KEWLTECH

Issue 089 - How Weee'd A Chart - Part 5

2013-03-03T19:25:00.001-08:00

Yeah it's been a while since I've written something or even write about my angst about some maroon. What should I write about anyways when everything about chart reading has been said. But I should state the more obvious and less trivial and most logical of all. Enter big angst.

Lower Time Frame Follows The Trend Of Higher Time Frame!

It's completely technical. It's completely logical. But why do people think that the lower time frame can do the unthinkable is beyond my comprehension. Perhaps all the pre-conditioning of hearing about false pops and drops but people who read this blog still do the same thing. The problem when I listen intently to what the issue is, is they completely lack the understanding of the basic concepts of what technical trading is. Seems pretty harsh but that is what it boils down to.

Sure they have bits and pieces. Sure they can identify what certain things are. But when you press them to explain it from one time frame to another...the simplicity that they know. The simplicity that allows them to do what they already can turns into mental diarrhea. It becomes completely obvious that the thinking employed to read the chart is really gimmick based not by clear concise thought. If your thinking is not in the infantile gimmick phase, you would be able to see the momentum, see where you are in the price action phase as momentum shifts and know based on the leg where you are and how is progression building up or down momentum. Sure they can regurgitate the content from blog to help them along but the full meaning fails to register when they go from one time frame to another. The thinking process goes from simple to insane complexity in 3 seconds.

Momentum, Price Action And The Leg ... And Brain Damage

Where they fail is at points of consolidation. Ironically these are the points where accumulation and distribution occurs. The place where a leg start is. The place where they know momentum shifts as liquidity changes the price action from moving singularly in one direction up or down to sideways. So you ask them, here is the leg start in the 15 min chart, what should price do when we reach this previous area of support or resistance? Should it bounce back or run through on the first attempt? They will answer correctly that the price should repel. Then you ask them, where should you see this change in momentum happen? They will then correctly say in the lower time frame. Ask them why. They will say .. Change happens first in the lower time frame. So they go to the lower time frame and that is where the "brain damage" (say it the Bill Cosby way) occurs.

It's been accumulating but the price continues to go lower. Did it reach the leg start yet you ask them. No answer. Then they say well its been sideways and been choppy. It just keeps going up and down. I think it will go lower. Then the price pops up and kills them.

It's been distributing forever but the price keeps going up? Did it reach the leg start yet? I just told you its been distributing but the price keeps going up. It isn't doing what it should to go to the leg start. So they go long and the price drops and kills them.

Then they say...
How the hell did it just pop or drop that hard when all it was doing were these little pops and drops?

Major Freaking Brain Damage!

What is going on? Why so brain damaged? It really is quite an annoying problem. From my perspective, the lesson has been taught in many ways. Biggest clue is how a 2bar reversal can look like a head and shoulders in a lower time frame. It was a huge paradigm shift for me when i realize the significance of that notion. This is a huge hang up if you really don't put two and two together. While price action is producing this huge distribution or accumulation pattern as the price action goes sideways in the lower time frame, and probably 1or 2 candles in the higher time frame,
3 things happen:

They forget the higher time frame 1st touch
And in forgetting, they think the move will bust through that higher time frame level.
This happens because they forgot that they are moving sideways from the original leg.

The brain damage goes on further.

They ignore the decline in the momo. They have no clue that the sideways movement with the decline in momo were breaking down levels of support or resistance for the first touch --- ergo even fail to recognize the progression. They fail to see, to recognize basic chart patterns and how they work. That as you progress further to the left...you break down the momo of the bigger leg where the sideways action started from. What does that mean?

When price moves sideways...what was it doing before it went sideways? Since I really do have to spell it out. If you look a little further left...you should see a big leg up/down. You would think that if you see a first touch coming from the higher time frame, that people who claim to read this blog would come to the clear and logical conclusion that the lower time frame would start to dist or accu by losing momo as the pa moves left, as the pa gets new lows or new high on lower macd, as the pa goes toward that higher time frame level of support or resistance. Why? Is it not by definition that accu happens after a move down and dist after a move up? To prepare for the expected response for the 1st test of that higher time frame level of s/r. And while all this stuff is happening...why do people still ask where will it go even if they recognize the set up? Do they not understand the progression and legs? Obviously your target should be the leg start that hasn't been tested. But it is the obvious they want to disbelieve. It becomes so obvious that people are oblivious that even the basic chart patterns, definitions and constant repetitive way that price and momo moves or behaves is not readily available to them. They only know the setup they like to play but even in full detail. Oh hey this is a double top this will move all the way down to the leg start..and then pops hard at the leg start of the first valley.

Goes back to level of understanding. What they don't get, they make up. Sometimes the rational provided is incredible. Almost like listening to the news. The effort to understand is limited to the gimmick trade setup that becomes their favorite arsenal to trade. It works till it don't. There is no real understanding even if they get it right. They couldn't describe it to specific details and conditions. And so if they are not savvy enough, they play those gimmick moves they adopted in the wrong situation. They go long to the moon when they should have shorted or short to china when they should have gone long.

Don't be brain damaged. Learn to put it all together!

Issue 088 - How To Weeee'd A Chart - Part 4

2012-03-06T03:01:00.000-08:00

Happy New Year!! Alright, the last few issues, we saw how momentum works through its 2 engines - Accumulation and Distribution. We also saw how the price action looks during these times when momentum is shifted from selling to buying and vice versa. We touched on a little bit on how legs help you determine how levels are gained and or lost. This last bit of info that you need to start understanding what you are reading is one of the most significant things you must learn to spot significant levels. The only way to spot them is by reading and understanding the price action. These things are called "levels", "support", "resistance". Some other people call them "poc" and all its variations (vpoc, mr. spoc). People don't get these levels and they don't really understand why the market did what it did because they don't know that the price will always target the previous support it lost that eventually allowed the price to cascade down to where the price found support to start the rally or move up. People come up with stupid calls like "false pops" and "false drops". Logically they can't say it was false because it happened. But if these were logical folks to begin with, they would understand that the market consistently move in the same manner over and over again and there is no such thing as false pops and drops. Its just idiocy to think that way. It also gives them an escape should they fail to read the move correctly. "Oh yeah, it did this false pop/drop just to shake me out of my stop and you know those big guys are taking my money."

The progression is clear. What are false pops and false drops? If you read a little bit about legs, you would understand that those "false" whatever always seem to hit, the leg start. Through that simple mechanics, it is far from false, but a constant function. And we know that the momentum is setup through progression to support the resulting move after the "false" move occurs. False whatever will always happen near a leg start.

What is a leg start? Leg starts are significant levels of support or resistance. It is generally near the tops or bottoms of a move up or down. They are the level where you will find your consolidations forming their base whether it be a peak or valley. It is the initial level of support and always the last level of support to be tested on the leg. Understanding how to identify levels of support/resistance and differentiating them as leg starts and understanding why they are key levels is a skill that a trader has to gain.

I wont go over the entire blog entry on peaks and valleys, but what is key is what the key level of supports are from those peaks and valleys. Peaks and valleys are the start of legs. Their tips are the result of testing of previous support or current support. And they are key in the progression of accumulation and distribution as a collection they are the top part of head and shoulders and double top or their inverse chart pattern counterparts for accumulation patterns. And they are also produced as juts up/down on any move up or down which are more prevalent in lower time frames. So far, all I've told you is obvious stuff.

So lets talk about something not as obvious.

When retracing back up/down a leg, one way to find a key level at the peaks or valleys is to find the candle that closed above(for the move up) or below(for the move down) the key level of support. In order to do this, for the retrace up the leg down, you must understand the move up from the leg before your move down. Generally both these levels for the move up or down is the same level.

Off this weekly chart, in order to understand why this level here is significant, you can first get your first clue from the immediate leg to the left. From here, you are interested in the 12/20 candle. This candle closed above a significant level of resistance in order to gain a level of support. And the 12/13 candle demarcates the level of interest as the level that it could not close above of, by wicking there.

Now sometimes the candles are not so straight forward. That is why I suggest that you look to the leg to the left of the current leg.

When you zoom out, you get a better sense of how important a level is. The logic of understanding the mechanics is simply: what is the level that a candle such as the 12/20 candle had to close above in order to gain a level of support. The qualification is gained by looking at the price action where the level acted as resistance: first by wicking there as resistance or support and second by doji's. How do you localize these areas? Look for peaks and valleys. Look at the level where they congest. Look at the base of their congestion. And then look for the relationship as described above.

As you can see from this example, the support found in 3/14/11, was a support they tried to hold from 7-9/08 and 5-7/06, was a level of resistance in 7-9/05, support in 5/01, 10/99 and then finally the level of support gained in 12/28/98 that was the level of resistance in 12/21/98.

So how does it look in a daily perspective or a lower time frame? Much like the weekly as you can see the expected relationship or mechanics is observed. An area of consolidation before the move up is also, a leg start. It is all just rocket science.

How To Weee'd A Chart -- Part 4 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 087 - How To Weeee'd A Chart - Part 3

2011-12-01T13:51:00.000-08:00

Okay, so we sorted out what momentum is and how it is generated. Those are part of the basics of momentum. And the key thing about volume is the type of volume coming in. And then, how it will change the outlook overtime as it progresses. Again, what we are going over are basic tenets that you should understand when looking at a chart. So far what we have covered is a lot of rocket science. Mind blowing stuff.

The next thing to understand is the price action. And how you can relate what is going on in the momentum, to the price action. Again, the point here is that if the market will pop or drop, in whatever time frame, it will setup a change in momentum to facilitate that move. Change will always start in the shorter time frame first.

When it comes to price action, you can gain a lot of insight on how the price and momentum has moved and should move. You can also discern the process of accumulation and distribution. These are generally manifested in those many chart patterns. It is well worth your time to become familiar with chart patterns as they can give you some confirmation of what you are seeing. And it is also well worth your time to understand how momentum looks like when such patterns work and fail. Since the market does the same thing over and over, you should find commonalities in the momentum with the price action. A type of finger print if you will.

Now, remember this chart? I purposely removed the price and the time frame because people make quick judgement about what they are seeing. This is the weekly chart of the ES, and the peak that we see here, with the big candles and such, many would say that there is no way to understand how to play that. The candles of 10/24 - 11/14. To tell you the truth that is how I thought before. Now as I've said, that change happens in the lower time frame first.

When did the distribution start for this same chart but this time in the 4hr time frame? It started at about 10/11. That is how the lower time frames can show you how change is happening. How the weekly candles from 10/24 - 11/14 was produced. People have to learn how to use their charts and time frames to their advantage.

Now why did this structure in the 4hr seems so huge comparatively to the weekly? Could it be that it is because the weekly is a huge time frame? Of course! You also have to get the proper timing of setups and must understand that the higher the time frame the more significant the setup is on the lower time frames. Quick question. If you are looking at a huge time frame like the weekly, does it represent more volume per candle and therefore more volume over time done that of a 4hr chart? If you can answer that, then maybe it will make sense, as to why it took so long.

