long it stays there, the frequency of these pokes, their pace, at what point they take hold and signal a climb, the extent of the pokes, whether or not they fail and when and where, etc., all of which is the result of the balance between buying and selling pressures and the continuous changes in dominance and degree of dominance.
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One way of doing this using modern toys and tricks is to watch a Time and Sales window and nothing else after having turned off the bid and ask and volume. But this wouldn't do you any good unless you spent several hours at it and no one is going to do that. Another would be to plot a single bar for the day and watch it go up and down, but nobody's going to do that, either. Perhaps the least onerous exercise would be to follow a tick chart, set at one tick. Then follow it in real time. Watch how price rises and falls due to imbalances between buying pressure and selling pressure. Watch how and where these waves of buying pressure and selling pressure find support and resistance to their movements. And when I say "watch", I mean just that. Don't worry about what you're going to do about whatever it is you're looking at. Don't worry about where you'd enter or where you'd exit or how much money you'd make or whether you'd have been right or wrong to do whatever. Just watch. Like fish in an aquarium. If that seems only slightly less exciting than watching concrete harden, or it's just not possible for you to watch this movement in real time, then collect the data and replay it later at five or ten times normal speed. You can do an entire day in little more than half an hour (though you won't get any sense of real-time pace). Granted this means a lot of screen time, even in replay, and only a handful of people are going to do it. But those few people are going to part that veil and understand the machinery at a very different level than most traders. Once the continuous nature of these movements is understood, the idea of wondering -- much less worrying -- about what a particular volume bar "means" is clearly ludicrous, as is the "meaning" of a particular price bar or "candle" (including where it "opens" and "closes" and what it's high is and so forth). If this is not understood, then the trader spends and wastes a great deal of time over "okay so this volume bar is higher than that volume bar but lower than this other volume bar, and price is going up (or down or nowhere), so...". And if you're really into this, further reading:
Reading, The First

1. The purpose behind drawing these lines is not to make the chart look pretty but to draw the trader's attention to those areas, zones, points, levels, whatever where price action is most likely to provide trading opportunities. Whether one draws lines, boxes, circles, arrows, or big, pointy fingers is irrelevant. 2. Once those areas, zones, points, etc are identified, volume becomes largely a nonevent, i.e., one pays attention to it only at those areas, etc where it is most likely to mean something. That this point is so often overlooked is probably why so many people think volume is useless. For example, using a 1m time bar chart, I've blown up the shaded area (next page):
Until price reaches an area where a trading opportunity is most likely to occur, there's no reason to obsess over the minor ebbs and flows in volume. However, once trading opportunities are on the horizon, what might be considered directionless activity elsewhere suddenly becomes important. Here, for example, when price comes back to 1966 the second time, the fact of the test is interesting enough. That it cannot make a lower low even with all the volume is even more interesting. The bullish boost at 1329-30 becomes more important because of what has come before, as does the volume recession when price pulls back to 1975. When another bullish boost occurs, beginning at 1352, it is significant, again, because of what has come before. And when price makes an attempt at a
higher high at 1401 and volume isn't there, that again becomes significant because of what has become before and provides the "classic" double-top price-volume divergence setup for the short. Without the context, none of this matters, and volume is little more than traders going about their business. With the context, it becomes a high-probability short trade.
Reading, The Second

If price bounces decisively off support, then support is most likely good. OTOH, if price tests support repeatedly, the odds of it failing is increased. The resolve of buyers may not be unassailable. As for the TICKQ, is there a divergence during these tests? (See the Dailies posted later) A classic decline on a retest is a concurrent decline in volume and price with a concurrent renewal of strength in both if and when price resumes its progress. Compare the lengths and durations of the buying waves with the selling waves, i.e., do the buying waves last longer and go farther? Or are they getting shorter and briefer? Or are the selling waves beginning to last longer and go farther? As for the volume, it can be helpful but it isn't necessarily relevant until you arrive at a point or level where you're testing support or resistance. Price can move quite a distance on very little volume if there's nothing to stand in its way. To illustrate:
Note that price rejected 1920 at the end of the day on Friday after having spent so much time there midday. Price rejected 1920 again this morning (next page). You don't know why. Doesn't matter.
Now at 3, price tests what might be resistance (1), but it subsequently makes a higher low (4). It tests what might be R again, and it looks as though it doesn't want to go higher. But it makes another higher low (6). It then spends quite a lot of time struggling to move higher, but again makes a higher low (7). This might be called "absorption", i.e., eating away at supply. Price then finally makes a clean break upward at 8, but then moves sideways, digesting the move before moving ahead again at 10. Among the lessons here is that what price does NOT do (i.e., make a lower low) is as important if not more so than what it DOES do and provides just as much information to the trader who's paying attention and is as free of bias as possible.
Reading, The Third

