Reply To Long And Wrong, NQJ and Jimmy 's Comments On Volume Charts

Long and Wrong (Formerly Uncertain Futures) asked:

Jules - I've been trying to get my head around these vol charts but it just makes my brain ache too much when I try to think about what the differences will/should be compared to time. Have you got any thoughts/references etc?

UF (I'm assuming what you're asking is why the switch from time to volume charts and I'm responding accordingly...let me know if I got it all wrong....),

MY THOUGHTS

I hadn't given this much thought before you asked, and was just exploring volume-charts after having been exposed to footprint charts (I knew about footprint charts a few months back but just couldn't get pass that stage of understanding how they work - it's a tad like reading those 2000-page TWS instructional manual) in a chatroom that a friend had invited me to join for free for a few days.

I still wasn't sold after that few days, but began thinking about volume again. The fact that I rely so much on market depth tells me that I DO appreciate the significance of volume, and that the footprint chart is probably many times more informative than market depth. But there's just too much processing of info that's needed when using footprint.

I always believe that when it comes to trading, you only need an edge to lay a bet, whatever form that edge comes in. My edge is not in processing multiple sources of data before making a decision. A footprint chart is just too cluttered and requires too much pondering on the "structure" aspect of the market and comes with too many "numbers" for my liking.

Now I could always use a time-based chart and add a volume indicator to it. Doing that however, would require the analyzing of the volume indicator, and that's TOO MUCH thinking to do for me (i did say I can only process one piece of info at a time).

So in a spark of genius (I do get this once in a blue moon), I pulled out Sierra's volume charts and started experimenting with the volume size. I must have put in at least 10 different numbers before I settled for one that shows a chart that I can see very unambiguous supports and resistances, and candles that are not too ridiculous in size (something similar to 5-min was very appealing as it means I won't have to take on more risk for a "less noisy" chart).

With range and tick charts - I just simply cannot understand their workings, and I can't use anything until I can understand them. So I'll be doing more studies.

With volume charts, I understand them but I'm not able to explain in a coherent way why and how they work FOR ME. That's why my plan going forward is to explain by "showing" how I trade using these charts.

To put it even more simply, I have gone over the selected volume-charts - a few weeks of data - and I can "see" certain patterns and I can understand how the candles' opening and closing and the size of the candles relate to one another. So I decided to give volume charts a shot. I trust my understanding enough to start using them live. As I mentioned, I would explain to the best of my ability how they work as I go along. For now, I can only show that they work.

REFERENCES

I managed to find a few (click here, here, here, and Daytrader 233's Blog) and I have to say, reading them (with the exception of Daytrader's) gives me a BAD headache. I am only doing this for you ;-) ...I knew they were out there, I just didn't bother to read up coz to me, the theory per se isn't quite as important as the application and the BOTTOM LINE. Anything that helps me to make money consistently is good enough for me. :-)

Hope I haven't given you more headache...

NQJ and Jimmy:

About Top and Bottom Picking:

Depending on the context, I think it's ok to fade a trend. I can't come up with an example off the cuff now besides 2nd entry setups (I'm still feeling very drowsy...), but will show them on more charts to come. On days that are not trending, top and bottom picking is not only ok but actually necessary if you want to be able to get in on a fairly profitable trade. Brooks has some of his methods listed and Chp 15 is a good place to start (this is for Jimmy, I'm not sure if Jaya's reading Brooks).

ok, now I'm going back to sleep.

I know I'm a broken record, please bear with me. If you are reading this, I BEG you to please check out Denarii's blog and help him if it's within your means. Here's a fellow trader who might not have the resources (time, energy, capital, etc) to trade anymore, and that in itself is something that's tearing me apart. If you're a trader, and you understand how that feels, and you feel the same, I really hope you'll extend a helping hand.

6E Trade 7/1 - 1.4000

Yes, I bought a wave 4 in a downtrend.

But this is a HUGE wave 4.

Price tested low from yesterday, and bounced off that level with a strong bullish reversal pattern, which gave me a reason to stay put instead of scratching my trade after price turned against me almost immediately after my order was filled.

The extremely long bearish candle that extended below trendline support gave me yet another reason to bet on a downtrend that has exhausted itself, and that price is reversing to test the day's high at 1.4052.

Finally, and probably the KEY reason that had kept me holding my position for..let me see...nearly 3 hours (!!!!) was the number 1.4000.