Here is our leg down from 7/4. When we popped up to where you see #4. That is the fist test of that previous support that we lost the week of 8/1. And the rule is. First test you will fail. So what did the 4hr tell you? That since 10/11, it was already distributing to prepare for the move down. Was it the news? Do you need a phD to understand this simple concept? But then you will say. "Dood. This is on a weekly and 4hr basis." And I will respond back with. "Dood! I'm not gonna hold your hand. Do your own research in the lower time frames and see if it does it too!" If you do find that it does, there you can probably say, there is consistency in the technicals. And you will then scoff at the person who said. "T/A doesn't work because the fundamentals are too volatile."

Well that is first thing you should understand about price action.

How To Weee'd A Chart -- Part 3 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 086 - How To Weeee'd A Chart - Part 2

2011-11-30T16:39:00.000-08:00

Well, someone just forced my hand. Someone from Grapevine, Texas. We will talk about Volume next.

I think you have missed the difference between accumulation and distribution based on volume. The lack of volume from the dates posted above does not denote distribution or accumulation. The area of the chart that is missing is 7/25 to 8/8 is a good example of distribution. From 9/12 to 10/15 is accumulation. Any certified T/A person would easily see this in the volume you are discussing and would consider this a mild pull back before a continuation. Mild pull backs are healthy but not an indication of direction until accumulation or distribution comes in to start the next move or leg.
Anonymous
Grapevine Texas

To answer the comment. I believe I know what accumulation is and clearly what distribution is. However, since the anonymous person eludes that they are a certified T/A person. "Any certified T/A person would easily ".

Volume

Everyday people note what the volume that traded in the market is or was. Volume is basically all the trades for the day. It can be further subdivided to 2 components. Advancers vs Decliners. Buyers vs Sellers. When you talk about advancer's, these are buy orders. When you talk about decliner's, these are generally sell orders. Lets keep it that simple. I think many people can go on about it with tons or rhetoric. In simple terms, overall volume consist of buy and sell.

Volume when it comes to momentum, is about the cumulative effect of the buying and selling that goes on in the market. Cumulative means that all the buying that occurred will contribute to the out look of what is already in the history of the stock or market as well as all the selling. If for instance, the stock has experienced primarily mainly buying in its history, then the overall volume of the said stock consist primarily buy volume.

Why is volume so interesting? Why do we even talk about it? Because it is what makes up the overall momentum. It also helps define the trend. It is what is being offset to produce periods of accumulation or distribution. How so?

If the stock or market experiences primarily, buying, it doesn't really mean that there were no selling. It just means that the overall volume were buy orders. And of course you will have sell orders. Why? Because there will be people who will sell to take profits. Some people are also trying to short it. Over time, if the amount of buying tapers off, the cumulative volume that already has taken place in the stock/market that happens to be selling, will offset the cumulative buying volume to make the stock go down. It is a mathematical process.

So let us talk about this Accumulation and Distribution.

Accumulation StockCharts.com Definition

The act of buying more shares of a security without causing the price to increase significantly. After a decline, a stock may start to base and trade sideways for an extended period. While this base builds, well-informed traders and investors may seek to establish or increase existing long positions. In that case, the stock is said to have come under accumulation.

Ah, this is one of the first blog entries I wrote. And so our reader said thus: "From 9/12 to 10/15 is accumulation."

Well let us see the chart for what our reader was referring to.

The first chart is the weekly. And the 2nd chart is the 4hr.

First lets look at his weekly. The leg going down at 9/12 to the pop is his (just to help me out, i'm gonna give our person a male gender, I'm sorry if you are actually female, no offence.) accumulation. Does it fit the definition?

"The act of buying more shares of a security without causing the price to increase significantly. After a decline..."

Nope. Because it went down first then popped. The price did change significantly from the said period. There is accumulation that occurred there at the 10/3 area, but the strength to push the price up all the way to 10/24 high actually the result of the accumulation from the tail end of week 8/1 to about 10/10.

Is this not what accumulation should look like based on the definition above? So what you have from 8/1 to 10/10 is the sideways movement that is by definition of what accumulation is. And then the resulting pop. Now this pop in the weekly is not a strong bullish accumulation. This is where some people will say there is a "hidden" divergence. Go read my blog entry for that. I'm not going over that again.

Now let us discuss what happened in 10/3 for the pop. As I've said, the pop that perhaps our reader suggested, is not the pop responsible for the larger move that occurred overall. The momentum is the product of the accumulation as discussed above. What is responsible then 10/3 pop?

Well there are 2 factors here. 2 time frames.

The weekly trend built up by the accumulation we noted above wanted to pop this up.
The shorter time frame (which we will see next) shows you the pop that occurred on 10/3. Is also in response to the larger time frame trend. Higher the time frame the bigger the move. 8/10-10/10 is the wide base, that my chart expert teacher, Asbucky, taught me, will be followed by wide space. The big pop up the the start of the leg down of the previous high at 7/4. 1st test pop, ergo, we pull back.

Now this is a 2 stage accumulation with a new low produced. The accumulation was built up by the buying that occurred from 9/22 to 10/4, produced a positive divergence in the macd. Boom!

Honestly, I don't recall saying lack of volume. But I do recall saying lack of buying. Does that not seem more accurate? If you were to draw a wedge, to that said spot where we sold, isn't that the proverbial bear wedge? That as you go up the wedge, you will increase in sellers and decrease in buyers? How do we see the said distribution?

Interestingly, I made this chart a few weeks ago to show that volume dropping to one of my buddies, who is trying to learn to see how, instead of volume charts, I use the macd. And you can see the weakness here already. So lets look at the reader's point about distribution.

"The area of the chart that is missing is 7/25 to 8/8 is a good example of distribution."

Now, according to this chart, he is actually saying that the move down is distribution. Hey, this person is potentially a certified T/A. I can't argue but to use the facts as defined by other experts hired by StockCharts.

Distribution StockCharts.com Definition
The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security's shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices.

Do you see the similarities in the definition of Distribution and Accumulation. It isn't the resulting pop that is accumulation. And neither is the resulting drop that is distribution. It is the sideways movement of price and offsetting of bullish/bearish volumes to bearish/bullish volume respectively. So our reader is against the definition provided. How well is the definition given?

A picture is worth a 1000 words.

So what was I referring to in the previous blog entry?

Is it not the same?

Now, a little more about volume and dropping of volume. Volume can drop and it does so regularly during the day. If you believe that there is such a thing as trend, you will also understand that when volume drops, the trickling in will always follow the greater time frame trend.

As you can see in the charts, when it comes to the divergences, the process of accumulation and distribution takes time to take affect. Dropping of volume does not necessarily mean that you can expect an immediate turn around in the price action. That depends also on the time frame. But if it does drop, the greater trend will be followed. That is just what you should expect because it is the trend.

Thank you for a very excellent blog comment.

How To Weee'd A Chart -- Part 2 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 085 - How To Weee'd A Chart -- Part 1

2011-11-29T10:51:00.000-08:00

If you're wondering what the hell "Weeee'd" is, its a play with words. I really meant read. Even in our little group, the skill of reading the chart properly is lacking. It is a confounding issue. What is actually happening is that people don't incorporate a lot of what they learn to the basics. It just seems people would progress faster if they actually understood the basics. But what are these basics?

Basics include the vocabulary. Not just being able to talk the talk. You can go into any chat room and you will find people who can talk a good talk. But if you ask them to explain the exact detail, over 90% will fail. Where they will defer to is to talk about the news, politics and whatever else that is not in the chart. I know people who still don't know how to identify support and resistance. Some don't even know the significance of congestion. People still think that congestion is where the "market" is deciding where to go.

There are really 3 things that make a chart useful. Price action is what people note. They form patterns and the price moves up and down as candles form. The second thing that people should notice that these things appear on your chart over time. See, this is an important point. As candles propagate the chart, time elapses. Price movements show how momentum changes over time. And on that note, what is momentum? People identify chart patterns as momentum changers. They talk about wedges, and how at the top or bottom of a wedge, there are more sellers or buyers and so price drops or pops. What is it exactly? To be really accurate, it is volume. Did you really think it was actually buyers and sellers sitting on some line? No! The description is figurative. Do you know how many people couldn't really explain what that means?

You see, only volume can really be the underlying thing that makes momentum make sense. With that as the underlying thing, it explains what is being distributed in distribution patterns. What is being accumulated in accumulation patterns. If you have to ask what those patterns are...it just shows you how much you know. But what is it that make up the volume? Buy and Sell. Those are the only inputs to the market. You buy to go long and you buy to get out of your short. You sell to go short and you sell to get out of your long. No!! Its the news!! If you believe me so far about volume, then it isn't very far from logic to conclude that in order to make the price go up or down, momentum must be set up to do so. It wont be difficult to conclude also that if you could note what is going on, you can possibly follow trend.

There I said it, trend. Trend is the result of the offsetting of these volumes. Trend is the product of accumulation or distribution. Trend can be short or long. Trend is stronger the higher the time frame. Take a look at your weekly trend. Based on the weekly trend, how long has the momentum been bearish? If you conclude that the currently trend is due to the global economic issues on the news today? You are dead wrong. Fundamentally, the economic issues have been building up for years and decades. Technically, if you can read the momentum, it has been that as well. When has the momentum been weak? Since before 1999.

But why did we pop up so high? Because the monthly outlook of the market was bullish. And the progression of the weekly must occur first before it can affect the monthly. What does that mean? Change happens in the short time frame first. Buckets of volume over time. The larger the time frame, the larger the volume it represents. For example: 133tick vs 1600tk Some may argue that tick charts does not represent volume. But they do. Its just a different unit of volume. While you can have carr based volume charts, tick charts is just like saying dozen or packs of something as oppose to the actual unit.

The difficulty with some people is to understand that in situations like the one above is actually playable. The problem is, they live in a world of impossibility. I could tell you that this is an hourly. I could tell you that this is a 5min chart...but regardless of what it is, the shorter time frame will show you how this becomes a playable chart. O this happens too fast! Some may complain. Again, depending on your perspective.

Now when you look at it this way, how playable is that weekly chart? This also illustrates why things don't just happen. They must be setup to do so.

Some people don't get where this distribution came from. They just don't understand that the work of volume offsetting that has been occurring since 10/10 in this 4hr chart at 1180 to the 1180 on 11/18, that there is a giant negative divergence. There are clearly less buying happening and more selling since 10/10.

I've peppered this blog with definitions and illustration of those definitions and examples of whatever it is. It is just to help build a common dialogue and also build what is necessary for you to gain basic knowledge. What is distribution? How does it look like? What do the price action do? Some people even refuse to learn how to spot certain chart patterns. Those patterns are commonly discussed because the market does the same thing over and over again. You would think a basic chart pattern is something you would want to learn if it occurs over and over again so you can capitalize on it. You would think that you would study how it developed over time and try to recognize the momentum as it formed. And how would it look like in a low time frame. And what does it look like in a higher time frame. Where did it occur with respect to the leg? Easy questions but takes work.

That is it for lesson 1. There is a plethora of information that you must digest off of this one issue. The problem is some will try, and some wont. Some will brush it off as common knowledge, because they already truly know. Some will brush it off because they think they know but when it is time to recognize it, they fail miserably. Well good luck!

How To Weee'd A Chart -- Part 1 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 084 - Indicator Trader

2011-11-06T19:55:00.000-08:00

There are only 2 indicator, lower study indicators, that I use. And those of you that know me, know exactly what they are. Obviously, you can see my charts and you will notice what they are. The thing that I would like to emphasize is that these indicators are volume sensitive. And reactions to volume can be gauged through comparative analysis. In my geek speak, you will compare to adjacent time frames to see the effects of a lower time frame progression. The higher time frame, is the trend. I'm not going to go over the whole concept, you can read about them in earlier issues. Indicator based trading is really fun when volatility is high. Indicator based trading is really effective when you can gauge the flow of volume properly.