All of this hindsight chatter about oil serves as an example of the "Wyckoff way" of trading, that is, a different kind of thinking that focuses on price movement as a result of imbalances between buying pressure and selling pressure, particularly against levels or zones of support and resistance, all of which is in turn a manifestation of trader behavior. Understand the behavior and you understand the illustration, whether on a chart or on the tape or on or in some other form. Understand the behavior and its illustration and you are set up to profit from it (one can also profit from this via indicators, chart patterns, "event trading", and so on, but none of this is pertinent to the Wyckoff approach). Participants have demonstrated this kind of thinking in their analyses of the price movement as it wends its way up and down through a continuing series of crests and troughs. These waves are a language, narrating the behavior of buyers and sellers. And whether participants' every opinion has been correct or not, they have worked toward understanding the story that's being told by price movement and its accompanying volume (transactions) and toward gauging and interpreting the
continuous changes in buying and selling pressures with the intent of finding the line of least resistance. By doing so, they have demonstrated that everything one needs to know in order to make a trading decision is in the price movement, again whether illustrated by chart or tape. While there are undoubtedly many traders -- retail and professional -- left holding the bag at tops and bottoms, the Wyckoff trader will not be one of them. He does not allow himself to be distracted by extraneous information of whatever sort. Price behaves a certain way (that is, traders telegraph their intentions by their transactions), and he's out or in, as the case may be. He can wait for moving averages to cross each other or for some other indicator or news or a particular kind of bar or candle or pattern to signal or confirm an action, but he doesn't need to, except for personal reasons. None of this is therefore part of the approach. This has the effect of keeping everything very simple and relatively easy to understand IF one can focus on the approach at its most elemental until he thoroughly understands it. At that point, he can play with it as much as he likes, if he chooses to do so. But while those modifications may alter the approach as he implements it, they do not alter the nature of the "Wyckoff Method". The following chart was posted at the beginning in order to provide the macro view. It's a typical and ordinary bar chart.
But the waves of buying and selling can be illustrated quite clearly without bars. In fact, for many Wyckoff traders, they are easier to see with a line.
The tests are the same, the trend is the same, the signals that the trend is over are the same (see, for example, the inset). A chief difference, however, is that one needn't get entangled in quandaries over what individual bars "mean" (if anything). One can in fact convert trading activity (or volume) into a line, depending on his software. Some Wyckoff traders find it even easier to detect the "pulse" of the market in this way. As for jargon, nothing special: climaxes, technical rallies, reactions, springboards -that's about it. The goal is clarity and simplicity, not obfuscation and complexity. As I've said elsewhere, price doesn't care about you or about how you care to view it or illustrate it. It exists independently of your charts and your indicators and your bars. It couldn't care less if you use candles or bars or plot this or that line or select a 5m bar interval or 8 or 23 or weekly or monthly or even use charts at all. Therefore, trading by price, or at least doing it well, requires getting past all that and perceiving price movement and the balance between buying pressure and selling pressure independently of the medium used to manifest or illlustrate or reveal the activity. For most people, this requires a perceptual and conceptual shift. Some find this shift relatively easy to make. Others find it impossibly difficult. If you fall into the latter category, keep in mind that there are many ways of making money in the market. This particular approach is only one of them.
Indicators
The indicator phase is something that probably everybody probably has to go through, whether it's MAs, stochastics, MACD, %R, VWAP, Market Profile (if you're looking only at the form if it), Pivot Points, Fibonacci, Bollinger Bands, chart patterns of one sort or another, candles, or even the price bars themselves (range bars, CVBs, tick bars, VSA, etc). And if one can make that endeavor successful by going through the necessary testing and developing the necessary plan, then there's absolutely nothing wrong with settling into that phase for the rest of one's successful trading life. Since all of this depends on its existence on the movement of price, however, it is all "price action", hence the confusion over what is meant by "price action". But trading by price means simply that one is following price flow (not order flow, but the movement of price) and the imbalances between buying pressure and selling pressure that prompt that flow. It has nothing to do with any kind of indicator or any sort of bar or even any kind of chart. Is it superior? Yes, if it makes more money than an indicator-based approach. If it doesn't, then no. Does it get one into moves earlier than an indicator-based approach (including those which focus on bars)? Yes, if one understands the buying-selling dynamics mentioned above. But getting in early is only part of what is required to make a profit. Otherwise, all counter-trend traders would be rich. Though there are undoubtedly price action people who look down their noses at indicator people, the PA people have no reason to feel superior. And contrary to the beliefs of some indicator people, the PA people do not fail to understand indicators; they just don't see the point (other than perhaps scanning a database for price movements). In most cases, the latter have in fact gone through all this, as mentioned earlier, and had insufficient success with it, just as they've been dissatisfied with the chat room phase and the newsletter phase and the advisory service phase and the red-green arrow software phase and the seminar-courseworkshop-DVD phase and the trade-the-news phase and the chart pattern phase and have instead found a more comfortable fit with a focus on price flow. It's all about the money and how one chooses to go about getting it. There is no inherently better way, particularly if the trader doesn't care to do the work. A good fundamentalist, after all, will beat a bad technician any day. Therefore, if one is using indicators but has no idea how they're calculated, much less done the testing necessary to make the most of them, he is unlikely to reap the full -- or any -benefit. If one is trading price flow but embraces irrational views of what constitutes support and resistance, he is similarly unlikely to reap the full benefits of that approach. Either way, it's all about study and testing and screen time. Without that, it makes absolutely no difference how one goes about the process of entering and exiting a position.
Auction Markets
I read somewhere recently -- and can't remember where -- having to do with Market Profile, I believe -- that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. However, since "the middle" is by definition where most of the
trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic. The safest and generally most profitable trades are found at the extremes. Therefore, you wait for the extremes. Wyckoff used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). As a result of this work and of his exploration of trading ranges, he developed the concepts of support and resistance along with their practical application. Auction Market Theory (AMT) takes these investigations into support and resistance further, an organic definition of support and resistance like Wyckoffs, that is, determined by traders behavior, not by a calculation originating from ones head or from a website somewhere. Determine whether you are trending or balancing (ranging, consolidating, seeking equilibrium, etc), determine the limits of the range (support and resistance), and youre in business. The notion of support and resistance has been and is the missing piece for many market practitioners. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and, even more important, avoids trading counter-trend. These boxes -- which are simply a graphic variation of the Market Profile distribution curve, whether skewed or not, or of the VAP (Volume At Price) pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves. All of this can be very confusing to someone whos learned to view the market in a different way, perhaps less so to someone whos just starting since he has so much less to unlearn. But backing up to the basic tenets of AMT, as well as to the concepts developed by (and in some cases originated by) Wyckoff, one can perhaps find a solid footing and proceed from there. To begin with, in the market, price is often not the same as value. In fact, one could say that since the process of price discovery is a search for value, they match only by accident, and then perhaps for only an instant. Blink and you missed it. Add to this the fact that for all intents and purposes there is no such thing as value but rather the perception of value. After all, what is the value of, say, Microsoft or GE or that little stock your stylist told you about? This state of affairs may seem like a recipe for chaos, but it is in fact the basis for making a market, that is, reconciling the differences sometimes extraordinarily wide differences in perceptions of value. As Wyckoff put it, if a stock (or whatever) is thought to be below value and a trader or group of traders see a large potential for profit ahead, he/they will buy all they can at or near the current level, preferably on reactions (or pullbacks or
retracements), so they dont overpay. If the stock is above what they perceive to be value, they'll sell it (or short it), supporting the price on those pullbacks and unloading the stock on rallies until they are out (or as much out as they can be before the thing begins its downward slide). This, he writes, is why these supporting levels and the levels of resistance (a phrase originated by me many years ago), are so important for you to watch. When price then begins to lose momentum and move in a generally sideways direction, youve found value (if value hasnt been found, then price wont stop advancing or declining until it has). Value, then, becomes that area where most of the trades have been or are taking place, where most traders agree on price. Price shifts from a state of trending to a state of balancing (or consolidation or ranging), the only two states available to it. The trading opportunities come (a) when price is away from value and (b) when price decides to shed its skin and move on to some other value level (that is, theres a change in demand). This is also where it gets tricky, partly because demand is ever-changing, partly because youve got multiple levels of support and resistance to deal with and partly because we trade in so many different intervals, from monthly to one-tick. If we all used daily charts exclusively, it would all be much simpler, though not necessarily easier. But thats not the case, so we must remember always that a trend in one interval say hourly may be a consolidation in another, such as daily. The hourly may be balancing, but there are trends galore in the 5m chart. Or the 5s chart. Or the tick chart. Regardless of how one chooses to display these intervals line, bar, dot, candle, histogram, etc there are multiple trends and consolidations going on simultaneously in all possible intervals, even if theyre in the same timeframe, even if that timeframe is only one day (to describe this ebb and flow, Wyckoff used an ocean analogy: currents, waves, eddies, flows, tides). To sum up where we are so far, and keeping in mind that there is no universallyagreed-upon auction market theory, the following elements are, to me, basic, and are consistent with what I've learned from Wyckoff et al: 1) An auction market's structure is continuously evolving, being revalued; future price levels are not predictable 2) An auction market is in one of two conditions: balancing or trending. 3) Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers. 4) Change in demand drives change in price. 5) One can expect to find support where the most substantial buying has occurred in the past and resistance where the most substantial selling has occurred. Now lets translate all of this into a chart. I'm sure everyone has noticed that swing highs and lows and the previous days highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume*. Price then reverts to an area where the trader finds it easier to close that trade. That's what provides that
ballooning look to the volume pattern A in the following chart. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down.
*Volume may look big at the highs and lows, but the price points are vertical, not horizontal (as they would be in a consolidation), so the volume or trading activity at each price point is lessr than it would be if the same price were hit repeatedly (again, as it would be in a consolidation).
Note that you may have more than one "zone of concentration" (this is how jargon gets started), as in the first balloon. Nearly all the volume is encompassed by the pink lines, but there is a heavier concentration within the blue lines because of where price spends the greater part of its time. The volume in the balloon B, however, is more evenly distributed throughout the zone, partly because price spends so much time in it and partly because it ranges fairly steadily within it. Instead of rushing to the limits and bouncing back toward the center, they linger at those limits, the sellers trying to push price lower, the buyers trying to push price higher. Thus there is more volume at these edges than in balloon A, but buyers eventually fail in their task as sellers do in theirs, and trading drifts back toward the center, providing, again, a relatively even distribution of volume throughout the range. Balloon C is similar to A but much thinner due to the fact that price has made only a single round trip to the bottom of the range. It lingered a bit in the middle, simultaneously creating that protrusion in the center of the volume pattern. But volume at each end is thinner than in B, thinnest at the bottom due to the \/ shape, giving the volume if one is fanciful something of a P shape.
If price drops through one of these zones, those who bought within that zone are going to be miffed. Some of these people are going to try to sell if and when price re-approaches that zone. This is the basis of resistance. There's just too much old trading activity to work through in order for price to progress unless there is enough buying pressure to take care of all those people who want to sell what they have, then push price even higher (in which case those who sold may think they screwed up yet again and buy back what they just sold). However, those who bought or sold at the outer reaches of these zones will also be disappointed if they can't find buyers for whatever it is they just bought, not because there's too much volume but because there isn't enough. So how does one trade all this? First, you will have to monitor several intervals at the same time in order to (a) find out what interval you want to trade and (b) where price is within whatever range or ranges is/are in that interval. For example, if youre most comfortable with a 5m interval, youll want to check a smaller interval or two to see what price is up to down there, but youll also want to look at larger intervals, such as the 15m or 60m or even the daily (Im using time intervals here in order to keep this from becoming even longer than it will be, but the same approach applies whether youre using range bars, volume bars, tick bars, candles, lines, etc). Second, locate the ranges. Box them or circle them or color them or in some other way highlight them. If you find a range that is wide enough for you to trade (that is, there are enough points from top to bottom to make a trade worthwhile), get into the range via a smaller interval in order to find a trend. Perhaps at some smaller interval, price is at the bottom of that range. That gives you a good possibility for a long (or it may be at the top of the range, giving you a good possibility for a short). At this point, you have three options: a reversal, a breakout, or a retracement. If, for example, price bounces off or launches itself off the bottom of the range (support), trade the reversal and go long. If instead it falls through support, short the breakout (or breakdown, if you prefer). If you dont catch the breakout, or you prefer to wait in order to determine whether or not the breakout was real, prepare yourself to short whatever retracement there may be to what had been support and may now be resistance. A more boring alternative is that price is nowhere near the top or bottom of any range that you can find but rather drifting up and down, aimlessly. No change is occurring; therefore, there is no trade, or at least no compelling trade. Finding the midpoint of the range may be useful since price sometimes ricochets off the midpoint, or launches itself off the midpoint if it has settled there. Such actions represent change since price may be looking for a different value level. It may come to a screeching halt and reverse when it gets to one side or the other of the range and return to the midpoint, or it may launch itself through in breakout form and extend itself into the next range, if there is one, or create a new range above or below the previous range (in determining which, back off into larger intervals in order to determine whether or not price is in a range in one of those larger intervals).
Getting Down to Cases