Cups & Pills

SPX & DOW


NDX & RUT


At this point, NDX looks like the only one that has not reached its full potential - what with the huge cup and a tiny cup in the making.

All the other 3 are not looking so good in the long run. For now, cup should bring price to fib 261.8

Again, the above's purely for my own amusement. I have no idea what the broader market is doing, and I've totally stopped watching/reading/listening to news. Nothing in this world feels real. But since I've chosen the blue pill, I shan't complain. But I'm not listening to anymore BS.

ES (TA) & Reply to Comment (On My Exit Strategy)

Just something I do now and then whenever I'm no longer clear about the prevailing trend: TA!!

Chart shows a Cup With Handle formation - a valid one, given that
1) ES went up 30 points prior to its formation,
2) Cup's relatively tall
3) Handle's found in the upper half of the cup

This is a cup that has clearly performed. Price hit a target that exceeded the measured rule used for a cup in a BULL market (in a bear market, the measured rule is to take HALF the height of the low of the cup to the right rim, then add it to the right rim).

I spotted several cups before this cup, and none hit the measured rule for an uptrend. This is the first one that did. I'm not sure if that means we're looking at the start of a bull market. I find it rather hard to believe. It doesn't gel with what I see on SPX monthly ( 3 strong bullish candle off price low, but a 2nd entry is usually required to reverse prcie back up given the very strong downward momentum before it).

So, this is my hypothesis (gotta have one, it's just me): granted that we could very well be looking at an intermediate uptrend ahead, market is due for correction. SPX doesn't have to go all the way back down to 666; we have support at 840 (best case scenario). I'm anticipating a Cup Pullback to around 930 (1st target for shorts). From there another cup or any other variations of "W" formation could take shape, but I'll expect all upward breakouts from such patterns to fail. I'll start looking out for inverted cups in fact, or any variations of "M"s.

Whenever I'm disciplined (rare, but I do get into that mode at least a few days in a month..), I will not take trades based on assumptions. When I say I anticipate something, it simply means I'll keep a lookout for a setups that suggest it's happening. I will need both setups and signals for me to want to take a trade.

Personally, I wish that the market will just continue to go up from this point on to look for 1000. I'm starting to NOT like to sell. In fact, I don't think I'll be selling even if the market were to go into a short-term downtrend. What's good about taking the daytrading/scalping route is that I can still BUY in a bull correction. Ha.

Daytrader 233:

You asked how I decide where to cover/exit my positions.

Briefly, I count the number of legs/push ups (since I BUY, predominantly) once price leaves the "W" base.

Whenever ES is at the low of a "W" formation just minutes prior to US market open, I'll look out for the first bear attempt to push price back down the base - it's easy to see: the first candle that has a low that's sligthly below the low of the previous candle (keeping in mind that market's in an upward swing).

Then I'll see what the next candle is. If it's a bullish candle that has a decent size body and NOT too big a range, I'll enter on close of this candle. If the first bear attempt turned out to be a hammer, I won't wait for the next candle to form. That hammer will become my signal candle.

Once I'm in trade, I keep an eye on both the tape and the candle. If the candle's exceptionally long, and if it's pierced a trendline or a resistance, I'll exit before the close of the candle. Otherwise, I'll hold for another candle. There's no particular reason - just that I've seen so many moves comprising 3 with-trend candles. I usually like to get out when many are still wanting in (easy to cover), so I'll usually pass the 3rd candle. On days where candles are relatively small (on both choppy and ranging days), I will exit on the 2nd push up.

Having said all that, I usually go with the tape. Some days I choose to ignore the tape and that's the only time I'll exit as planned. Tape helps to give me a high winning percentage with small wins each time and if I have a daily target to hit, it means multiple entries. I ditch the tape (for exits) when I'm not in the mood to get in and out a dozen times. I always use the tape to confirm my entries.

Hope I answered your question?

ES Trades 4/16 - Still A Scalper

This really tickles me: I took a scalp and earned in 6 minutes exactly what took me 12 hours to earn/scratch earlier.

Traded the most primitive way - no indicators, no ticks, don't know what DOW's doing, don't know what companies have released or are releasing earnings (just know that a bunch of them are). I had my eyes on my 5min and 1hour. That's all.