Volume Flow Is NOT Consistent!!

When people read the indicators, they think the thing that is moving it, is in constant and equal flow. That is far from the truth. This is why I tell you to understand comparative analysis. I learned about volume flow at the time that the market was very volatile. Do you recall the wild fun swings of the crash from 2007-2008? Those were the fun days. It was a great time to learn about how the indicator moves. If you were really paying attention, you could see exactly how volume drops and pops correlated with price action. You would also realize how price action could follow your channels and price action patterns.

In today's market action, if you are trying to learn how all this works, it would be more difficult. Volume has yet to compare to those good old days. If you were to try to learn it today, you would really need to pay attention to progression to understand how momentum builds up or dries up. Progression on one time frame may be bullish, but if it doesn't affect the adjacent time frame in the same manner, it may mean that the higher time frame next to your adjacent higher time frame is actually bearish and its trend will be followed. Huh?? Again, practice, and observation. That is how you learn to be a technical trader.

Trend is real. People think everything moves at the whim of the news. Like I was trying to say in the last post, you really have to be careful about listening to the news. Case in point. The market dropped due to concerns about Greece and European economies. The next day, Intel had great news and wiped away the previous day's loss. Where is the logic in that? European economy could blow away American imports and exports. American economy could be affected in so many levels and yet, lowly Intel, though international in nature can have an equal or greater effect to wipe away such global economic concerns?

In the technical perspective, each of the moves were technically supported by a distribution to sell to the leg start, then first touch pop with the momentum setting up the prior to reaching that leg start, an accumulation to help the pop. Technical moves are easier to understand than to try to decipher all the news and fundamentals. Why have a charting package if you don't get how to use them?

Price action always follows trend. Volume that comes in is also subject to trend. The two are related. So if you are indicator trading or reading them for momentum. Study how its flow works before basing your trading strategy on generalizations. Understand how progression of lower time frame, affects the higher and vice versa. Don't go in blind. Been there, done that. The next thing you have to do after figuring out how those indicators work, see how they relate to price action and then levels.

Indicator Trader by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 083 - Market Down! Market Up!

2011-10-14T19:25:00.000-07:00

When you listen to the "analysts" on the tele, you get a feeling that these people are as clueless as everyone else. You also get the feeling that when the mic gets in front of them, they start to speak their political mind. The interesting point is to note the duplicity that these media people portray. This duplicity is mirrored by traders. Just sit in a chat room and you will see how traders all reflect the exact duplicity in their way of thinking. What is this duplicity? Ask them why the market went down.

Trend is an interesting phenomena that traders strive to be in right side of. But yet, these traders, economist, floor traders cannot tell you that the market is down because of trend. they will tell you that the market went down due to the uncertainty in Europe, and the US. They will tell you how Pres. Obama failed to provide jobs and his socialist policies have hurt the economy. Ask these same people how their profitable trade worked, they pull up a chart.

If you understand technicals, why rely on funnymentals? People caught or surprised the market situation most assuredly cannot read charts. If they claim to know how to read a chart how is it possible that they missed their weekly charts? How did they fail to understand the distribution that has been in play. Where are those people calling for the moon with market prices above 1400? Is 1400 still at the top of the trend line?

This guy asked me the other day. How do I know that the short time frame is not gonna break the higher time frame trend? The answer is simple. Trend. There is no such thing as trend if the short time frame can break the long time trend. The real question he was asking pertains to market manipulation. The notion of market manipulation is for people who dont know how to read charts. The reason for this is because anything that goes into the system cannot be hidden in the charts. The other crutch that people use the news and events. If you truly want to be a technical trader, turn off the tv and don't listen or read or entertain the news from chats. You will feel liberated.

What are people not getting about trend? The short term trend follows the will of the long term trend. What are the politicians missing? The market has set this trend a long time ago. In order for them to change it, they must offset the volume that was put in place since 1990s. You've read me rant and rave about funnymentals. Today, EU wants to limit high frequency traders. Can you say idiot? If there is anyone that should be restrained, arrested and put to jail, go to them bankers. But I digress.

Well that is it for now. I've been away for bit and it has been nice. I have to warm up to blogging again. Grats to BJ and a few others who have had marked improvements.

Market Down! Market Up! by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 082 - Do The Hoffman

2011-07-19T10:09:00.000-07:00

Well I was told the Robert Hoffman of Power Charting blew up during a live trade to a tune of over $300k. The following charts will show you why he blew up. Apparently he was long just before the high on Thursday. Don't really care to know where. Evidence in the charts show, he failed to read charts.

Bearish momentum pop back to previous high lost support then sell hard! Distribution from previous day sent you down to Thursday's low. Did you get an accumulation setup here? NO! In fact, same kind of pop to Thursday's high, 1st touch on more bearish momentum. The pop from Thursday's low is on 1st touch scenario on succeeding bearish cycles on the macd. Therefore you can expect a continuation of the move down. So where can it go from there?

Death by progression. TF has been distributing since 6/21. The Tuesday before was a 1st test scenario. If you look at 7/7 + 7/8 on the daily chart, isn't that a Hoffman 2bar?

Martingale averaging down strategy help kill the account, to avoid a losing trade. And add a case of no clue what the charts are saying. Gives you Peggy! A prime example of how Hoffman ended up at the receiving end of a defecating elephant.

Do The Hoffman by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

Based on a work at kewltech.blogspot.com

Issue 081 - Legs Untangled

2011-07-10T05:14:00.000-07:00

Legs can get all tangled up and can be fun. But people can muddle up legs on their charts and get all discombobulated. Lots of people say they have levels all over the place. Some would probably draw all the lines and make their charts so busy, you can't see the candles. I don't see why you would go overboard with them lines. People want to scalp but then they look to play off the hourly, 2 hour or worse off the 4hr. I mean sure you can see a nice setup off of those time frames but to scalp? Them time frames ain't for scalping. Them time frames are for you to get levels of importance that is relative to current action. Wouldn't it be better if you just pay attention and mark up the lines that are significant for now? What is currently possible?

Then comes the comment about indicators not lining up with each other. Or I'm accumulating here but distributing here. How can you accu and dist at the same time or dist and accu. Muddled thinking sets in and people can't relate the action of one time frame over another. Generally the problem is they see what is going on in a higher time frame, then become befuddled because the lower time frame wants to go in the opposite direction. Seriously, this excuse about indicators not lining up, really strengthens the fact that you have no understanding of time frames and how markets move all together. Yes you do get larger moves when they line up. But there are other ways in which indicators line up other than how they are pointing. Ever consider progression?

People make everything too hard. And because they lack understanding they rely on the news as a crutch to support their views or bias or as a source to find blame their miscalculations. The other reason is they really lack understanding of basic TA. You must have a solid idea of basic TA to apply them to what we discuss in this blog. But instead, they implement the basic fundamentals inconsistently and improperly. They don't even understand what support or resistance are, how they work, why they are significant and how to identify them.

Common sense tells you that if you have lofty goals from the 4hr time frame, you shouldn't expect it to come to you in 1min. You would think that that would be a no brainer but people have those expectations. People think that things in the charts just happen. But the charts tell you they must set up everything that happens. Legs also setup. In order to play legs, you must understand the progression. You must know what has been tested before. You must know how the market has moved to setup a pop or a drop in the time frame you are looking to play in. So in order to position your-self properly if you are playing the 4hr chart, wouldn't it be helpful to understand how the shorter time frames have setup?

Common sense? Probably too common for some. The correlation that you should be aware of is how your charts of long and short time frames work together. People put so much effort correlating other market entities when what matters most is already before them. Charts develop over time. And you must work to understand how progression of price action setup the moves that come. How do you know things setup over time? How do chart patterns develop? People love to deny the obvious because they are so brain washed about the news and correlations. And brain washed about other things they think they know that have no real bearing or fail to bear consistent fruits. In order to untangle them legs, you got to clear out the myths and focus your mind on the single entity being described on your charts.

Market correlations are many. People accept that they work till it doesn't. And yet, this inconsistency is held by many as a tool to be used daily. People say when the dollar goes up, the market should go down. But in recent weeks, there have been examples when it did the opposite. You want to know why people become overwhelmed while trading? They need extra monitors to check their correlations.

Legs as a concept is quite easy. When going down the leg, you will bounce at the support that started the leg up. When going up the leg you find resistance at the support lost that started the leg down. It is not difficult to understand that the leg you are currently retracing up on can describe how you are progressing in the longer term setups. If you are distributing or accumulating in the longer term progression, you will notice that the market is going side ways. Legs will test the significant levels to allow for the bigger move up/down during the accumulation and distribution phase.

There are 2 key points where you will find strong support or resistance on a leg that is produced as a result of a pop. Near the top of the leg where you find the support of the legs high, you will find strong resistance. Because that spot will always be 1st touch or 1st test situation when you retrace back up to it. If you do not have strong momentum when you get there, you will always fail. How do you determine the momentum leading up to that spot? Look at the lower time frame. Where will you experience the resistance and see magnitude of its influence? Lower time frame. How do you gauge the magnitude? Do you have significant momentum erosion signalling distribution? Do you have a chart pattern to show how it is topping on approach? A chart pattern? Yes, the price action will tell you what it will do and should coincide with weakening momentum. Don't ignore price action. Don't ignore simple chart patterns. Do we not use chart patterns to help us see progression? Logical? Common sense?

The other spot is near the bottom of the leg where the move up started from. When you retrace back down a leg whose origin is from a pop, this level of support where the leg up started from. It will result in a pop when you test down to it because it will be a first touch scenario of that level of support. How strong? How significant? Same line of reasoning as above.

I'll leave it to you to figure out how things work when the leg you are working on is a leg resulting from a down move. Seriously if the thinking behind it is not consistent with the thinking with a leg that resulted from a pop, then don't bother coming here for technical analysis.

The extreme ends of the leg help you understand progression. You must relate the tips with the leg immediate to its left. You will understand if you are progressing up or down. A signal that you may be accumulating or distributing. Are you in a series of peaks forming a consolidation? Are the peaks in this progression working in an upward progression or downward? In relation to the price run that started the consolidation, did the price drop, and are we consolidation to accumulate or did the price run up and we are consolidating to distribute? Are we basing/topping enough to effect a momentum change in the longer term or is this a temporary pause? Is this pause in response to a first touch situation? What is going on with the momentum? How is all this looking in the higher time frame? Am I at a significant level of support or resistance in the higher time frame? If so, do I have a significant price action to suggest some kind of accumulation or distribution pattern? Am I at a 1st touch scenario? Am I on a second touch scenario? If I am, do i have enough momentum to break through, because I'm on a tick chart and I may be accumulating? If you are not going to bother to try to understand what is going on, how can you trade? Well this is all getting to complex. There is so much to think about? If you were accustomed to thinking in this matter, the answers should come to you at a glance. I must also state, that some of these questions can be lopped off from consideration depending on the situation. And no I wont elaborate how to determine what to lop off. You have a brain, use it!! If you want to be effective at chart reading and trading? Why would you not bother to develop the skill?