So how does AMT play out in trading? There are several ways of locating the requisite support (upper limit), resistance (lower limit), and consolidations (or congestions or trading ranges or any sort of sideways movement). One can, for example, plot a volume distribution (the hinge [see "The Springboard"] is circled):
Drawing a line below the bottom of the middle distribution gives one a zone on which to focus, particularly when price opens below this zone (price also opened below this zone the previous day, leading to another profitable trade):
Or one can draw a box around the congestion:
Or one can use plain ol' S/R lines, noting the test of the previous day's high:
All ways of illustrating the same thing. And it doesn't require special software.
This, then, is what one should have had for the day following the previous chart, at minimum. If one doesn't know in advance what hes going to do at each point, then hes not prepared.
And this is what happened the day after that: Price finds support at B, resistance at C. Preparation, Execution, Review.
Let's see how it all worked out (same chart but drawn with Sierra): Monday and Tuesday, price tested R (C). Thursday it bounced off the midpoint of the lower trading range (D) and tested R (C) again. Friday it dropped to S (E). The advantage being, again, that all of this can be plotted in advance, saving one from having to peer fixedly at his screen for however long looking for a particular type of bar. For the coming week, the setup was the same, keeping in mind that the interface between the two ranges, at 1970, might take on added importance.
And as it turned out.....
Note that while intraday data is included in these charts, the principles of AMT apply regardless of the bar interval of the chart, even if there is no bar at all (e.g., a tick chart or a T&S digital display). The high of the range is the high of the range, regardless of how one chooses to display it. Ditto the low of the range. And the bulk of the trades take place in the middle. Therefore, whether one trades off a tick chart or a weekly chart, he can incorporate AMT principles into his work.
For Daytraders Only: the TICKQ

Trading by price can sometimes seem like trying to negotiate Manhattan with a map drawn in 1625. Any confirmation, weak as it may be, any landmark would be helpful in determining whether or not one was making the correct choices: turn here? there? move forward? go back? The trader who trades via daily charts has a number of aids at his disposal to help him make his choices: a variety of charts of indexes, sectors, groups, sister stocks and "indicator" stocks, measures of trading activity and so on. The intraday trader, however, has very little to aid him in his trading decisions that does not involve settings, calculations, or massaging of some sort, none of which are of interest to the "naked" trader. One aid, however, which requries nothing of the trader other than to plot it is the TICK (for NYSE stocks) or TICKQ (for Nasdaq stocks).
The TICK(Q) is a simple, straightforward measure of market breadth (again, either the NYSE or Nasdaq), the difference between the number of stocks trading on an uptick and the number of stocks trading on a downtick throughout the day. Therefore, if a greater number of stocks are rising, so does the TICK(Q). If a greater number of stocks are falling, so does the TICK(Q). This feature of the market landscape, then, tells the trader whether or not whatever it is that he's trading is in synch with the broader market. In the application to be described here (and referred to as well in some of the Dailies entries), the TICKQ is used to spot divergences between it and the NQ at predetermined support and resistance to confirm (within the context of unavoidable uncertainty) potential reversals and continuations. Or, to put it more simply, if your work has led you to expect a reversal at support level X and the TICKQ shows absolutely no inclination whatsoever toward reversal when the time comes, you may be well-advised to hold back from hitting that Transmit button. On the other hand, if the TICKQ reverses ahead of that test of support, you may be that much more confident that what you thought would be supoort really will be support and transmit that entry.
Note: the fact that these charts start on what appears to be the same date as the charts in the Dailies section following is pure coincidence (if you look closely, you'll see that they are in fact a year apart). These TICKQ charts are two months old because I started this project two months ago [written May '09] and got sidetracked and don't want to start over. However, almost any chart from any day will yield these same divergences and confirmations as long as support and resistance are being tested (sometimes price just sits there, thinking about what it's going to have for lunch).
In order to alleviate clutter, I've taken a pass on flagging every congestion, every swing point, every possible source of support or resistance. Instead I've focused solely on those features which are most likely to directly influence the trading decisions I will have to make that day, in this case the 11th.
Here there are multiple resistances (which can be fortunate or unfortunate depending on how you respond to challenges), beginning at about 1118 (the dashed line across those swing points, which also happens to be the upper limit of a trading range between 1118 and 1072). Above that is another potential resistance level at about 1127, which can be found either by extending the multiply-tested line from 2/24 through the midpoint of the consolidation on 2/27 on to the premarket swing high test on 3/11, or, if this is somehow overlooked, noting the swing high made at 1127 premarket and backtracking to see if there's any possible reason for it. Either way, the TICKQ is of no help here since this test took place before the open. For possible aid from that quarter, one has to wait for a test of support, in this case pegged at 1110, the top of 3/10's range.
After the open, price and the TICKQ (plotted here as a line rather than as "dots") glide southward together, not stopping dead on 1110 (it happens), but extending the test into the previous trading range's territory by almost four points. The TICKQ, however, rebounds at 09:36:30, more than a minute before price does so, and while this is not the best example of a tradeable TICKQ divergence (TD) since there's no retest of 1106 (+/-), the fact that this is all taking place at or about predetermined support may increase the probability of a successful reversal enough to provide you with the confidence to take the trade.
Price then rises almost without pause all the way to 1118, off which it bounces as if from a rubber wall. The TICKQ also turns weak here, though whatever divergence there may be is squidgy since there has not yet been a retest of 1118 (I'm tempted to call these "single dips" as if there isn't enough jargon floating around already). However, as with the bounce off support a few minutes earlier, the fact that this is predetermined resistance must be a factor in the trading decision (or management decision, if one is already in a trade). If one is trading multiple contracts, he can cash in one or more of them. If he's trading only one, he can exit and look for a subsequent re-entry. Or he can hold on for a bit to see if this is nothing more than a pause before a continuation. When price tests 1118 again at 09:43, the TICKQ also makes a lower high, this time a clear divergence. If one has not already exited, this is a perfectly legitimate and justifiable place to do so (particularly if trading only one contract).
Whether one has exited or not, he'll see when price drops to 1116 that the TICKQ makes a higher low. Price then rallies again to 1118. If the trader is short, he'd be wise to cover. If he exited his long and didn't short, now's the time to look for a reentry. If he's still holding the original long, he can lean back and feel satisfied with himself. But to address and track every possible management option from here on out would result in a very long post (and, for me, an organizational nightmare). And the point of this, after all, is primarily to explore TDs at support and resistance. What the individual then chooses to do about them even if he chooses to do nothing is entirely up to him according to his style, his goals, his strategy, his risk tolerance, and so on. So, keeping our eye on the TD ball, we see that price spurts away from this level once (first arrow), then again (second arrow), then sails all the way to 1128.
Now the resistance here was predetermined and expected (see the macro chart at the beginning of this post), but is this all there is? Might price move all the way to the more important range high at 1135? It's only six points away, but when price makes a higher high, there is a TD (the double arrow). This resistance is more important than the one at 1118, but it's not the brass ring, either. By now, however, there are a couple more things to look at that may help one hold onto his winner (or at least discourage him from shorting) if he is determined to be patient without being irrationally stubborn.
First, you clearly are in an uptrend by now and can therefore draw a guiding trendline. Until that trendline is broken, there's no compelling reason to exit (though given the TD, one should at least know where the exit is).
But, second, there is also the matter of the last swing low at 1125. Until that's broken, your uptrend is intact. And when 1125 is tested at 09:53, 1125 holds, and on the trip back to 1130, the TICKQ joins in enthusiastically. Several minutes later, however, at 10:01, there is another TD, and one has to ask himself whether the 5 extra points he might get if price moves all the way to the upper limit of the range is worth the 7 points lost if he moves his stop to just under 25 and watches it get tripped. There is also the amount of time it will take for all of this to play out, which could be a few minutes or much longer.
But, again, the purpose here is to describe the landscape, not to detail how to go about finding one's way through it. If one holds on, he will see that, when price drops below 1125, the TICKQ makes a higher low. When price tests 1125 again five minutes later, the TICKQ drops like a hot knife through butter. BUT price holds at 1125 and doesn't go along for the ride down, a subtle divergence but one worth of attention nonetheless (also called The Dog That Didn't Bark, when what you expect to happen, doesn't).
All of these events in combination suggest that the line of lest resistance is up, not down, and after one more test of 1130 and a half-hearted test of 1125, price takes off for the eventual resistance at 1136.
Now at last we get to our final level of predetermined resistance at 1136. There is a slight divergence at 10:29:30 and one can exit there or place a sell stop just below 1133. If the latter, there is a much clearer TD at 1032 and again at 10:32:30. To hang on after this would be more than a bit hopeful.
But what about a short? You're at serious resistance, you've got your TD, and you've done quite well so far. And it's only 10:30. And the target, according to AMT, is at least the other side of the is range, or 1120, sixteen points away.
Once price gets there, however, at 13:00, there's no TD. What to do? First remember that the TICKQ is not 100%. If it were, we'd all be rich. Nor is it a "signal" as indicators are (or try to be). It is a measure of market breadth, nothing more. As such, it can serve as a heads up if it diverges from or confirms movements at predetermined support and resistance, the operative word being "can". Sometimes it is mum, and one must use what else he knows in order to make a trading decision. In this particular case, you've got price at demonstrated support. You also find yourself at the midway (50%) level in the move from the previous day's last swing low to the just-completed swing high. You've also got quite a lot of the house's money in your account and nothing else to do for the rest of the day since it's raining and there's nothing on TV.
So you pat the TICKQ on the head and let it rest for a while and you either take the trade or you don't. As you then watch price take off with or without you, you watch and wait to see what happens if and when it gets to the first level of resistance, our old friend 1127 (or 26 or 28; we're not talking statistical precision here). And forty minutes later, it reaches resistance and presents you with an unmistakeable TD.
Now we embark on a return trip to support, dropping below the last swing low by one point at 14:19, and, again, we have an unmistakeable TD.
Taking the long, we then watch to see how far price gets to the upside before hitting some level of resistance and perhaps creating another TD. And demonstrating that you just never know, price gets all the way back to the high of the day before diverging from the TICKQ at 15:43.
A strong suggestion to exit, certainly. A "signal" to short? 15m before the close? I'll leave that one up to you (though price does drop back to 1123 . . . ). Price waffles around in this area for several hours, probes lower a few times, then opens the next morning at about this level. It tests resistance at the 1127 level, diverges with the TICKQ by 09:38, then drops to test the 1116 level, diverging with the TICKQ by 09:47 (by 10:22, it's back to resistance at 1136).
The Dailies
These were the result of a discussion on real-time (RT) trading and the preparation necessary to make a success of it. Doing these for three weeks, I also recorded my thoughts during my trading day (which is generally brief) for some of them in order to avoid the hindsight wisdom that is so often characteristic of this sort of discussion. Others contain my thoughts on this, that, and the other. When one is sitting, staring at a screen, these things happen. Others contain just chart annotations. I'd like to say that I haven't edited them because I'm so honest, but the fact is you can always tell.
For Mar 11 premarket