Went in LONG after signal candle broke out of a consolidation of dojis. Signal candle had closed below resistance, but that break out of those doji's range would give it enough momentum to break resistance, I gathered, and the breaking of that resistance would give it even more momentum to go for the next resistance. On the hourly, price was so near to 848 resistance - candle was less than a point away from it, more than half way into it's previous candle (bearish candle)'s body, and 25 minutes away from closing. ES would at least attempt to close back above 848 resistance on the hourly. Stars were all aligned, and I waited for my signal candle to move just 1 tick above the high of the 3 dojis.

I can't help but prefer scalping to any other mode during US trading hours.

Lord Tedders:
To answer your question, what I mean by the "saner" way to trade is this: If I'm looking to buy, I find a place where I think price is low enough to get in, then find a place where I think price won't fall below and call that a "protective stop", and finally look for a major resistance (hopefully far enough to satisfy my appetite) and then I enter my trade, and then I get out of my chair and go play with my cats.

Well, that's just in theory of course. In practice, I watch my chart like a hawk for as long as I'm in position so that I can save it when market does something crazy. Today I stared at my chart for a straight 12 hours. I think it's something that only cavemen can understand. LOL!

Bad News Has WINGS...And STARS...

EUR (Spot) Monthly

EUR (Futures) Daily

Euro Futures (6E) Trade 4/3 - Resistance-Turned-Support With Inside Bar Setup

Bought a "W" formation (in the form of an Inverted Head & Shoulder). Trigger was an Inside Bar (see chart above - inside bar's highlighted in yellow). The Outside Bar is highlighted in grey. I went in long at the candle following the Inside Bar, at slightly above its high.

This is also a Resistance-Turned-Support (1.3434 - indicated in chart) with Inside Bar setup. 2 bullish candles closing above support validated the setup.

I've used a Fib ext 138.2 (instead of 161.8) as target given the many resistance above. Seed for drawing the Fib ext levels is highlighted in blue.

This is a very familiar pattern to me, and I've chosen to enter before the confirmation of the Inverted Head & Shoulder (confirmation level is indicated in chart). It's a risk that I have to take. With futures, you don't get rewarded for seeing the obvious. My mental stop was 2 ticks below the low of my entry candle.

I've covered before price hit 138.2 target coz candle was getting exceedingly long. Had it been a series of average body candles, I would have covered on the 5th bullish candle, which would probably be the one that hit 138.2.

This is my first trade of the day, and I started watching my charts only an hour before entry, instead of the usual 8 hours. Sure says a lot about the hazard of sitting in front of your screen for too long.

I might take another trade only after US market opens. That's 4.5 hours from now. It's a busy day for me, but I'm glad I had something to occupy my time and take me away from the charts that I've gotten too addicted to.

Update:

Chart above shows what would have happened had I pushed my luck by chasing. A very long bullish candle that hit a fib target is usually a warning of a change in trend. The mistaking of the non-inside-bar indicated in the chart as a valid inside bar wouldn't have caused any harm though, since price never went anywhere near its high, so there wouldn't have been an entry.

Next step would be to draw a fib retracement from the "head" part of the inverted head & shoulder pattern to the high. A retracement of 38.2%, or to support at 1.3450 (the confirmation level for IHS pattern) are good signs. If price falls below both, I would WAIT to see what happens. If price finds support at the "head", that will be a double bottom pattern.

Anyway, I'm really not going to enter another position until much later today.

6E (Euro) Trades 4/1 & About Trading For A Living

Am waiting IMPATIENTLY for another setup. Totally abandoning my sniper style trading and giving up my USD100 -300 daily gains to cultivate new trading habits. I feel like a bamboo tree, except that I'll probably take more than 5 years to emerge from underground to see sunlight.

I need to adopt a different style of trading so that I can still continue to trade while working a 9 to 6 job (ok, D, I'm REALLY going to start filling those painful online application...). I need a job to keep me sane, and to keep me in the trading game. I have an emotional and practical need for an income!

After an 18-month trial, I'm as sure as I can get (I'm confused by default) about my verdict that a full-time job is good for me. I'm 101% certain that it will make me a much better trader than I was before - not that I was a good one then, but I did have a positive year...one that could have seen my account wiped out had lady luck not been on my side...

I will definitely consider trading for a living when I retire. For now, I'm just too happy (and too depressed) a person to be trading full time.

If I don't send out at least 3 job applications today, D is allowed to spank and starve me for 2 days (the starving, NOT the spanking).

I really would rather serve burgers than to have to fill in an application for a job in the public sector!!!

I HATE FORM FILLING!!!