Have fun! Dawg is out on vaca. See ya in 2months.

Legs Untangled by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 080 - Mountains and Valleys

2011-06-20T15:44:00.000-07:00

Valleys and Mountains are prevalent in charts. There is an old adage in the trading world where people are told not to pick tops and bottoms. Most people pick tops and bottoms out of shear speculation. What is speculation to begin with. Lets do a little dawgma.

Speculate Merriam-Webster.com Definition

a : to meditate on or ponder a subject : reflect
b : to review something idly or casually and often inconclusively

Speculation is often inconclusive. Just like Cramer can speculate that the market is very resilient and would be hard for it to sell off. You can say by the results he got the following day that his thoughts were inconclusive. The market has so far dropped 92 pts since he declared what he declared. Now in Cramer's defense, he isn't a technician.

To think that speculative analysis is factual is like buying the Brooklyn bridge from me. The other day, there was this maroon in chat, scolding all of us who shorted the market. Saying that we are contributing to the death of the economy. And even said that the locals and paper traders were doing a disservice to America. He thinks the trend is a lie and he trades the news. Obviously, he can't read a chart. And his way of thinking is not far from most speculators in the market. It is also the false thinking that the politicians will lead you to believe that the small retail traders are causing the market to tank. Retail is not the majority in the market. Retail does not have the influence as the large banks and institutions that make up the group we know as market makers do. What is more american than survival of the fittest and free enterprise?

Why have we gone off in this tangent? Because when people pick tops and bottoms, it is not based on facts. The use of technical analysis by evaluating the support and resistance with momentum can get you from conjecture to substantiated answers.

Now back to picking tops and bottoms. It is harder to pick tops and bottoms where there has been no retracements but not impossible. You can determine levels of interest through the use of fib extensions and you can determine how it will hit those lines by noting the fading momentum. This method is great when you make pristine new highs or pristine new lows. But when we are talking about retracements it is easier to pick tops and bottoms. Why? Because you can look left.

Where do peaks and valleys form in retracements?

All failures on the way up always fails at previous support lost of a previous peak.
All valleys generally form from the support just above a previous valley or a significant support from the leg up.

What you have to understand is that failure is always stronger at the leg start (up/down). Generally, in order for you to move up toward previous peaks, much of the bottom and sometime the middle is already set up for for 1st touch in the process of accumulation.

And for moving down you get stronger areas of support at the bottom of the leg, because distribution is wipes out a lot of the top and middle levels of support 1st touches.

Why then is the support or resistance stronger at the start of the leg? Because of their proximity to the actual leg start. It will always be the first touch.

Why is this little bit of information valuable?
1st touch scenarios always produces a strong repulsion of the price action. This is especially true if the level is an old level. Meaning it has a long history. Many people see the peaks or valleys as price moves closer, the scalper forgets these relationships and lose out on many significant pull backs.

Many times these pull backs are so significant they see their profits dwindle to negative. Part of the reason they allowed such a thing happen is because they failed to see the distribution setup in the lower time frames. They only want to play the 2nd touch goal of passing the level. The bias makes them forget.

Now in the first chart 1600tk, you want to look at A. "A" is this mornings attempt to climb up to 66. What is in the way of this move up to 66, was 3 and 4. The peaks at 3 and 4 was posing a strong resistance to the move up. Now when we look at the 133tk chart, you will see how the distribution (red in macd) line as the price moved sideways and toppy.

Effectively, the distribution started at 8:30am. As we get higher highs on lower macd, we can qualify the distribution. And we can also qualify all of the valleys till A as 1st touch scenarios. Where do we finally fail? At the first level of support lost from the high at 3 which is also denoted by high at 4. We peaked. Then we get the flush. Where does the price action bottom end? The support we failed to lose, first level of support reclaimed on the move up, from the low at 8:15 am est which is denoted by the low at 8:42 am est. Now from this perspective, can you say the move, which was setting up a long time, was random? Can you also conclude that the level where support was found was random as well? We form the valley. Now take some time to note in whatever chart you choose, where most of the peaks and valleys formed in whatever equity or indice you want. When you find those tops and bottoms, examine the momentum. Did they setup for the fade/pop?

You should note that peaks and valleys do form at support or lost support from the leg or from previous peaks and valleys. Yeah its a generalization. But, when you are scalping, it becomes invaluable when you are breaking out from consolidation, you can then determine where it will stop.

Here is a different looking chart. This chart is a 1000 carr volume chart. Volume charts are much cleaner than timed charts and some people prefer them over tick charts.

Some would be shocked by what I'm implying. That markets do not move randomly but they actually adhere to some technical rules. Some people think that even price levels are random. Some people even say that "false breakouts" are random. Is it possible their chart reading skills are lacking? No clue how to read momentum? No clue how markets really move? That is why they make such wild speculation.

Another reason why people fail to see these "false" breakouts? They don't know how to use time frames. They only use 1 or 2 time frames. They don't really understand that change happens in the lower time frames. If they did, they will not be caught on the wrong side of these "false" breakouts. Prior to the drop described above, there was a guy who tweeted the following. "The momentum is bullish!" Price then drops 7pts. He had a Cramer moment. Why did he call the bullish momentum? Because he was looking at a 30min chart ONLY! Quel maroon!

Peaks and Valleys or Tops and Bottoms are technically consistent. They adhere to the rules of support and resistance. By that 1600 tk break down, it is unclear how the market popped back up so quickly. But when you look at the 133tk, you will see how the levels were tested on the way down and recognize the accumulation started long before it dropped. Thereby qualifying the peaks on the way down as first touches. And knocking out the significant levels in the process. Random moves?

So to simplify, you will peak or valley at levels during first touch. You will see many peaks and valleys form during the process of accumulation and distribution. Do peaks and valleys serve a purpose? Yes! They not only highlight significant levels, but during process of distribution or accumulation, they set up larger moves to bring you further down or up a leg. How will you see how momentum will help form at these first stops? You look at the momentum and price action of the lower time frame.

Thanks FMM for helping me write goodly English.

Mountains And Valleys by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 079 - Liquidity Games

2011-06-10T07:32:00.000-07:00

Liquidity isn't what high rollers have for lunch. It is how they have you for lunch.

Liquidity Investopedia.com Definition

The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold, are known as liquid assets.

People who don't know how volume works ignore liquidity. Some read volume charts but have no clue the reason why there are times of low volume and times of high volume. Some people love to watch the uvol/dvol and get excited with +/- 1000 ticks. But for me, the macds were clear why you would expect them. And it was as simple as trend.

But what does volume and liquidity have to do with each other?

Accumulation StockCharts.com Definition

The act of buying more shares of a security without causing the price to increase significantly. After a decline, a stock may start to base and trade sideways for an extended period. While this base builds, well-informed traders and investors may seek to establish or increase existing long positions. In that case, the stock is said to have come under accumulation.

Distribution StockCharts.com Definition

The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security's shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices.

Liquidity Investopedia.com Definition

The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold, are known as liquid assets.

Volume Investopedia.com Definition

The number of shares or contracts traded in a security or an entire market during a given period of time. It is simply the amount of shares that trade hands from sellers to buyers as a measure of activity.

Volume is what is being produced by these accumulation and distribution by providing liquidity.

There are people who try to follow the macd's like I do but fail to recognize the correct opportunity. They read the accumulation and think that the market will pop here, no here no here... These are the times when the market is selling and because they don't really pay attention to what is happening in the longer term time frame and identifying the proper levels, they become lunch.

Liquidity is how accumulation and distribution is actually done. When the market boys want to sell, they start selling their long positions to provide the LIQUIDITY for the small fry to buy up the price. If they want to pop it, they get out of their shorts and provide the LIQUIDITY for the small fry to drop the price.

There is this talk about supply and demand. The game played with liquidity is a game of supply and demand. It has nothing to do with the external news and what not. There is only so much buys and sells being offered by market makers. So the big boys control many of those positions at the appropriate time.

So when you notice accumulation or distribution in your lower time frames. Look at the higher time frame to see the goal and the significant levels. If the price is dropping, the accu is the liquidity being offered to set up the next move to pop up the price but also, till it hits the higher time frame target, more than likely a leg start. The accu is the big boys providing the liquidity for you to help them get the price to the proper level to pop and for them to unload all of their short positions and load up on their longs.

If price is going up and you notice distribution, the big boys are selling their long positions to provide the liquidity for the small fry to drive up the price and for them to unload all of their long positions and load up on the shorts. And how we note how the volume is working, by noting the accumulation and distribution, you see how the momentum is being turned systematically and technically. Change in momentum happens in the lower time frames. The lower time frames are subject to the trend of the higher time frames. A thing we know as trend.

This is what you have to understand about liquidity games. Is this something new? It is funny how you can read those definitions up there, some of you may have done so in books or what not, but have you really connected the dots. These concepts are old. And yes I've talked about them before.

Liquidity Games by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 078 - Sweet Oily Legs 3

2011-06-07T07:59:00.000-07:00

Well so far, we've looked at past cl moves. For the maroon, they don't think anything of importance is being said because its after the fact. That is why they are maroons. So don't be a maroon. There are a lot of info that is being packed in these short issues. What some people do is take pieces of info and try them out. Now what is really important for you to get is the progression. Buckets of progression occurs to do the setups that you see. Volume progression and price action progression. What historical data is good for is understanding the progression that occurred to produce the resulting price action. The price actions of the lower time frames follow the trend of the higher time frames. If it doesn't, there is no trend.

Lower time frames have to work their way through all the levels of support or resistance that may not be evident in the higher time frames. Therefore, you will see the price action go up and down as a result of it. And due to those up and downs, momentum is being built up and lost to the upside or down depending on the direction. And depending on the type of level price encounters, will also determine the strength of the repulsion experienced at those levels of support or resistance. These lower time frame moves is what many traders and aspiring scalpers miss. They feel the pain when they enter, following the higher trend, the lower time frame stops them out going the opposite way to generate momentum toward the higher time frame trend. So after stopping them out, it goes their way. Those who fail to understand this claim the market is after them. Scream foul play. The problem would be easily avoided by understanding the lower time frame setups.

What else can we take from the previous issues? There are setups that occur as a result of accumulation and distribution. Price action can setup 1st touch situations once you can confirm the process of accumulation or distribution has started. This is a form of progression that you can track, very easily. This is why I tell you to track the leg's relationship to the leg immediate to its left. It will help keep you in context to the larger time frame progression. It will also help you cash in on bigger moves. The support of the previous high, top of leg, is often a strong resistance. And the support just above the previous low, bottom of the leg, is often a strong support. Why? The explanation is easy. Generally is the spots that has not been tested by the accumulation or distribution process because its distance from the high/low. Ergo...first touch!

When contained within a leg, prices tested on other legs, does not count as first touch. Price is contained within the leg. The more significant thing to note, is how the leg you are working on relates to the leg immediate to its left to help you gauge your position in the larger progression.

In this example there are 2 legs. J and K. Both have tested the same price at 1 and 2.
1 and 2 are not related to each other. They are contained within 2 different legs and are mutually exclusive.

Now J and K are not mutually exclusive to the primary leg. K is the resulting progression from J. Because J is the first touch up the primary leg and K is the result of that first touch.

By request, I'll delve on this a little bit more.

Here is a 512tk chart of cl.