If one is going to make the best RT decisions, he has to prepare for them. The first of the following charts shows the prep done at the end of each trading day since 2/29. The second shows the prep for tomorrow (the 11th). I don't trade the ES, but it seems to be the popular vehicle, so here it is [after the 11th, I switched to the NQ]. The boxes are drawn arouind those areas where the largest number of trades have taken place. They therefore almost by definition leave out "tails". The pink lines represent potential resistance, the blue lines potential support, the black dotted lines the midpoints (not calculated, just eye-balled). The significance of all of this for each subsequent day should by now be clear.
Given where we are with regard to past ranges, it may help to go back a bit further as well:
Tomorrow's going to be a challenge given that there are three relatively distinct "value zones" from today. We'll see where we are at tomorrow's market open.
For Mar 11 postmarket

Patterns aren't so much the issue as what it is that traders are trying to do at each of these levels. The "pattern" at extremes tends to be a lot of trading activity (volume) spread out over a wide range of price in a very narrow window of time. This creates a lack of support at any given price level during that move. Thus those who for example buy on such an upmove will be the first to bail when things start to go wrong (the weak hands). This is what is meant by "sell strength", when what is meant is more along the lines of "sell apparent strength". If one has a lot of shares to buy or sell, however, he is more likely to find the opportunity to do so at a price that is beneficial to him if he trades where everybody else is trading, i.e., at the point or level or zone where the greatest number of trades are taking place. If one can get past the jargon and catch phrases and buzz words, this is what is at the core of any approach that trades via price action, whether the volume is expressed, as for example in stocks, or implied, as for example in forex. Perhaps the easiest way to illustrate it is with constant volume bars. This is a chart of what happened today. Each of these bars represents 100,000 contracts. Note that in area between 1272 and 1280, you've got 800,000 contracts. However, in the area between 1280 and 1310, the range is three times greater but the volume is half as much, so at any given price point, the number of contracts traded is less. This helps to account in part for the ease with which price retraced all the way back to 1286. Another example may be found at the end of the day. Note that there are four bars between 1308 and 1315, but only one between 1315 and 1320. This creates an "air pocket" in which one can expect to find little support.
The same pattern can be found in the NQ:
For March 12 pre
For March 12 post
For Mar 13 pre
For Mar 13 post

An interesting contrast to yesterday. Here we fell entirely out of the previous day's value range and price range. Gapped, as a matter of fact (though technically the futures don't "gap"). Not only that, we dropped below the midpoint of the entire range that began two weeks ago and came to rest at the midpoint of the heaviest volume range for this this week (see "For Mar 11 post" under "Dailies" where the volume dynamics that resulted in this fall are addressed). All relevant lines from previous days are extended with dashes to act as potential levels of S or R or both. One might expect traders to fill that gap, or at least move toward it. Absent that, a continued move down. Instead, they form a hinge. At 1000, price falls out of it but reverses before it makes much progress, perhaps finding S at the same level that the opening low did. A test. Then it takes off in the opposite direction, back toward that longer-term midpoint and the opening high. Another test. Having tested both ends, traders take price down to the low of that same volume concentration (the blue line). This price is rejected rapidly and forcefully, leading one to expect that the countermove will be as forceful, particularly given the TICKQ divergence. Instead, price waffles around for 20m before finally advancing. And here's where it gets interesting.
[Ignore the reference to posts 117 and 118; context is provided in the charts previously posted] Ordinarily, one would expect price to travel to R, at which point one could reverse or cash in and go home. But where's R? First price stops at the midpoint. But rather than bust through like it did yesterday, it falls back 10pts. Then it futzes around here for half an hour, finally moving on to the next level of "resistance", the previous day's low, filling the gap. Then to the previous day's close. THEN ALL THE WAY BACK TO THE OPENING HIGH before taking off yet again for the top of the previous day's volume range. Anyone trading one contract must have been driven crazy trying to figure out what to do, but even those trading multiple contracts would have had to be on their toes. The most logical place to exit would be a point equal to the distance between the midpoint of the opening range and the initial range extension to 1700, i.e., 1730. This point would also serve to fill the gap, more or less. But the only way to rack up those extra 30pts without getting tossed around would be to leave at least one of multiple contracts back where it was bought at 1700 or thereabouts and just leave it the hell alone. Therefore, the only "error" today was not to have taken the long at 1700. Given the number of resistance levels along the way to 1760, one could have been forgiven for taking profits just about anywhere.
For Mar 14 pre
Given [where] the market [stands] pre-open, we have to go back a little further:
For Mar 14 post