My EURO trades for now:

I was a dumb ass for going short on my 1st trade (entry is highlighted in yellow). Realized after 2 minutes that this was the very swing that I had waited for to see if price was going to make a higher low (the floor of the downsloping channel was getting less steep, and I was prepared to see a major retracement up), and I was trading it - DOWN!

I'm a retard.

Got out within the same candle. I don't need the market to tell me that I'm wrong. NOT ANYMORE.

2nd entry (highlighted in blue) was a little better - though I was takinga chance (wasn't expecting price to break on the upside given the bearish sentiment). No hard stop was put in (price hit 1 tick above my mental stop momentarily though, before springing back up, a sign that price is being rejected at that level). The small bodied bearish candles dragged price down to near support didn't intimidate me. This is a pattern I'm familiar with. I said I would trade a 3 Rising Valley one day - today's the day, and I refused to be shaken out.

On the 3rd bullish candle up, I put in a hard stop at HH (see chart above). And, I would have been taken out at a small loss had I not taken profit when price hit resistance. I'm not ready for home-runs yet. That will be phase 2 of the exercise.

INSIDE BARS Below Resistance Line

On the Euro Futures 5min chart (Mar 31), 2 more inside bars found during US trading hours:

Support-Turned-Resistance Setups

1 hour into US trading session, 6E bounced off the floor of an Ascending Broadening Wedge, hit resistance and turned down, forming a typical Partial Rise. The outside bar is the 2nd candle in a Market Structure High, and the Inside Bar is the Trigger Candle.

An hour later, price did a typical pull back to the uptrendline of the ABW, piercing a resistance on its way up, but closing only once above the resistance. We have a MSH, and the Trigger candle is an Inside bar again.

In both cases, we have more than 2 bearish candles that closed BELOW what used to be a support line before price pulled back to hit that line again. A MINIMUM of 2 closes below is needed if we're looking for high probability trades - it's an indication that that line is no longer good as support, and that price is likely to stay below.

Inside bars should only be used as a trigger when it's found in significant and market structure lows and highs. They are seen everywhere, but only the ones that are at swings and MS highs and lows should be traded.

Textbook INSIDE BARS

3 perfect Inside Bars within a short-span of 5 hours that would have yielded very lucrative returns - had I traded them (well, maybe not, coz I would have run after 3 candles at most anyway. But these are high probability setups with relatively lower risk, since you usually use the high or low of the inside bar as stops).

Double Bottom

Resistance-Turned-Support

Draw resistance where price was stopped. Look for resistance to be broken. Look for at least 2 closes (on bullish candles) above resistance. When price makes a throwback to resistance, keep a lookout for inside bars that form above it. If the bar is formed below, but the candle following opens and closes above, good to go.

Fib 38.2 Throwback

Instead, I went for really lousy setups, lost the first 2 trades (stop loss - hard ones - totally to be blamed!!), and took the next 4 (NO hard stops used - only mental ones taking into account S & R and volatility stops) to break even (if I didn't have to pay my broker).


Have had enough of Euro for today. Switching to ES & TF after US market opens.

Al and Keish are not eating or drinking. I'm starting to use syringes to force water into them. If they don't get better, I think I'll go crazy worrying.

I really have to sort out this stop loss issue. Or maybe it's my entry.

Yup, totally my entries. If I know I just went in on a bad entry, I wouldn't hold my trades, and would rather take a loss.

ES 2/12 - About The DBW-ABW Setup

ES 1min

One of my favorite patterns combination: the Descending Broadening Wedge (DBW) followed by an Ascending Broadening Wedge (ABW).

This was the setup I've been trading for days on the hourly chart.

Briefly, this is how I trade the pattern:

I play a breakout of the DBW on the upside.

After the DBW has formed (meaning that price has broken above the 2 downtrend lines), I'll need to see a throw back to the DBW or a support line.

Then I'll draw a trendline that joins the 2 higher lows that are formed after the breakout. Next, I'll draw a trendline joining the joining the 2 peaks. This is my ABW.

Then I wait for price to hit the upper trendline. If the former breaks above the latter, I'll not chase. Only when price comes down and hit the lower trendline again (by now that would be the 3rd time price touches lower trendline) will I look for a signal to go long.

If price were to break below the lower trendline instead, I'll wait for a pull back. If during the pull back price were to pierce the lower trendline of the ABW, and close above it - that's a busted ABW. All the better. GO LONG.

My targets will be the levels where price TOUCHES the upper channel of the DBW.