From the low at 97.74, the leg we want to retrace up to is T1. We can break this up but we wont for now. The setup setup a W from here, where 97.74 is the new low on the right side of the W. Eventually leads to FT1-1, which is the Failed Test up to 1. We need to clear this segment of the T1 leg to move higher. Because there is a significant level here. We also did the same, but I didn't mark it with 98.96, because that was a previous support. Then we come up to FT1-2. Eventually by 2:29pm est, we blow through T1.

Why did we blow through T1?

Because we've been accumulating through the down leg since 4:20pm est Monday. So T1 qualifies as a first touch. Simple as pie.

And that is all for this recap.

"Education consists mainly of what we have unlearned."

Mark Twain

Sweet Oily Legs 3 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 077 - Sweet Oily Legs 2

2011-06-03T06:07:00.000-07:00

Well hopefully that first primer helped you out and you are ready to embark on a mentally arduous journey of learning technical analysis. I could barely get through Stephen Hawkings, The Universe. I was up all night working on the mathematical models that he was proposing. Yes 1 single night! I really wished I could have finished the first chapter of that book without falling asleep in a pool of drool. And I went to Cambridge, so I should be mentally capable. Cambridge, Ontario Canada. It was a quaint town. So if I am far from smarter than a 5th grader, the concepts herein should be child's play for you.

Lets Review

Legs have ranges. You know like a normal leg, you got the foot of the leg that ends at the butt. If you pass, the foot of the leg, you will go to the next significant support. If you pass the top of the leg, you will go to the next significant resistance. Legs contain significant levels in between. These levels must be respected as you go up and down the leg. Like when you were a teenager and hot and excited at the prospect. You decide to kiss from the foot and because you're a teen, hurriedly thought you could kiss all the way to the upper parts. But what happens? You nearly bleed to death, because you busted your nose on her knee. Ouch! Epic Fail!! In the market action, the levels within the legs will repel the price action on the first try. If you don't respect that, you bleed your account. The segmentation of the legs is important to understand. You will be repelled most by the support of each of those segments. There are hidden segments that may be old significant levels. These levels may not appear as segment in the leg because it was by passed due to the setup that created the leg. During the formation, hidden levels on the leg, was respected earlier. So when the leg formed, it was on 2nd touch situations. Okay take 3 seconds to alleviate your feelings of nausea. This is daunting stuff.

Lets move on

So when you finally get to a more significant level of support as CL did here, The accumulations of the lower time frame slowed the momentum of the bears and allowed the bulls to take control of the price action. One method, it employs, is the formation of the John Carter, h. I say John Carter, because he observed and noted in one of his videos, that after selling the market pops and drops back down and forms this h pattern. Essentially, what this h pattern is, is the result of 1st touch / 2nd touch.

There are 3 things to note on this "h" move. The first thing is that price action pops to the most significant resistance. This resistance is going to be the previous support lost. Always. The second thing you will note is how high the macd elevates. The 3rd thing to note is how high the macd is when it creates a new low or failed new low. Hmm...is this des ja vu? Okay, I'm not going to be cute about it, I'm talking about accumulation. Just because I talk about new stuff, doesn't mean I've abandoned the old.

What is really happening in an "h" move.

As you recall 1 in the chart is a 1st touch scenario as it attempts to retrace back up the leg. The resulting accumulation confirmed by the new low on higher macd, qualifies it. But, in this hourly chart is actually late in confirming the action. The accumulation occurs in the lower time frames first. Buckets. Changes in momentum happens in the lower time frames first.

The accumulation at the new low also represents a few things. First the new low is also a 1st touch scenario. You bounce again on more bullish sentiments via momentum. This momentum was enough to carry the price back up to 1, and so on 2nd touch scenario, you approach the next level of resistance. The previous support you lost at 2. And at 2, it will become a 1st touch scenario. On these pops, the price sells back down. It will go back down to previous support. You will start to distribute long before you get to that target on the upside. Because the price just doesn't drop unless it is setup to do so. So where would you see it? In the lower time frames again. Buckets of fun.

The next thing to note, is the pop back up. On the pop back up, to 1, the leg of interest for you to reference is the primary leg. That is where you will reference the levels that are significant. On the drop back down, you will not reference the primary leg, but the leg that brought you up. So from the bottom of the primary let to the top of 1. You will also be wary about the level below the bottom of the primary leg, because it is a 2nd touch situation. And if the bottom of the primary leg is not a longer term level, making it more significant, you will go to the next level of support down. This is what I mean about referencing the current price action to the leg immediate to the left and reference that leg to the leg immediate to its leg so you never lose site of the progression. Okay, I wouldn't want you to get brain damage on all these mind blowing stuff here. But we are all rocket scientist, and brain surgeons, so this stuff is all trivial.

I'm gonna quote my buddy lakai.

BIG thing..Lakai said it perfectly..#1. learn how to read a chart #2. learn your techs #3...TRUST yourself

So far, we've tried to touch on all the concepts we've discussed in this blog to wrap up all the simple techs we play with. This is how you should think and work.

Why?!!!

Market just tanked on the "news". So how does this look technically?

So simple my 4yr old can do it. Watch how its done Lakai style.

Sweet Oily Legs 2 by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 076 - Sweet Oily Legs

2011-06-02T19:51:00.000-07:00

Just want to walk through some things about legs. It seems that a lot of what I consider obvious, isn't so obvious to many people. Must be my ADD. But hopefully this will help clarify some things. Really there is a lot to be known about technical analysis. But the more you know, the more elementary the whole thing is. And I know a lot of you hate me for saying that. Your alternative is to learn a more complex technical analysis system, which will introduce you to a whole set of vocabulary. Or you go back to being a maroon who would say that the sell off the other day was "unusual" and would like to know what the news was that caused it.

Now, it would suck to do a re-run of the other day's events, so today we will talk about CL. I'm severely ADD, so I want to talk about something new. Or I could make fun of all the maroon statements made by people. Because it is fun. I must admit, I was once a maroon. Like this maroon. "... But that was not a "normal". IT was trending higher and then tanked like 40 points in 2 minutes". Now that is funny! He wanted to know what the news was that was responsible for the sell. Maroon! But I digress.

Lets talk about legs. Legs are hawt! So lets look at one right now.

This is the leg down that CL produced in May. This becomes your primary leg as the price action basically goes sideways at its foot. Momentum to the upside is trying to build as we see signs of accumulation. There was a lot of volume that was displaced to bring this price down. But very little has come back since. And so a large base is forming. Some maroons were projecting more selling of CL today below 97. Obviously these people have no clue and probably full of botox. We will discuss this accumulation process more. But for now, lets dissect this leg. A and B are the limits of the leg. The very top and the very bottom respectively. If you break out of A, you will go straight to the next level of resistance. If you break out of B, you will go straight to the next level of support. Very simple so far? Good!

Lets go to the next step shall we. This leg can be further subdivided. As you can see, you can see clear segmentation of this leg (i, ii, iii, iv). Generally segmentation occurs because a level was encountered, where it was not tested in the process of accumulation or distribution. Since we produced a leg down, the process that was needed to help the selling process would obviously be distribution. So what happens is that we bounce off of those untested levels (1st touch) and then re-test to plow through them on (2nd touch) down toward the next level of support. If by chance that level was already tested, it will be a 2nd touch scenario which will allow you to continue down to the next level of support. Now, I brought up that maroon story up there not because I am so shallow. There is a purpose! To illustrate the said process just described. Click here. Then Click here. Why did it stop there at 11.25 then made the price go sideways? Because that level was not tested before during the distribution process from 5/25/11. The technicals were setup to allow the market to respond accordingly when the news was "publicly" announced. What you actually think you get the news first? Because you're special how? O wait...you watch CNBC? You must be a pro or someone who is really starved for entertainment.

Now you will notice that I have dash lines. Those lines represent support lines that were lost at each segmentation of the leg. When you arrive at those lines you should see some resistance. It is only natural right? I will spell it out. If price action falls below support. That support becomes...resistance. If price action goes above resistance. That resistance becomes...support. Simple? Of course it is!

To the left of the leg, we see, 1,2,3 and 4. These peaks reveal to you levels that were not tested or not tested enough to segment the leg. Most of the time, you already did a 1st touch scenario before the sell to produce the leg down. Remember also, that this is an hourly chart, and you may have tested the levels in the lower time frames. If a level was significant enough when the price got to it the first time, it will be significant again, when you come back to it. So the peaks of 1-2-3 and 4 represents the current resistance or previous support lost. Now, there is also an order that you will gather. Not so much the numbering, that was just a convenience. But on 1st touch at 1, you fail, then on return allows you to go to 2. 1st touch at 2 you fail, then on return, you will get to 3. And then 1st touch at 3 you fail and then on return you go to 4. So difficult. So for your home work go find them on your own.

No you don't want to wait to identify these "hidden" level after the fact! You identify them before you get to them so you can actually take advantage of them. You know make profit. If you don't know how because you have never been to this blog before. Check the archives. I'll even give you a hint. The hidden levels are left of the primary leg. Shh...don't tell anyone. So far we've discussed quantum physics right? Or do you think it was pretty common sense? Well that is it for this primer. Tune in next time.

Sweet Oily Legs by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 075 - A Lesson In Accumulation

2011-05-25T15:25:00.000-07:00

Early this morning a lot of funny people were short to China. One maroon attributed the pop to some news about Greece. Another maroon talked about POMO. We all know news is late. And if POMO is going to "manipulate" as those who were expecting a drop declared, those of us who are technical, understand that if POMO is working on the market, we really don't care. The reason is, if they buy or sell, it will propagate in our charts. There was this one guy who wished that someone would erect a large sign to tell people that today we will be manipulating the market, to let the tax payers know how their hard earned taxes they paid to the government is being wisely used. That last guy was being funny.

The problem with many traders is that they are trying to "predict" the market. What they fail to do, is follow the market. They will vigorously defend that they are not trying to predict the market. But in the end, because they did not follow the market, they often blame external sources. It couldn't possibly be that they actually have no clue what technical trading is. But for the technical trader, the market does not do anything that it did not technically support to do. You don't even care what is in the news and don't care about economic events calendars. You just read the charts. So if you were wrong, then you didn't really follow the market but used your bias help form your prediction.

How do you follow the market? It isn't merely knowing what levels are. Not just knowing what support and resistance are. Not only being able to draw trend lines. It is understanding in context what the price action is doing based on larger and longer term progression. In many cases, once people draw their trend lines and wedges and patterns they no longer understand the whole move, just see what is compartmentalized by their drawing. So in this issue, we will discuss today's pop.

First lets discuss that reaction to the news first thing this morning. Don't ask me what it was. I have no clue because I don't care to keep track of economic calendars. Just read the charts.

Some people think that that play was not possible to play. But as we know, in order for the market to sell, it must distribute. And when it distributes, it will go to the support that allowed it to pop. Or in legs terms, the leg start. By the time it went back there, guess what, it must pop at 7.5 because? First touch. Can it be more difficult than that?

So what was the pop today all about? Was it really pomo? Sure, if pomo help set this up over the last few days they deserve the credit. All I know is that it takes a lot of resources to be able to set things up. Market Makers and POMO sounds credible enough.