See For Mar 13 pre for longer-term context. See, obviously, For Mar 14 pre for nearer-term context.
0830 The market likes the CPI results. Contrary to what has been posted elsewhere, one cannot make any assumptions regarding a particular setup without considering news events since the success of the setup may have absolutely nothing to do with the setup itself. Therefore, whether backtesting manually or by computer, one must include events in the mix before jumping to what may turn out to be spurious conclusions. 0915 Price finds R at the old February hinge midpoint. 0940 The top of the value range for the last two days is the same, which is also where price is hesitating now. But Consumer Sentiment is due in 20m. No TICKQ divergence here. 1002 Incredible. Right back down to yesterdays low. Jeez. The drop, however, appears to be due to Bear Stearns news, not Consumer Sentiment. 1003 Sellling running out of steam. 80pts. Jesus. TICKQ divergence on the 5s chart. This is an excellent example of the information that can be found on what is close to a tick chart v a 1m chart v a 5m chart, much less a 15m chart or longer. 1020 And we come to rest at the midpoint of the days two range extensions, though since we never really established a range for the day, this isnt the proper use of the term. 1028 The VSAers would probably call this a no supply bar. Perhaps one of them will supply an analysis on the VSA thread. 1039 Volume drying up.
1040-45 A test on low volume. 1105 Enough buying pressure to take us back to the midpoint. 1113 Heavyish volume but no progress. 1130 Largeish sell order, but its absorbed. 1135 Forming a hinge with a midpoint at 1720. Volume drying up in classical style. 1202 Another sell order, apparently.
1230 Bernanke due to begin speaking in a half hour. This is a good example of when a hinge is not necessarily a preparation for a further advance or decline but just an
illustration of marking time while waiting for something to happen, in this case, Bernanke. Therefore, price drifts sideways in a relatively tight and stable range with insignificant volume. Busting out of this requires an event. 1250 A bit like batting a balloon in the air. 1430 Viagra anyone? 1440 TICKQ divergence during the test of 1700. 1520 And back to the midpoint of that hinge again. This is minor resistance, if any, but one should look for activity here nonetheless. 1528 Big effort, zip result. And 1730 is, again, the midpoint of the days volume range. This is more important than the hinge. And everybody heads off for the Hamptons
For Mar 17 pre
For Mar 17 post

Pre-mkt: JPM buys BSC for $2/share (was $30 on Friday). Fed makes emergency rate cut to try and support the markets. Um-hmm. NQ falls to last weeks low within a few ticks and thats currently acting as support. 0935 TICKQ divergence (TD) during pause after upmove off support. 0943 Appears to be hesitating at the lower end of last weeks value range. Another hinge? 0947 Test of last swing low, which is also bottom of hinge. No TD here. Price takes off in opposite direction. 0952 TD at first resistance level, 1710 (+/-). 0950 Passing thru midpoint of opening range. 1015 Slight TD at this test. 1020 And back to midpoint. 1030 Range extended to 1708. Building up some volume in this area. Also now an uptrend. 1040 And back to toward midpoint but a higher swing low. 1045 TD at test of high. Volume also considerably less. Uptrend still in place. 1050 Price continues to eat away at resistance. 1055 Higher swing low, higher swing high but price is rejected forcefully. 1100 Price testing demand line. No supply to speak of. Price dips below demand line but is pushed back above on lighter volume. 1105 Ditto 1100, though price does make a lower low. 1110 Lower high. Demand no sufficient. 1115 And back into the opening range. 1125 Another lower high. 1140 Just waffling around midpoint. Resistance is confirmed at 1708 and support appears to be 1690. So until theres another test of one or the other, theres nothing to do but wait. 1210 Price has dropped below 1690 but 1690 appears to be providing resistance against big volume. 1230 A test of the pre-market low? (which, again, is last weeks low) Big-time TD throughout.
1300 Another test of 1690, but this time theres a big-time TD throughout. Reconfirmed as resistance.
1325 And another test of the pre-mkt/previous week low. 1340 Another TD. 1345 One doesnt often see traders skipping back and forth among such welldefined value ranges. 1400 And back to the midpoint 1410 And retreats almost to the dime. 1435 Higher low. 1510 And back to resistance. And another TD. 1530 Higher price and a higher tick. Good place to exit the short. 1540 No demand here.
For Mar 18 post

I wasn't going to post any more of these, but today's may be of interest to those who get something out of these charts [there was no "pre" done for today, or it got lost somewhere, as did the comments for the post]:
For Mar 19 pre

It appears that people are reading this stuff [after all], so I'll post more for at least today and tomorrow (the next day's a holiday). These charts are largely inductive, i.e., it should be clear what they are about without my getting wordy about it. The boxes encompass those areas of greatest volume, or trading activity. Whether one calls that a volume range or volume area or value range or anything else is irrelevant. Given those and what they mean, i.e., that's where the bulk of the trading activity has taken place, price is likely to stay there. The bottom becomes support, the top resistance, the midpoint the equilibrium level, or perhaps the "point of control". Unless the day has a wild range extension off one end, the three measures of central tendency -- the mean, median, and mode -- should not be much different from each other, so when I use the word "mean", I don't necessarily mean the arithmetic calculation; I'm just talking about the middle. Today, of course, we'll be outside yesterday's volume range, but it appears we'll be inside the price range, i.e., inside the high:low, or inside yesterday's "bar". So I'll look to the top of the price range -- which happens to coincide with what has been repeated resistance going all the way back to January (the midpoint of the box from 1720 to 1840, and also the midpoint of the hinge) -- for resistance, and the top of yesterday's volume range for support, largely because that extends back to the 13th.
Otherwise, I won't do anything at all.
For Mar 19 post, sort of