I usually take profit at target 1, then wait to see what develops. If I see a partial rise, I'll abort any plans to enter another long.

A partial rise is a reliable warning of a break below the ABW, many times what comes after that is a measured move down. Good to sell short.

About Indicators

Slait asked in the comment section:

Shoul´d be possible to explain how you use the indicators you plot?

My reply:

I don't use the indicators. I have put them back on for the 100th time just to see if I will even take a look at them. I am still not watching them. Not even the basic one like the moving averages. I go long and sell short under them, and go long and sell short above them. So they are basically there for show only.

Pardon me for not being able to tell you something that I hardly use. I mean, I've used them in months of backtesting, and through that I came to accept that because good signals don't come often, I'll probably never be able to use them to trade successfully. Coz if I were to follow them faithfully, I'll not be able to scalp.

I'm a scalper. I watch very basic things like horizontal price lines and trendlines. I plan my trades based on chart patterns. And I keep tabs on whether the patterns still hold when I'm watching the market. I rely a lot on Fibonacci levels too, and I like to see that they coincide with major support and resistance.

The other thing I look at is market depth. I won't enter a trade without having observed it for a while first. On a daily basis, I stare at it for 12 hours minimum.

The only indicator that I've used a few times is the NYSE Tick. But I've stopped looking at that too. I have only one pair of eyes and a very small brain. I can only process so much data in matters of minutes and seconds :-)

Sorry I'm not able to help FOR NOW. I'm doing a forward testing on some of those indicators you see there. I'll do a posting whenever I have any findings.

ES 2/9 - About Bottoms, Busted Bearish Patterns & Such

ES Hourly

My thoughts on what I'm seeing:

Ascending Broadening (AB) Formation (pink trendlines) that's supposed to encase prices was busted on Thursday when ES punched through its base but quickly made a V-shape reversal back into the formation.

The busting of the pattern was hardly surprising, given that an AB formation that develops at significant lows usually breaks upwards.

Now that the pattern is busted, I'll be expecting to see an even better upward breakout performance. The psychology behind this has everything to do with bears being caught by surprise - their covering sent price soaring, and that triggered new buying and fueled the much awaited rally.

When you combine the Descending Broadening Wedge (blue trendlines) and AB formation , you should easily see a Wash-and-Rinse (aka Double Bottom - albeit a lopsided one) pattern. Using the measure rule for double bottom - I have come up with something like 893.5 as the ultimate exit target for this pattern.

I'm using the Double Bottom pattern to project my exit points because I can't use the AB formation to do any computation until ES actually breaks out of it. In any case, it doesn't really matter which figure I take, ES is ultimately going to be stopped by resistance at 900 (which is very close to the targeted exit for the double bottom pattern).

900 is target 3 on my chart. Targets 1 and 2 are all resistances above where ES closed on Friday.

It's apparent that I'm taking a bullish stance. How could I not when I'm seeing double bottoms, Inverted Head and Shoulders, and a recently busted bearish pattern on a chart that's actually making higher lows ( which are not spectacularly higher - and I take that as a good sign, since a healthy rally is usually anything but spectacular)?

I'm not going into the realm of market fundamentals - anyone who's been paying attention to macroeconomics and keeping close tabs on what the Obama administration has been doing about the mess they've inherited from their predecessor should know that we're not in a very good situation. When things get this bad, and you give investors a little something to look forward to, they are going to get EXCITED for a few days, until you start giving them reasons to believe that you just might not be able to deliver your promise within the stipulated timeframe.

I'm envisioning that the HOPE bit would drive ES to the 900 - 1000 level.

The REALIZATION part we should see when ES tumbles back down after hitting that major resistance (900-1000).

Rationalizing the market is such a breeze.

No wonder everyone's doing it.

For next week, I'm hypothesizing that either of these scenarios will unfold:

1) ES moves up to hit my target 1 at 876 (blue horizontal dotted line), then throws back to 856 (red horizontal line), which is a previous support turned resistance.

856 happens to be a fib retracement of 50% if we take 876 as the high ,and 836.5 (yellow dotted line) as the low.

If ES were to turn back up from there (ie. 856 - the red horizontal line), and hit the ceiling of the AB formation, that would qualify as a partial decline. Bullish pattern.

2) This is the scenario that I'm NOT convinced will develop: instead of pulling back to red horizontal line, ES lands on support at 850, or at base of AB formation, then bounce back up, only to reverse back down after being stopped by red horizontal line, or ceiling of AB formation, or 876 (my target 1).