Suggestion: right click on the image above and open in a new browser or tab so you can reference the image while reading the description

As you can see, the accumulation has started 7:20 PM EST, back in 5/22/11. And then we progressed to a new low at 1302.25. From there, it worked to regain the last support it lost at about 12.25. The first thing on the agenda just before the open, was to reclaim the support at C. When it did that drop at the announcement of the news this morning, you set up a 1st and 2nd touch situation. By the time it made it back to C, it had to go straight to D. D is the the support lost that led to the selling to 11.25. The big red candle 5/24/11 at 4:00 PM EST. D at this point becomes a 1st touch situation and so must fail.

The Legs

The leg that we are working on is the off the primary leg that starts off at G. Now G, can be broken down to parts, consisting of F, A, B. From the 1302 lows, before you can get to A, you must reclaim B. The support at B is about 17.25-5. Now, reclaiming B high, will be 2nd touch. Why second touch, because, during the accumulation progression back to 5/22, we've already tested that level of resistance even though we were still progressing downward. Because we tested that, it cleared the way for us to reclaim the previous support we lost at A. After you reclaim A, you go to F then G. What you must understand is this 1st test 2nd test relationship. On first test, you should notice in the ticks especially that on 1st test situations, the momentum is changing long before it gets there. The draw down is to help build up momentum to the up side. Which many people don't understand. Consider the news release this morning. People qualify that drop as negative reaction to the news. But how short lived was that bad news that was received? Over all at the end of the day, we rallied. This is where people's understanding of news fails them. Their bias wants lower but the market's progression goes against them. Because their chart reading is lacking, they can't see, how momentum was set up against them.

Now, back to the action. After failing at D, when we go back up to D, we will continue higher on 2nd touch. And progress to the support at B. As soon as we get to that support, we should fail at 1st attempt. Shown in the 10:30/40 candles. Then we bounced back and cleared B. Taking us to the support of A producing E. Why? Because we've already tested B due to the progression based on when accumulation started. So any failure at previous support from when accumulation starts (5/22), becomes a failed test 1. Now why did we fail at E? Because it is the first time we tested A based on when that leg formed. We never revisited this previous support, when we lost it at A till now. Eventually we pass A and get to 24.5. Why did we fail there? Same reason as we failed at A, B, D ect. This time, our leg of reference is at F. Why? Because we passed A. Until you close above A, much like you did with B and C, you cannot pass to the next level leg part. But by the time we got up to 24.5, the selling has been setup with the negative divergence seen in the macd's shows we have exhausted the buyers. So the failure at 24.5, produced a new leg down. Reclaiming 24.5 will take us up to F provided we have enough momentum.

This action is similar to why we failed at 1373.5. The market does the same thing over and over in the same manner. It doesn't matter what time frame you are looking at. The best way I've figured how to read the action is to understand what the price action is doing based on the immediate left leg, and then relate that leg to the progression it represents to the primary leg to its left. This will help me understand if I am over all progressing upward or downward. And what my significant support and resistance is. This will give me an understanding where I will go if I break the limits of the leg..

I would like to add this chart. Because when I say accumulation, people always relate it to double bottom type play which I highlight as 2 stage accumulation.

The 4hr Chart

Does this look more familiar to you? You see the accumulation being in described in the 10min seems extended and not the normal accumulation. The extended view of what you see in this 10min chart is the progression that takes place to form this double bottom like formation in the 4hr.

The 10min Chart

The 10min is the description of how it got there. How the 4hr chart got there. This is why if you understand this, the charts provided could be tick charts or whatever time frame, you could easily extrapolate, why it is also the reason, if you understand these concepts, that makes scalping a lucrative venture. I love run-on sentences. Yes I failed grammar every year. It is how the market moves, and we just follow.

This is distribution but I just had to weeeeeeeeeeeeeeeee about it. :)

LOL some maroon just asked if this is a flash crash. Obviously doesn't understand how to read charts and recognized progression. In this progression, the distribution started 12:45 pm est, 5/25/11. After you confirm the distribution on the new high on lower macd, each valley on the way up becomes, 1st test. So as we tanked today, and we revisit them, whooosh!! Flash crash setup would be the same. But no, this is not a flash crash. It is sad that people think that way.

And the Weiner is!? OWUDSHED!! It was a blessing indeed. Hmm...is Cramer and OWUDSHED, related? "A worldwide four-way rally is a difficult move to stop, as you can see from the market's inability to be rocked too much by what now amounts to nothing more than local data," . Ouch!! I hope he has a lot of preparationH.

A Lesson In Accumulation by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 074 - Parabolic Moves

2011-05-16T11:00:00.000-07:00

Accumulation and Distribution view of market has made trend lines obsolete in my trading strategy. The reason is simply because I view all moves as parabolic. If you get a sense of legs also, you understand what iI mean. I don't care to really see trend lines any more because i know the levels that are significant to the retracements. So why should I clutter my space? On accu, price drops, goes sideways, follows leg down for the pop. On dist, price pops, goes sideways, follows leg up for the drop. While you can imagine that the action took place as a "U" or an inverse "U", you actually get Ws, HNS or their inverse counterparts. Regardless, the action is parabolic in nature.

What is the advantage of seeing the market as parabolic instead of trend lines base only?

There was this guy in chat that said you didn't need charts past 1yr. Knowing what you know now about legs, wouldn't that blind you? While sure you still have fibs and fib extensions for uncharted waters, but why when you have something to reference.

Yes this is a top and bottom trend lines for the downward movement of the PCLN. Now, the generalization on how to play this descending wedge, is that, before the apex, or tip of the triangle, you should pop. There are some that says after traveling 3/4 of the triangle it should pop. Generally, the way many people have shown me and how many people do so in practice, is that they don't even have an exact price to settle on for the pop. Just a visual cue.

Now with legs, all I have to do is look for the consolidation areas in the left leg and determine the leg start from those consolidation. And I also know that it may be a little lower before we get a good pop. Can I still use the trend lines? Sure I can! But why clutter the space? When I draw those trend lines, not the horizontals, my focus can sometimes just keep me in that boxed in area and forget the levels. Now if you can keep track of both great! If not, then you would lose relationships like I would. Many people I know who draw these trend lines, never reference the previous actions as we would call the left leg. The ideal way is for people to understand the levels to the left and relate them to the wedge.

Yes I don't draw the horizontal lines. I keep a mental note of the price where the line would sit, and if I have to, I'll use the cross hairs of the mouse pointer. Why clutter the screen? I'm always evaluating where I am with regards to the price action relative to the current leg I'm retracing up on. Then how that leg relates to the larger move or primary leg. So I'll always know where these lines ought to be once it becomes clear we are going there.

Am I saying trend lines are useless? Hell no! I just like to understand the moves as parabolic. Accumulation will go to the start of the leg where it lost support. And distribution goes to the support that allowed it to pop to the high. The whole process is parabolic.

You can still draw trend lines if that is what you are comfortable with. Don't draw trend lines if you are not using a consistent correlation. Meaning the price action of the left leg will template the price action of the right leg. Keep it simple!!

Parabolic Moves by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 073 - Training Wheels

2011-05-10T18:45:00.000-07:00

When I learned to ride a bike, like many people, I used training wheels. Training wheels are great for simulating a real ride without letting you fall. Some indicators are like training wheels. For me, they were the linear regression channel, fibonacci and ema's. I used ema's because I found them more relevant to intraday trading. The point is to help you understand how to evaluate indicators and then use them till you find something better or you gain a stronger understanding so you can shed some of your clutter in your trading desktop. Some people though, really like looking at all kinds of indicators.

Some trading systems rely completely on indicators. They have a system that they adhere to. If you take away those indicators, these people are less likely to know what to do. Some of these groups are cult like. A lot of these people are holy grailers. But it is a system that works if you follow it specifically. The problem with some of these indicators base systems is that they will have weaknesses and they are taught that there are some things the feds or whatever is the cause of the failure. There are pros and cons to systems like these. And if and when they come about, to teach these people the real reason why things work the way they do, is to admit a weakness in the system it self, or they will have to actually teach people how to read charts properly, potentially negating the need to use their indicators. Part of the problem is, most people are too thick and impatient to teach. Being thick isn't too bad if you have great work ethic and persistence. But being thick and impatient and only want shortcuts, easier to thread a camel through the eye of a needle. So best thing...get them on the indicators.

I'm not gonna knock the value and effectiveness of indicators. All indicators are a work of art in their own right. I always saw indicators as a way to enhance my ability to see how the market moves. If you are anything like me, you would like to know what actually makes the indicators work. So I know what it really means when they do things. For those indicator systems, that is not necessary. They talk about certain "shortcuts" that will help them know what to do. Those shortcuts are generally some pattern. I know, because I traded primarily as a momentum trader, and I developed a series of visual cues that helped me and I still use to this very day.

There are generally 2 types of indicators. One are called upper studies and the other lower studies. Many lower studies are really used for momentum readers. Generally, most of these lower studies are a variant of macd and stochastic lines. What they do is combine them and specify different settings to mimic reads that can provide the view of lines produced in adjacent lower time frames and adjacent higher time frames. If you have multiple complimentary time frames open to you during the trading session, you could probably un-clutter your mind as well as your view by going to the root study itself. But only if you understand how to stitch your time frames together through the use of indicators. If you look at some of these indicators, you will see how they take 1 or both the lines of the macd and combine it with another line like a stochastic line.

Some like the macd can also be classified as upper studies. The macd becomes, simple moving average or exponential moving average. In this form they become support/resistance lines. Many upper studies are used for these specifically. POC, Pivots, fibs regression channels. All are used as s/r points. The only one in that list that doesn't really fit because of how it is calculated, are fibs. Fibs is a product of math magic. Some upper studies like bollinger lines are a combination of S/R and momentum indicators. They contract and expand and clue you in on what is developing. You see these are predictive nature of momentum indicators. The totally uneducated don't really believe in predictive nature of the market and yet they like to use lagging and leading indicators. How do those indicators work as predictive? Through progression. You can't trade technically if you are still thinking of funnymentals. Tonight many people are waiting on China report.

Upper studies are studies that can float along with the candles. What do they really do? What do you want to know most from your upper studies? You want them to tell you where support and resistance lines are. These studies are definitely "training wheels". Why? If you progress as a trader, you should be able to understand how to get these levels of support and resistance on your own. Many people don't even take the time to understand how these indicators produce these numbers. The only upper studies that I would not expect a trader to explain to me how these lines are produced are regression channels, (but you can surmise how), bollinger, and definitely not fibs, unless you are a math nut.

What I've noticed about using these training wheels, not many know how to interpret them in relation to a longer progression. I've read an awesome book on fibos, produced by Bloomberg, and these guys know how to do it right. But the book is heavy into the math and may lose some people. I have never seen many people use them properly. What happens really is that you are too focused in on that one area that they will become baffled why it broke through some of their lines. With fibos, its hard to screw it up. But I've seen people talk about pomo's and feds screwing with the market as the reason why their fibos failed. If you are one of those people, you still need to learn more. Is this the state you really want to stay in, dependent on indicator and still under the mercy of funnymentals? This is where many people who are dependent on indicators for their analysis fail. Many when faced with bad reads, blame things external to the techs. Why? Because they really don't know how to read charts.