Pre-mkt A dip into yesterdays range, but a bounce back to yesterdays high and close. A setup for a trend day? Without news, breakouts are dicey, and price has already found resistance at 1780. And with the extent of the move yesterday, an equally significant move is not of the highest probability. 0950 Price continues to hover up here, which means that traders are accepting this level, at least for now. 1005 Retracement to 1772, which is the last swing low. Volume is unremarkable. 1015 Hesitating at the last swing low. Theres a lot of support in general on the way back down, so if this does decline, its going to take a while. So Ill put this on the back burner for the time being. If I get stopped out, I get stopped out. Its a beautiful day. 1030 New low. Since support is a little vague today, Im going to draw a supply line and use a break of that as a signal to exit. 1035 Going back, one could now say Aha! Descending Triangle. But the probability on these is nothing to write home about. You just have to watch and wait. The key, of course, is shorting at or near resistance, not off the pattern. If one waits for the latter, hes more likely to get screwed. If hes already short, though, the people who are selling the pattern will propel him into further profit. Its a form of fronting the market. 1040 We appear to be hesitating at the pre-mkt low, which coincides with the midpoint of the range on the 12th and the bottom of the range on the 13th, and heres where pre-planning plays its most important role. What do we do in the event of a bounce here? Do we consider that to be a confirmation of support and a reversal signal? Or do we consider the pre-mkt low to be trivial and any test to be at best unimportant or at worst coincidental? Do we just wait for a break of the supply line and ignore all the points we left on the table? How badly will we feel if we exit and price suddenly resumes its descent? All of this constitutes a personal problem and all of it has to be addressed before the day ever begins. It should also be noted that weve dropped 30pts. Perhaps thats enough for the trader, and hed rather go do something else. 1105 Supply line is broken and last swing high is exceeded by at least a point. 1110 Now clearly back into the previous range. Also clearly the level of the pre-mkt low and the prior levels with which it coincided were in fact support. Rather than be depressed about not catching it in real time, one can include this bit of information in his map and develop a revised plan based on this new information. What may be most important is that traders are accepting these higher levels, at least for the time being. 1135 No tick divergence there. If resistance is found here again, and theres no TD, theres the option of shorting a lower high a la Wyckoff. Im going to plot a demand line here.
1150 Demand line broken. And sorry to disappoint, but I have other things to do. I can come back later and review what happens from here on, but that will all be hindsight, and one should keep that in mind when reading it.
1155 Carrying on, AND KEEPING CLEARLY IN MIND THAT THIS IS ALL HINDSIGHT, I must make an extra effort to stick to the rules, or at least my rules, in order to avoid the Yeah, Right. Here, there appears to be a lower high accompanied by a TD. Is the TD enough? Ordinarily not. But given where we are, at resistance, and given the small risk, and given that theres money in the bank, why not? 1205 By now, theres a lower low and a confirmed downtrend. 1210 A lower high, and I can now draw a supply line. If this trend reverses before support is reached, I can use this to exit. Otherwise, it will keep me in. 1245 We reach and reconfirm support at 1755, but there is no TD, so theres no reason to run away. 1320 Price waffles around here for half an hour before finally breaking the supply line. However, since there was no TD, I wait for the last swing high to be broken. It isnt, so I stay in the trade.
1340 By now, price makes a new low, so I can draw a new supply line.
1440 Price reaches the support level I had anticipated in the first place. And there is a TD (more easily seen on the 5s chart). Therefore, I have three choices: (1) exit immediately, (2) exit at the breach of the supply line, which takes place 25m later, or (3) exit when the last swing high is breached, which, as it turns out, isn't. Given where we were, the TD, and the extent of the move, I would have chosen (1).
1535 A new low is made and price drops to the next level of support. However, I made or would have made the best decision I could based on the information I had at the time. Not getting the extra 10 or 15 points is and would have been of no importance to me. Q: I suspect, as with many worthwhile endeavors, that I will need to study the methods of generating S/R that you use. I have a firm grasp of using PDH and PDL , but haven't found PDC to be much of use as of yet. A: I don't know that one would elevate it to the level of "method". Eventually I got to the point where I understood that all of the various groups who were addressing trading by price were all talking about pretty much the same thing. The task then became to cut away all the vocabulary -- all that was being said and how it was being said -- and focus on what it was all being said about. Though people don't generally think first of Wyckoff when the subject of "auction market theory" comes up, he was actually one of the originators of it, most of what he taught having arisen from his views on supply and demand, though rather than always meaning literal supply and demand, he just as often meant selling and buying, or support and resistance. So, to make a long story short, I stopped using candles (except to see -- literally -the relationship between the open and close on larger bar intervals; after a certain age.....), I stopped focusing so much on points, and, to some degree, I stopped focusing so much on levels and began looking for where the greatest number of trades were taking place over time. This is in concept similar to what MP calls the "value area", but one can avoid all the MP "stuff" simply by plotting "volume at price" (one can do this at bigcharts to play with). I also understood that what we call "support" and "resistance" at points, such as the PDH and PDL, or any other swing point for that matter, is a different kind of support and resistance, i.e., a failure to find a trade, and that failure is what prompts the turning point. The support and resistance found at the "value areas" or volume ranges is a similar kind of S/R in that the trader can't find a trade (or at least the trade he wants), but his problem has to do with being overwhelmed by the pressure from the other side, e.g., buying pressure if he's a seller. Therefore, the boxes you see are those areas where the greatest number of trades have taken place. One will therefore find either support or resistance or both depending on where the market opens in relation to that range, or "box" (these are easier to see than stacks of lines). Your comment was posted to this particular chart, but you would have noticed by scrolling back to previous charts that price opened on this day at February's most important resistance level. Therefore, first choice until proven wrong would be to short. Those who don't understand the nature of support and resistance might interpret this as strength, but those who do would understand that it was business as usual, the greatest number of people being on the wrong side of the trade. This is not to say that points such as the PDH and PDL and levels that price has repeatedly tested are not important (new highs and new lows do attract attention). But they take their appropriate place in a more encompassing concept of just what constitutes support and resistance. Once one grasps that, all the fiddling with "what does this bar mean" and so forth comes to an end.
Q: I noticed that there is barely any direct mention of volume in this posting. It seems you pay more attention to what price and the TICKQ is doing at S/R points than volume? Could you comment on that? Thank you. A: Volume isn't mentioned directly partly because I hope that by now it's more or less self-evident. Also, volume matters primarily (one could say "only") at those points or levels where S or R are being tested, such as at 1775. Further, the trend takes precedence at some point, if there ever is a trend. Once that has been determined, volume is pretty much irrelevant. All sorts of strange things can happen with volume that can divert your attention and throw you off your game, but, as long as the trend is intact, who cares about volume?
For Mar 20 pre

I'm hoping that anyone who's interested in this sort of thing is learning how to do this themselves:
For Mar 20 post
Pre-mkt Though we dipped down to 1710, were opening within yesterdays range and also within the volume range of the day before. Therefore, the area of interest will be around 1720-1740. 0945 1718 tested and rejected, again (even though 0830 is pre-mkt, I give greater weight than usual to the price action there if something important has been issued, in this case, Jobless Claims; volume levels are nowhere near what they will be at and after the open, but the price behavior is something to keep in mind). 1000 Back up to the pre-mkt high at 1734. If this is to be considered resistance, there is a TD here. 1035 Another TD at a higher level: 1736. This is still below the expected resistance in the 40 area, but the market doesnt always do what one expects. If one is looking either to exit a long or enter a short, he can elect to wait for an alternate setup, e.g., a lower high or a break of the demand line (which can now be drawn due to the higher high). 1045 Demand line broken, but price quickly moves back above it. 1100 Another test of 1736 and another TD. Apparently, the two swing lows from the previous afternoon at 1737.5 are more important than I thought (see dashed line above). But were spending a lot of time up here, so even though there isnt a higher high, Im going to draw another demand line. 1115 Second demand line broken, but the last two swing lows have both stopped at 1727. This may therefore be nothing more than a waffle between 27 and 36. Its also worth remembering that were approaching noon on the day before a three-day weekend. 1125 Higher high (yes, to 37.5). Another demand line. Given their angle, its easy to see the change in momentum, if one cant see it already.
1150 Demand line broken and price drops below last swing low, and this is where the rock and the hard place meet. If long with only one contract, one could be forgiven for exiting here. And Im not going to get into whether he should or not. Given that weve spent so much time at or near 37, the probability is that we will go higher. And there are all those TDs that so far have not signalled shorts after all (The Dog That Didn't Bark). But its not a certainty. So what he does should be directed by his plan. But if he does exit, he ought to be able to trade the rest of the day on paper as if he had another contract in play. If hes not willing to do that, Im dry on sympathy for all the points he may be leaving on the table, and equally dry for all the points he stands to lose if he doesnt exit and price collapses to 1680. 1200 Price starts waffling again.
1340 If youre still awake, there is at last a directed move (not just treading water and pitching pennies) toward resistance. However, the TICKQ begins to slide from 1338 forward. So if one wanted to short, he might just follow the upmove with a sellstop and stay alert for any suggestion that his short entry wherever it might be was incorrect. 1405 Lets say just for the hell of it that one trailed price with a 1pt sellstop to short and his order was triggered at 1741. What would tell him that he was wrong, that price had further to go to the upside, and that he should get the hell out? A higher high in the TICKQ at 1433? This would get him out with a 3pt loss. There is also the traditional stop above the congestion, perhaps at 1747. One can determine what it means to be wrong, very wrong, and extremely wrong, or he can just exit when things arent going as he expected and reassess the situation from a neutral position (which is what Wyckoff suggests). On the other hand, if he were still long from an entry at the open, hed have to have a good reason for having held all this time. This is not to say that there isnt one, but, again, all of this would have to have been thought out in advance. 1445 A pullback from a higher high. And, once again, this is where a trendline comes in handy for preventing one from trading countertrend. 1510 Now at the next level of resistance.
1530 Trendline drawn from midday is being tested, and were only a half hour from the close. If one is long, there are several places to exit, and no one could fault the trader for taking any one of them: exit at the TD, exit at a breach of the last minor swing low, exit at a breach of the trendline, exit at the close. What matters more than the choice one makes is that the choice be thoughtful and not the result of doubt or anxiety or fear or panic or greed.
Im glad that this day unfolded as it did because it shows graphically that using a TICK or TICKQ divergence as a definitive signal is a misguided tactic. At best, it is only a contributor to the information one gathers in order to make a trading decision. If one were determined to short, he could have used a TD as a signal to short at several different points. But he would have been incorrect in doing so. If he were long, he might have been frightened out of his position prematurely. Its price, volume, demand, supply, support, resistance, trend. All of it. And if one is trading the NQ or ES or QQQQ or SPY or even the YM or DIA, the TICK or TICKQ may have some value. But its whole cloth, and one must be open to the interactions amongst all of these elements in order to understand just what is going on. Getting wrapped up in VSA-speak or MP-speak or candle-speak or whathaveyou-speak may make things clearer, but just as often it clouds things up more thoroughly. Think, study, watch, experiment, keep careful and detailed journals and logs, and eventually you will make sense of it without having to drink anybodys KoolAid.
For Mar 24 pre
For Mar 24 post