If this really were to happen, I'll be looking out for a head and shoulder to form , especially if the base of the AB formation actually gives the HS a nice neckline. Bearish.

My target 1 for this breakout below the AB formation would be 816.

As much as I love playing with scenarios, I can't use them to make minute to minute - or second to second - decisions for scalps and daytrades. Not for the time being (I need a stronger heart and bigger account...). But they have been very useful in helping me to spot trends and patterns that are developing on lower timeframes, on which I usually formulate my plans for entries and exits.

NYSE data for the week of Feb 2:

Feb 2 & 3

Feb 4 & 5

Feb 6


Market doesn't look horribly weak to me.

TF 1/30

Dow & SPX Daily

Round bottom (Jan 15 - 28) on both...that's going to be a straight line down to at least the Nov08 low. Simply put, market's looking bad, and I'm bearish again.

TF 30min

Pattern I'm looking to trade: Head & Shoulder / Measured Move Down
It looks like we're going into correctional wave 4, and the session today could very likely see the completion of wave 5 - which is visually the 2nd leg of a measured move down.

And if that happens, it will complete what looks very much like a Head and shoulder pattern on the 30min chart.

Plan A

• Short at: 457 - 459
• Exit target 1: 450
• Exit target 2: 440

Plan B
(This is is for the scenario where TF doesn't even go back up to test resistance at 459)

• Short at: 450 - 451
  
• Exit target: 440

I'm suspecting that we'll be looking at a rather narrow range today, so I really don't have very high hopes that TF will hit 440. The right shoulder needs time to form afterall - if that's really a shoulder that's in the making.

I would like to see bearish patterns developing around the 450 area on the lower timeframe before considering any shorts below that level.

TF 1/23 - Scared Bears?

TF 5min

Volume pattern's looking very much like TF's going to form a head & shoulder/double top. There's a clear lack of fresh buying, just lots of bear covering. And one would think that THAT would encourage the bulls. But no, no one's buying.

Went in for 2 scalps - both long - and was looking to buy again on pull back. But now I'm not so sure I still want to buy. I'm not even going to buy that test up to the previous peak. Granted TF's traded from below pivot support 1 to above it, it's still trading below pivot.

Looking to sell double tops/HS (on 1min and 5min). Entry signal: TF closing below 434. Won't be going in before that - don't want to be caught in one of those nasty bear traps. Market just seems a tad oversold to me.

TF 1/23 & DOW's Diamond And Pipe Bottoms

TF Hourly

This is what I'm thinking (and it's all conjecture of course):

1) TF is going to break out below the symmetrical triangle, finding support however, at 429 to 431, and move back up into the triangle, busting the breakout.

2) What follows would be a breakout above the top downtrend line (in blue), and then TF would be aiming for 475.

I'll be looking to buy during a pull back in the event that price breaks out of the blue top downtrend line. If that's too near 458 resistance, I'll wait for price to close above 458 before going long.

While waiting, I'll be scalping. Again, if market gets choppy, even if TF were to hit those numbers, I'm still not going to hold any positions for more than a few ticks.

DOW Daily

Busted diamond bottom. Or is it? Diamond bottoms don't usually fail. Besides, the pipe bottoms are providing support still. I'm speculating that market could very well close in the positive territory today.

TF 1/22 & An Anniversary

TF Hourly

For the life of me, I cannot imagine TF continuing to go up. There's going to be a throwback to the channel, or to pivot at 448.3. If it stays above that, then good for it. If it reaches 470 and stays above that, that's going to be a clear victory for the bulls.

I feel like I'm writing a fairy tale. It's crap.

I envision TF to be stopped by 458 resistance, and plunge below pivot at 448 in search of its burial spot.

Today's a special day. It is special to me. Am going to ditch trading to explore the world from which I have run away for so long. Probably catch a few movies by myself - I love the pitch black darkness of a cinema hall - and then loot a nearby bookstore.