If you are one of the few who can do with or without, then it becomes a question of preference. But for me, less is more. Do I still use regression channels, fibos and ema's? No. I know how to find levels of support and resistance. I know legs, how price action moves up and down levels and how they relate to a larger progression. And finally I can read momentum. It took time to get there, but when you get to that point, you will see with much more clarity than before.

Get rid of some of your training wheels. By gaining better understanding of your techs.

Training Wheels by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 072 - Making Sensible Trades

2011-05-09T06:54:00.000-07:00

You have to wonder about what people say and do with their "scalp" trades. It is as if people don't understand the difference between a swing and a scalp. There are differences, but truthfully it can be a fine line. The problem comes when people see and understand a move in the short time frames and then make their decision to act or not because they are looking at the 4hr chart for confirmation. Really?!

You've seen me mention this 4hr chart scalpers on this blog before. Those are the extreme versions of people not making sensible trades. Because of this huge error of perception. People either get stopped out hard or take in huge draws before they see their profit. It also happens in the shorter time frames. Some people see the action but don't understand the mechanics or execution properly enough that they might as well be trading off the 4hr just like those whacked out people. There is a proper way to trade off the 4hr and an improper way to do it. But these people will suffer a lot of pain and losses because of perception issues and time to profit.

What does time to profit mean? Basically, if you are trading off of the 4hr, you should understand that your trade will be on for a long time. Because it is a 4hr chart. This is more of a swing. The time it takes for the 4hr to go through its course takes time. Well Dawg, that is what I know and understand. What is really happening is these people are looking at the 4hr for confirmation for a trade that is around 2pt or less, that will complete long long before the 4hr candle actually finishes. Well doh that is common sense. There was this guy in chat early this morning talking about a short at 1.461 on eur/usd or 6e, and he didn't want to short it because the 4hr was not saying it was a short. I was twitching when I saw that. One thing for sure, that guy has no clue.

Yes I know this is the one hour chart. The point is, how can you make such a call if you know how to read charts? Do you see how .461 has already been tested? The basic fact is this, change happens in the lower time frames before the higher. This is the kind of details that people don't see when utilizing higher time frame charts. This is the kind of detail that can cause these higher time frame scalpers eat or endure a lot of pain for their short term trades.

Well what is the proper way of scalping and utilizing the higher time frames? This problem is not uncommon. Part of the problem is that people are into candle to candle analysis. Meaning they are waiting for confirmation of their Japanese candlestick analysis. You don't use a ratchet for a hammer do you? Even more critical, they don't know how to stitch their time frames together to make sensible trades. Can they get lucky? Yes. But more than likely they will blow out if they weren't born under a lucky star.

When you use the higher time frames to help you with your scalp or swing, understand that you are only interested in 2 things.

1. If the higher time frame has been setting up for a large move, (its been accu'ing or dist'ing), then you want to be in the position to ride that large move.

2. if you are scalping for a point or a few, and the move is within 1 or those high time frame candles, you will look for the level of significance that you are coming up on or coming down to. This is for 2 reasons again.

i. If you are coming up to a level, then you may look at that as a point of exit for a long and or a point of entry for a short.
ii. If you are coming down to a level, then you may look at that as a point of exit for your short and or a point of entry for your long.

Common sense? Yes. But you wont believe how many people don't do it that way. It is so annoying to see these people with their pretentious calls.

Epilogue:
LOL Epilogue. But a mental midget asked why the hell would you choose to short at .461 anyways? I'd like to know that too. Long at Resistance and Short at Support. It worked out but...seriously sensible? The guy who made the 4hr statement would not know what to do anyways.

Making Sensible Trades by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 071 - Supply And Demand

2011-05-06T06:35:00.000-07:00

Thanks to my friend NPR, I got suckered to watch Ben L. in the CrackNBC channel. Not that there is anything wrong with Ben. I just can't stand CNBC. I prefer the soft porn at FoxBiz and the brainy chics at Bloomberg. Like GREEK2ME THE GREAT person I know... oh and THE BEST LIVE GREAT AWESOME MONSTER FLIPPIN NOYPI. (hmm..a cat "scanning" flippin noypi a bit redundant?) Becky had this bloke talking about Supply And Demand. Mat something or other. Ben actually provided more credible insight than this analyst. The move while looking drastic has been distributing since 3/9/11. And in the hourly charts, Since Feb 22. Why so much difference between the daily and hourly charts? Because change happens in the lower time frames first.

Some may attribute these to latest development in the news but in the chart world, it is baked in. Now lets look at this in a hourly. Yes this is omg after the fact analysis. But if you aren't a maroon, you would understand that there was a progression that the technicals adhered to in order to facilitate the move. How you would play it has been discussed in this blog in many ways already. So for some of you skeptics, try to use those spongy material between your ears not your rears.

Now what about silver, that thing just dove off the cliff!

Judging from this chart, there was no distribution that justifies the huge drop. Where did we say change happens first? Right! In the lower time frames.

Terrifying isn't it?! If you can actually see the action in this way, you would actually be skeered to try to go long hoping for a new high cuz this thing was screaming. There was this tart the other day in chat claiming that silver was going to the moon and this same tart wanted 57 on the es and the very next day was really bearish. Guess if people followed him, they would require a lot of preparationH.

So what of Supply and Demand. Seriously, no real way to gauge supply and demand in the charts. I mean sure you can correlate data that shows how it does it. Who really cares! Why add the complexity? Perhaps the only reason why you would do it, is to sound like a tv speculator. Who would want to sound like that? It just moves from level to level. Areas of support and resistance. And when the momentum starts to fade, down/up, you will see it before it makes the big move. What is really happening when you see those divergences? Go see definition of Accumulation and Distribution. Spend a little brain power. I mean some of you freely burn so many getting properly smashed. So supply and demand? PFFT!!!

Supply And Demand by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

Based on a work at kewltech.blogspot.com

Issue 070 - Traders Should Be Vulcan

2011-05-02T19:02:00.000-07:00

So I'm a trekkie. I like trade with all sorts of traders all day. It can't be helped that I would say that traders should be Vulcan. Much like the famous Mr. Spock. Not to be confused with Dr. Spock the author who wrote about child care. Although, for many traders, it would resolve some issues.

Emotionless Vulcans would help many traders to trade better. They will trade with logical and almost mechanical analysis of the market. No more constipating about what the government policies will or will not do. No more being shaken because a falling market is sad. Or endlessly agonizing about how the good/bad news failed to yield the proper market response. And when they err, there will be no agonizing over the failed trade or agonizing over lost profits because of an early or conservative exit.

If traders were Vulcanized, Cramer would be poor. CNBC America would actually talk about something substantial. And I may actually watch it. Imagine a world without fear mongering groups like the Tea Party or Lou Dobbs. Ooops that one slipped. But you know those news hounds in the chat rooms who have a conspiracy theory about everything. But I digress. Did I?

Traders would analyze their charts accordingly without weird unfounded emotionally charge speculations. They would completely understand that momentum supports the move up or down. They would not blame hfts, pomo, qe2/3, ppt or Ben Bernake talking or the president talking or the Pope breaking wind. You know there was this trader that actually kept track of news and how soon they affect the market in a spreadsheet?

Traders would actually make intelligent comments about how the market moved. Instead of whacked out comments that don't make sense like:

"...the bull and bear trap and places that are targeted due to the bulk of stops typically located in that area, and big money builds inventory and dumps it into that stop liquidation "strength", ringing the register."

Can someone actually tell me what the hell this means without giving me a nose bleed? What is very interesting to note about some of these highly opinionated people is what are their qualifications to make such "informed" comments? This is where the Vulcan logic can help.

Do you know what other Star Trek race that would be equally as perfect as Vulcans, that would be The Borg. I miss 7of9, now that would have been a Borg that I wouldn't mind assimilating with.

Kev, thanks for the great idea.

Traders Should Be Vulcan by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 069 - Leg Hopping

2011-04-26T12:20:00.000-07:00

"Reference the the immediate leg for your current price action and reference that leg to the primary leg to see the bigger move".

Imagine if you knew about legs. Would it have prevented you from shorting 43. So sad how people were trying to short earlier but didn't see that we are working to retrace up the leg down from 1.586k.

Now as you know, how we gain levels or lose levels, you will always test and be repelled on first try. Many people don't understand that. They don't get how to reference the price action to the immediate leg and reference that leg to the to a primary leg.

If you had done that you would know that reaching 43 again today would be your 2nd touch.

Now the first touch was done 2/18. We then sold and until today, we retraced back up. Upon reaching this level of resistance, it would be 2nd touch in the progression for the bounce from 03/10 lows. Now where do we get the levels from? The primary leg down of course. You will utilize all the levels relative to this price range. If you go to the weekly, you are currently retracing up the 6/16/08 candle. You will use that bar and grab all the levels going back to 2006 that will be significant as we retrace up that candle.

The leg hopping came from retracing back up that 43 Feb high then hop to the main leg that will tell you how we are retracing off a larger leg. This is no different with what you would do on the intraday. This also compartmentalize the action to help you see the range the trend is working on.

Now what will happen as you reach significant levels off this main leg? Same thing you did when you hit 43. Same thing you did when you hit 46.25 on the first try.

Implementation of this kind of strategy will help you increase your probability of a good trade and minimize your risk. By understanding what the market is doing. Not only in the short but in the longer time frame. If you can't understand what the market is going to do, that should be a red flag for you to know that you don't know enough and should probably sit on your hands. A good trader follows the will of the market and does not think his mental meanderings will move it. It doesn't matter if it is a pomo day or fed day or what have you. The charts will lead the way. Your job is to follow. This kind of thinking elevates you from a junior trader status. You wont care to note any of those funnymentals that others use as an excuse as to why the market did what it did especially when it does not do what they expected. You read the charts and follow the basic tenets of technical analysis.

Leg Hopping by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 068 - Lesson on Distribution

2011-04-18T13:37:00.000-07:00

I love the reaction this morning when the market just dropped before the open. WTF happened they say. I love the remark afterwards. I predict a lower open. I know the guy was saying the latter in jest. But what are the technical reasons for the sell and why was it so aggressive?

The distribution started on the 3/27, long before we got the highs. If you look at the hourly, distribution started on the 25th, but that shouldn't surprise you, because momentum will change on the lower time frames first.

One of the key levels was tested first in are #1. The low of the 3/29th tested a support. Afterwards we pop up to the highs of April 6. Now as you can see, the leg up, (yellow line), your price action started to move sideways. A clue that distribution may be setting in. Another clue, is that your price got higher and higher on lower MACD. We know that is distribution.

By the time we get to the 4/14, we test the low of 3/29, we should surpass that, because we are still in the distribution process. The progression we noted from 3/27. We will test the 3/29 low and fail lower to the next level of support. Thus we are in the #2 area. As we hit the #2 area which is 1298.25, it is our first test. Progressively, from the 3/27, and noting the leg up, we never tested 1298.25 once. So on this test, you will pop! Basic technicals again on how levels are gained or lost.

Now, this facilitated the draw that we experienced today. And where will distributions take you? To the start of the leg up. Area #3. Do you see the doji candles on the 3/23 5:00pm est?

For those who like perfect HNS, this is a really ugly HNS. I love ugly chart patterns. What is the right leg of an HNS? It is a bull wedge. So when it hit the level of support at 1290.25, for the first time. We will pop! And this is how levels work in context and how you use the legs to your advantage.