Pre-mkt A little BSC/JPM news lifts the market into the midpoint of the volume range. So we wait for a test of either support or resistance. 0940 And here we are at resistance. 0945 Spending a lot of time up here. 0950 Absorption and distribution are much like the cup-with-handle and the triple top: its easy to see in hindsight, e.g., the day or week after, but a bit more difficult in real time. Fortunately, one isnt required to make the call in real time. All he has to do is trade whats in front of him. 0955 They seem to be waiting for the housing report. 1000 Price didnt drop below the last swing low. 1005 Buyers are in control, and theres a nice pause here after the breakout. Next resistance is at 1820. Time for a demand line. 1025 Price has consolidated again and made a new high, so time for another demand line, this one at a more acute angle. 1035 At some point, these lines will be broken, and the trader will have to have decided ahead of time what hes going to look for in order to decide whether to exit or hold, e.g., a break of the line, a break of the last swing low, etc. There arent that many possibilities. 1045 Demand line broken, but last swing low is not breached. And if the importance of this is not obvious, price can just as easily make a new high and create the conditions for drawing a new line or adjusting the old one, and a trader just jumping in here with a short would be f**ked. Waves getting very shallow here. 1050 Second demand line broken, but last swing low not breached. The LSL Is also on the same level as the first demand line. 1100 And everything gets very quiet. Not quite at resistance, but the upper level of this zone has been in place for two months now, and a hesitation anywhere near this level is to be expected. On the other hand, weve moved 45 points, so anyone deciding to exit and take the rest of the day off could not be criticized for doing so. On the other hand, there are those who grabbed quick profits 30+ points ago.. And again, he who trades more than one contract, or whos trading two or more lots of QQQQ, has more options available.
1110 Extreme dryup in volume. No directional movement. This above that earlier consolidation at 1800. A lot of people would see this lack of activity, or volume, and shrug it off. But it all counts. It all adds up. 1145 A new high, but it runs into a stone wall. However, the TICKQ also makes a new high, so lets not jump into anything. 1155 Volume dries up again, price holds. 1230 And we make a new high at resistance. 1245 And a higher high, so we can draw a new demand line. 1255 And the demand line is broken. 1300 Volume picking up on the downside. 1305 But no follow-through. 1320 Volume dries up again and more sideways movement. Again, one must decide in advance what hes looking for and what hes going to do if and when he sees it. Once a trade is in profit, the rest is just management. If one wants to exit early with only a few points, thats his choice, but he ought to be honest with himself as to whether hes making that choice out of fear or ignorance. Or both.
1330 A half-hearted test on low volume. 1350 And we test the bottom of this little range, again on low volume. 1400 A little test, but sellers overwhelm buyers (or sellers orchestrate the poke in the first place, but what difference does it make?). 1420 Price being boosted from 1818, but pulled back from 1826. Its funny that the wires are attributing todays rise at least in part to the housing report, funny because even though sales were up, prices were way down. Duh. Fact is that the reports were only an excuse. The market rose because demand outweighed supply, and the reasons were many. I mention this because somebody whos new or newish at this might think that the housing report is terribly important, and the next time it comes out, hell be ready to pounce. But since the report really has nothing to do with todays rise, he will most likely find himself on the wrong side yet again, confused, and ultimately frustrated. Its demand, supply, support, resistance, price, volume. Anything else is just filler for those who just have to know why?, even though the answer is completely irrelevant and often silly. 1505 Volume appears to pick up to the downside, but its actually the opposite.
For Mar 25
Pre-mkt As I pointed out at the end of the day yesterday, volume appeared to be picking up to the downside, but it was actually the opposite. That it appeared to be picking up to the downside is a function of how one chose to view the data, i.e., the longer the summary, (e.g., 5m, 10m, etc), the more inaccurate the presentation. Therefore, one using a longer bar interval will see weakness where there is actually strength. This strength was particularly clear at the close and shortly thereafter, when price rose all the way back to the top of the days range. This morning, price dropped back again to the bottom of yesterday afternoons range, but the selling was half-hearted, and price was easily propelled upward thereafter to yesterdays high. Midday Wrapup 1000 Loads of volume up and down between support and resistance, but trading a narrow range can be a challenge. One has to be very explicit about what he sees as a reversal signal. Or just say the hell with it and take the money at a predetermined target. The problem with the latter, of course, is that one makes a habit of cutting his profits short. Over the long haul, this is a failing strategy. 1005 A drop below support, but buyers are trying to stop it. 1015 And were back above support, but hesitating at the opening low. 1025 And to the midpoint of the range. 1045 Price pushed back nicely into the midrange. Traders are clearly seeking equilibrium. 1120 For those who are still awake, note how volume has subsided during this period, except for those occasional little nudges to the upside. 1200 Zzzzzz.
Intermission I've been asked why I didn't take the long off support this morning, and the reason, though good for me, really has nothing to do with this blog, and I should have posted it. Who am I to make decisions for other people? The reason is/was that I don't like trading these itty-bitty ranges. I don't like hanging around on a beautiful day to make just a handful of points. But not everybody feels that way. After all, there are lots of places where the weather is crap. So here you are. The principles and tactics are the same. You have price dropping to a support area (given the extent of yesterday's rise, I'd hesitate to establish a hard level as support). There is a potential selling climax at 1000 and a test at 1003. And all of that is fine so far. However, in order to gather up the will to take this trade, at least a few traders would want to have something to go by besides just a maybe-maybe not support level and volume that they might not be interpreting correctly. And the "test" is a higher low, so any divergence in the TICKQ would appear to be irrelevant.
However, all is not lost. If one were to drop down into an even smaller interval (bad news for those who can't handle even a 1m interval), he could see how price drops below 1808 on moderate volume, recovers, then tests on slightly less volume, though here with a divergence in the TICKQ. One could then enter at or around 1809 with a little more confidence in the long. And if it didn't work out, the stop could be extremely tight.
The morning in its entirety:
And the afternoon. 1350 And at last we make a new high, on decent volume. However, absent news of some sort, breakouts into a range extension are often aborted. This doesnt mean that one shouldnt take them, but he may want to rethink the stop for these situations. He may also want to keep the next resistance level at 1840 in mind. Where to enter? Consider that little pause along 1830 immediately after the BO. 1430 And were back at 1830. 1435 Price drops just below 1830, and while the demand line is broken, price breaches the top of the last swing high by only a couple of ticks. How nervous one might get would depend in part on whether he entered off support like he should have (sorry; see Intermission, above) or at the breakout above the days range. 1505 Tickling the next level of resistance here. 1530 Repeated tests of 1840 accompanied by higher lows and a decline in volume. 1545 And phffft!
For Mar 26
Looks like we open in the middle of yesterday's volume range, so we follow the drill: buy support, sell resistance. First resistance is the top of the range, second resistance is the range extension.
Mid-day: 0945 A subtle TD on the 5s at 0941 as price hits what may be pre-mkt resistance. An aggressive short. 1000 New Home Sales. Price rejects support but no TD. Volume to the upside is unremarkable. Even so, if short, and if one were certain of support, this would be a potential exit, 1010 And back to the midpoint. 1025 Forming a hinge of sorts (its not quite filled with price) at, of course, the midpoint, with the accompanying decline in volume. 1035 Another test of support. A moderate TD on the 5s in that the T is the same but price is lower. No long trade here unless very aggressive. 1045 Another test, but theres no demand here. Volume was heavy on the downside, and shouldnt be. Doesnt have to be a higher low, but the volume pattern should suggest buying pressure, not selling pressure. If still short, this is a good reason to stay in. 1050 At yesterdays low. No TD to speak of. But selling appears to be done. Therefore, an aggressive long could be taken here. If short, a potential exit. 1055 Supply line, such as it is, is broken. If still short, another potential exit.
1100 And back above the first support level. 1155 And back to the midpoint.
EOD 1500 At resistance, finally. Theres a slight TD here between 1500 and 1501, and the T slides dramatically during the 7 or 8 minutes that price spends up here. Volume subsides dramatically as well. 1515 And back toward the midpoint.
Q: At 1045, you say "Another test, but theres no demand here. Volume was heavy on the downside, and shouldnt be. Doesnt have to be a higher low, but the volume
pattern should suggest buying pressure, not selling pressure. If still short, this is a good reason to stay in." I just need some clarification here: do you say volume "shouldn't" be heavy on the downside because price is at support and therefore you would be looking for a long. And you see that since there is heavy volume on the downside then that potential long would have to be nulled for the time being? Also at 1050, you say "At yesterdays low. No TD to speak of. But selling appears to be done. Therefore, an aggressive long could be taken here. If short, a potential exit." How did you come to the conclusion that the selling "appears to be done." Is it because of the re-test with price being rejected higher very quickly? Or that because there was very heavy volume to the downside you would expect price to go further lower but it didn't do that? A: A. Yes. If looking for a long, you don't want to see continuing heavy volume on the downside. At the very least, you want to see lighter volume on a further test, if any, such as at 1050, though by then you will likely also want to see a break of the TL. B. Yes to both. Keep in mind that these were done in real time while watching the price and the volume bars move. I saw that volume was lighter as price tested 1807 at 1048 the first time, then much heavier as it tested it again two minutes later, at which point the volume subsided dramatially and price bounced, waffled for a couple of minutes, then never looked back (or at least for an hour). If one isn't watching all this in real time, then it's necessary to get into the bar with a shorter bar interval to find out what's going on in there. 5s ought to do it. though one can go down to a single tick if he wants to. This isn't a method but a process.
For Mar 27
It appears that we are going to open within yesterday's volume range and price range, so the drill's the same as yesterday: buy support, sell resistance.
Mid-day 0940 Hits and rejects the pre-mkt low. 0950 Rejects 13.5, then retests and rejects again. 0955 Testing pre-mkt low again but spending much more time down here. 1000 Testing the opening high again. Attempts to move higher fail quickly. Buyers just cant get it together so far. 1005 Given that price has spent so much time at the bottom of yesterdays price range, the likelihood is that we will drop out of this. Shorting breakouts absent news, however, can be unsettling. Waiting for volume increases the odds in ones favor. 1010 If and when we fall out of this on volume, will look for first pause. 1020 And here we go, with a pause at 1803. Price spent much of February between 1820 and 1780, so theres a great deal of potential support throughout this range. However, the action on Monday may have created a short-term air pocket. So Im using 1780 as support until the market tells me different (see chart I posted pre-mkt). 1030 Potential selling climax, which makes some sense, given that 1800 is the midpoint of the 1780-1820 range, and support could be found in this area. 1035 A continuation of the climax, or a secondary climax (the latter may seem like a contradiction in terms, but what may appear to be a climax in real time may be only tapping the brake; the decline can continue, though momentum may slow). This
time there is a clear rejection of price, here at 1794, including a strong rebound. If a candlestick fan is into blending bars, there would be a hammer here. 1055 A higher low at 1050. 1115 We hover at the midpoint of the 1780-1820 range. For the time being, its acting as support. 1120 Higher lows. 1125 Higher highs. 1135 Price continuing to rise on moderate volume. Supply and demand lines can be useful here. 1145 And back to the opening low. 1150 And to the midpoint of the opening range.
EOD 1210 Test of the opening low. 1235 And we make it to the top of the opening range. Theres no appreciable TD up here, but, again, a candlestick fan who blends bars would have a shooting star here. 1250 Lower high on pitiful volume and a break of the extended demand line. 1320 Another lower high.
1325 Another test of the opening low. 1340 And back to the midpoint of the larger range (1780-1820). Potential selling climax. 1345 Retest on lower volume and an immediate rebound. 1355 Higher low and higher high. 1405 Buyers cant hold it. 1410 Buyers drive price back toward the midpoint. I should point out again that trading around this area may be difficult. Moves toward the midpoint from the extremes tend to be easier and more profitable than moves away from the midpoint toward the extremes. Therefore, as Ive said before, anyone trading only one contract is going to bring a lot of baggage to the party unless he decides ahead of time whether hes going to exit at a midpoint reversal signal and papertrade the rest of the day, or hold onto his trade and risk ending up at breakeven for the day, all of which has to do with the trader and none of which has to do with price action. 1420 And a test of the low of the day. Huge volume and another potential selling climax. 1440 And back to the midpoint. (See what I mean?) 1445 And no demand. 1500 And volume picks up to the downside. All of this is relatively meaningless, however. Were pulling back and forth, six points either side of the midpoint, like a dog on a leash. Anyone trying to trade this probably has way too much time on his hands. 1530 Another test of the days low, and this time price isnt bouncing quite so exuberantly, and demand is weak. Buyers are likely sweating here.
1540 And volume picks up to the downside. 1545 So we are six points from support, a slight TD, and 15m to go before the close. Do we exit? Or hold till the close? 1550 Demand not materializing. 1559 Still no demand, but this is good enough.
For Mar 28
Since this will be the last in this series, I've decided to do ES just for the hell of it. I haven't traded it in dog years, and even then I I didn't focus on it, so there may be more unpredictability here than I anticipate. On the other hand, I see no reason why the principles and tactics I've detailed in this series over the past three weeks shouldn't apply here as well. We'll see.
Looks like we're going to open within the previous volume range, so, again, the same drill: buy support, sell resistance. Mid-day 0940 1335 is presenting resistance issues. And the opening low, coinciding with support, is expected. Midpoint of this particular range is 1339, which price rejected pre-mkt. 0945 1330.5 rejected twice with a TD. 0950 The above setup invalidated just a couple of minutes later, but a long would not have been triggered anyway. However, there is clearly support between 29 and 31. For the aggressive trader, there is a retest and long entry off the 5s. 0955 ES sluggish. NQ performing much better. 1000 And here we are at 1335 again and no TD (keeping in mind that the TICK is linked to the NYSE, not the S&P). If the T can be relied on, price will likely go higher. 1010 Price goes higher and 35 appears to be acting as support, but theres no follow-through. Could be considered a retest and rejection of the midpoint. Or resistance from the lows of Wednesday (which are also the bottom of Wednesdays box). Also note that all of this coincides with news. Given that theres a TD here, there is a justifiable short. 1015 Below 35 again.
1035 35 again tested as resistance. 35 now formidable. 1045 A rejection of support area again and on high volume. For the sake of consistency with what Ive been posting these three weeks, this would be the place to prepare for exiting the short and taking a long trade. 1100 No TD on the poke below 28. Wait for higher low and/or break of the supply line. 1120 Gratifying to see that I was correct about 30 to begin with, not because I was correct, but because it validates the application of what Ive been doing with the NQ. 1200 Another test of 1335. No TD, but this price is rejected decisively. The trader has to consider exiting his long and shorting again. 1215 And here we are back at support. 1245 Price tries, but it cant do it. Instead it drops toward yesterdays low. Volume is on the downside and theres no TD, so no special reason to cover or reverse. Next level of support is 20.
EOD 1515 And here we are at 1320.

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Trading Naked

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Reading, The First

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Reading, The Second

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Reading, The Third

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Getting Down to Cases

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Or one can draw a box around the congestion:

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And as it turned out.....

For Daytraders Only: the TICKQ

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For Mar 11 premarket

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For Mar 11 postmarket

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The same pattern can be found in the NQ:

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For March 12 pre

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For Mar 13 pre

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For Mar 14 pre

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For Mar 14 post

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