Lesson on Distribution by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

Based on a work at kewltech.blogspot.com

Issue 067 - How That Werk?

2011-04-17T12:07:00.000-07:00

How come it popped?

Anyone? Anyone? The 1st issue on Compartmentalizing The Price Action, we saw the action down to the 30min chart. And for some of our scalper friends and people trying to figure out the action, says: "Hey Dawg? Why didn't you look at this in the lower time frames like ticks?" What is Dawg's reply? Dawg says: "How much have you read this blog?"

The thick yellow line going up is your leg up.

1. Is your 1st low. And the start where momentum starts to change.

2. Is your 2nd low. And where you confirmed the accumulation.

3. Shows your momentum was shifted from sellers to buyers..

Is this not accumulation?

1. Also shows you how the levels were respected. The 1st low retraced to the support shown by the leg up on 4/14/11 at 2:20pm est and was resistance back 10:00 am est that same day. And since it was the 1st test of this part of the leg, it popped at 5:20am on the 4/15. So far, very basic technicals.

After the pop, the price revisits 108.00 again. This level of support was hit a second time in the bearish progression that started when? 4/14 at 10:05am according to this 5min chart. Which eventually formed this Head n Shoulders pattern. Due to this bearish progression which has not confirmed the bullish progression that is has started, at 4am on the 15th, it will break through the 108 support on 2nd attempt and then take you to the next level of suppport (#2). Do you see the doji at 4/14 at 1:40pm est? And because this is the 1st attempt in the bearish progression, you will therefore pop!

3. Shows you how momentum was setup by the time we reach this second level of support. It describes how momentum produced an accumulation. This whole action progressed to produce a wide base. The base being the 1st and 2nd bottoms.

Dawg! Why does the 30min make it appear that the candles just burst through all the levels in between and here in the 5min, it didn't seem that it did the same thing?

Since the draw from 109.31ish, the pop produced here will be 1st attempts to reclaim previous support. So all of those consolidations you see in the 5min starting at 109.10ish and then around 109.22ish is the market obeying the technicals.

Well how did this all look in the tick charts?

Huh? This doesn't look like any of the timed charts. Do you know why it looks so ... different?

I circled where this action that we've been discussing but where is the double bottom? Where is the Head n Shoulders? Did the Dawg switch screens on you?

The reason it looks different is...VOLUME!!!

Well you see time charts are time base candles. The tick charts are specific volume via tick base candles. So what can you deduce from the difference between the 5min chart and this 1600tk chart? LOW VOLUME Sherlock!! Now an astute chartist like AskBucky would call this pattern a cup. And those who follow this blog will also know that this is a bullish progression based on the momentum pattern.

Where is the accumulation responsible for the pop then?

Ye of little faith. Did the technicals behave the same manner in the lower time frame as they do in the higher time frame? You betcha!

How That Werk? by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 065 - Compartmentalizing The Price Action

2011-04-15T08:01:00.000-07:00

Technical trading is a skill. It isn't an inherent talent. And like all skills, it can be learned and mastered. One of the skills that you will need to gain is the ability to compartmentalized the price action so that you understand how the long time frames will relate to the short time frames. The other day I heard a lot of static about CL, why it was selling. I heard people talk about their fibs, talk about their ma's and divergences. But the simple explanation was far from all their mental meanderings. And obviously, I wont mention the news hounds imaginings. So many people make up all kinds of justifications for the drop and some are valid and justified. But what was really annoying was, they used all kinds of indicators but failed to understand the simple.

Simply, we came up to resistance.

Wow really? It was the previous support that was lost back in 08/08. It was also a significant support back in 04/08, and so why wouldn't it be significant resistance when we come up to it? Support and Resistance? That doesn't make my screen like a NASA mission control screen. Too vanilla.

But people don't understand how to tie in their time frames. They become so focused in on 1 time frame and 1 bias. They also made their trading so complex by relying on their indicators that they simply forget about simple idea of support and resistance.

It is a good idea then to learn how to tie in the time frames. But one of the main complaints about doing that is their charts become inundated with lines galore. You know like the sethian fibos on your charts with psychedelic pretty colors and once in a while, when you wake up from your trance, you want to be able to move some of them so you can see the candles. That is not how you want to work.

How To Start

Start from a high time frame. And identify the S/Rs within the current price action context. On this chart I will start with the weekly.

What you will find is that when you change to a daily perspective, you will see these weekly lines line up to significant chart patterns.

Now what you have to understand is that you went from low detail to high detail. In a weekly to daily, you will see 1 candle to 7 candles. And you can discern different legs that make up certain candles. But the transition from daily to weekly, is not nearly as detailed when you transition into weekly to 4hr.

Now what you have to ask your-self by this time, is what is relevant to you for the day's activities. I could have drawn a ton more lines but I didn't. The reason is, I want to make a decision about what the possible action the market will do over the next few hours or so. What lines that I have now will be significant for the day. Mind you these are the weekly lines. As you can already see from the daily and 4hr, I can see some more lines that I can draw to make it more comprehensive.

I grayed out the weekly lines and added some 4hr lines. I could go crazy and add more. At this time I have not made any decisions about what the market is doing, just drew lines close to the current price action.

Even though I drew a ton of lines. More lines than I usually do, just trying to make a point. And when you understand what is necessary for you, you can do whatever you want. But in this 30min view, you can see that what you drew works really well, see how the current candle is bouncing off the support that you drew? Magic right? Uh huh.

Lets start thinking about what is going on. So we can get a good picture what the market is trying to do.

We know that in the weekly, we drew down from a weekly resistance that was support from 2008. So from the weekly perspective, we are currently trying to retrace up the leg that brought us down to the lows of 2009. And we found support that was also support back in 9/08 before we lost it 9/29/08. Does it mean we are done moving up? No. You are just respecting technicals.

So what do you think is happening in a shorter time frame?

First thing you have to do is understand what has happened thus far. So in this 4hr view you can see the leg up that took you to the highs. That is significant because it tells you all the S/Rs it went through to get to where it got. So if it was significant on the way up, it will be significant on the way down.

The next thing to note, is that we sold from the highs. And this will give you your current local leg of interest. Because it is the leg that is most immediate to the left of current price action. If we break down and lose the support we are currently on (the green line), then the primary leg that brought us up to the high will be your leg of interest. This is how you can compartmentalize the action in your mind.

So what has happened so far, is that we retraced up the big red candle on 4/12 9am est. As we tried to reclaim the support we lost from that candle, on our first try up the leg that sold from the current high, we obviously will fail. Basic technicals again. And then we drew down to 107.8, which is the support we held from 4/1 - 4/6. Wow, support before is now support again? Very hard concept. Need to be a rocket scientist to learn that. But if you are a lowly brain surgeon, you may grasp this in a week or so.

Now until it breaks that support, your main focus will be the leg down. And you will work on understanding how it is trying to go up. So on this support we are on, 107.8, we will try to test the previous high at about 109.32. What it has done so far is build up momentum, on the 30 you can see a little W. It failed to gain the support is lost from that previous high on the first attempt and will bust through on this second attempt.

Now the overall progression on this leg up, the retrace done to 109.32ish is the first attempt and on this push up, it should go to the next level of resistance and then fail again on the support that brought you to the high of 110.22 back on 4/12. So around 109.57ish.

These are the basics of trying to understand what the market will do. When you prepare for the market by understanding what it is doing in this way, you can save your-self some confusion and pain. (twiddling thumbs while waiting for market to do what it says it will do) ho hum....blah blah blah.

Finally!

This is part one on how to think the market through by compartmentalizing the price action.

The next steps will be to use your projections and help you define your time frames that you will work on. Linking your time frames will help you understand the price action in proper context.

Compartmentalizing The Price Action by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com

Issue 064 - Consolidation

2011-04-01T08:59:00.000-07:00

Areas of consolidation have so much information to provide. Not many people understand how to use them. When people see areas of consolidation, many people make comments like "the market is trying to make up its mind". Speculative analysis. It isn't even technical. What do most people do with such speculative analysis, they generally say they are SOH. Sit on hands. No real clue what to do. They think it is chop and have no idea how to play these sideways movements. Another thing that people do when they get into areas of consolidation is go long at peaks, and short at bottoms or valleys.

Technically, areas of consolidation are spots where momentum builds up. The more noticeable areas of consolidation people should note are peaks and valleys. Peaks and valley have 2 very distinct properties that you can immediately discern.

1. Support - is the level below the price action. When lost becomes resistance. Lost meaning price action goes below this level.

2. Resistance - is the level above the price action. When regained, as in price action moves above it, the level will become support.

Aside: you wont believe how many people still mix this basic fact up.

Top Range

Bottom Range

When you determine these 2 parts of these peaks and valleys, what you have is a range. And within these ranges will often see a doji contained within. Where the doji open/close will also determine your mid range. The top, middle and bottom of the range are significant levels. If there isn't a doji present, the next thing to do is utilize the opens and closes of the candles. You should see a price that is consistently being used as an open or close. A note about doji priority. People have these generalizations they like to make. One such generalization they make is "it works till it fails" pertaining to technicals. The failure is that they don't recognize their own lack of understanding. Not so much that the techs failed. You get remarks like. "I don't trust a doji unless supported by volume." or one more less absurd is "sometime doji's fail". The less absurd is easier to answer than that completely brainless comment about doji's being supported by volume. The doji may look like it failed but it is a matter of understanding the level precedence.

If you suspect a level with a doji to be a strong support or resistance, look for that level at a higher time frame.

People often limit their view. The question is always...why? The real problem is that people really don't understand what it means to "PLAN" their trades. And with their limited view, they often form an irreversible bias. This bias then solidifies their generalization that "it works till it fails". How do you trade with that kind of "confidence?" in what you read. I kind of picture a person walking, completely focused on his feet but not the road ahead. Then he declares after each step, it works till it fails. And ahead of him, just a couple steps away is a cliff.

That is how most people trade. Most of their trading considerations happen at the spur of the moment, never understanding that what happens is a result of progression. The higher time frame will always have precedence over a lower time frame. If a level is respected in a higher time frame it will always be respected in the lower time frame. The doji that aligns with such higher time frame level is the doji of precedence. This will be the way you will prioritize levels that seem to have a clusters of doji within 2-3 ticks from each other.

Channel Range

There is another area that you can gain insight into support and resistance. Many people consider these consolidation areas as rectangles or channels. The channels I am talking about are the horizontal channels. These are also important and telling areas of consolidation and provide the same information as peaks and valleys. And are used in the same way.

This demonstrates what true support and resistance really work. If it was significant before, it will be significant again. And you can gain a lot of information from areas of consolidation. No I do not draw these lines all over my charts. I look for them as the price action brings these levels into play. I also try to understand how these levels have been played within the context of progression. Meaning, has it been tested once before in the accumulation/distribution progression. If it has, then more than likely, price action will go through that level on the second attempt.

Now if you are intelligent, you will figure out a way to utilize this bit of information.

Additional Charts

I enjoyed the calls from the room about 36, and one guy said POMO had $6.5-8 billon for today. He was long when it dropped.

How did momentum support this action?

What is the longer term view of this action?

Weekly view shows how it works with levels. Any different from any other time frame?

4hr shows how the intraday legs are being targeted.

And the 2hr momo that helped the bullish progression.

Consolidation by kewltech is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at kewltech.blogspot.com