DOW,RUT & TF 1/21

DOW Daily

I'm inclined to take the view that the market is going to continue to go down in the next 2 to 3 sessions. Fundamentals (advances/decliners, sector performance, the general economic outlook within and beyond the US border, political atmosphere etc, etc) aside, these are the technical reasons on which I have based my view:

1) Hammer failed on substantial volume (highest within the month)

2) Price closed below the lowest valley (8360 - which would be my confirmation entry if I were to trade this pattern) of the triple top formation , pulled back, but was stopped by the confirmation line (8360). Yesterday saw price resuming downward, confirming triple top formation

3) The 7 candles before the hammer look like the 1st leg of a measured move down, and yesterday looked like the beginning of the 2nd leg down, with target pointing dangerously at the 7300 - 7400 region (ie. lower than the previous low)

4) ADX turning up from under 20 (downtrend picking up strength)

RUT Daily

RUT broke out of an ascending broadening formation, and just like DOW, yesterday looked like the beginning of the 2nd leg of its measured move down.

It seems we are revisiting wave 3, and probably on our way to wave 5 straight, if market doesn't find support at its previous low.

TF Hourly

TF is clearly not done going down. 2nd leg of measured move down should reach about 400 on completion. Support at around 415 from daily chart might stop price temporarily, or could be from where TF bounces back up.

DOW: Weekly & Daily Chart Analysis & Inverted Scallops

DOW WEEKLY

It appears to me that we are now in wave 4 - put another way, it simply means we have yet to see the bottom.

The bottom could be at 6975, which is DOW's previous low (formed in Oct 97), or at around 6000, which is the completion of the 2nd leg of a measured move down in the daily chart (refer to weekly chart above). Details under "DOW DAILY" below.

DOW DAILY

I see an Inverted Scallop developing (the arc in the above chart is the best arc that I can draw...do give it your best shot to visualize a smooth arc that joins the price peaks - that's the shape of a typical Inverted Scallop - although sometimes you will have to use the low, rather than the peak, of the candles to see the arc...you get the drift...)

I personally had found the Inverted Scallops comforting to see in a downtrend during those times that I had entered a LONG position prematurely. It's about the only other pattern that will successfully reverse price (the other pattern is the double/triple bottom that has either hammers or morning stars, or piercing patterns at the bottom - I personally don't trust the harami - but that's just me), especially on intraday basis. Again, that's my personal experience - if I want to see a scallop, I will see a scallop, and I set my stops and targets based on this particular pattern that I have identified.

And since according to Bulkowski (author of Encyclopedia of Chart Patterns), when Inverted Scallops form in a downtrend, it is usually found in the corrective phase of a measured move down (which is what we are seeing on the daily chart now), I know that my odds are getting better that the pattern forming is indeed an inverted scallop.

So, assuming that we are now indeed in wave 4, and assuming that wave 4 ends at 10,700 to 10,800 (refer to daily chart above - 10700 is derived from fib extension; 10800 is visually a resistance), the way it's going up could be via successive Inverted Scallops. A sign of exhaustion of this corrective wave up would be the narrowing of the width of each successive scallops (ie. it takes increasingly shorter time for scallop patterns to complete)

Assuming that price indeed turned back down from there, completing wave 5, which is also the 2nd leg of the measured move down, my target, if I was shorting, would be around 6975 (previous low in Oct 97), or 6000 (performance target for measured move down).

Random Thoughts: picking tops and bottoms & daytrading and swing trading

Having said all of the above, and truth be told, no one can say for sure where the bottom is going to be.

As far as I'm concerned, I'm going to go with the assumption that DOW's going to go as low as 6975, or 6000, or even lower, before it will make a solid bounce to reverse the downtrend that began in 07 (I'm just going to ignore - for now - the arguement that the downtrend actually began way before that and that the rally that we saw prior to Oct 07 was merely a bear rally).

That's the easier scenario - ie. DOW to confirm a bottom, and the market simply looks to trade up from that point until it touches its previous peak at 14200.

Should DOW punch through 6000, or 5000, I'll be prepared for a very difficult trading environment, not unlike the one I've experienced for the past few weeks. The reason is straightforward: prices would be too low to make selling comfortable or even natural for that matter, and the risk involved in going long without having seen an established bottom first is too high to buy - most are going to think like that, and that kind of collective sentiment could create some really freaky looking charts like the ones we've seen on the awfully choppy days lately.

All in all, as a daytrader, my concern is NOT so much about market's trends as it is about the SENTIMENTS surrounding surprises along these trends. Using the above as an illustration, should the majority expect DOW to plunge beneath 5000, then a rally -if it happened -could be a difficult one comprising choppy days and steep downward moves. In this case, taking the side of the bear, and getting aggressive on days plagued by bad news and econ data would be the way that I would go about trading the TF in particular (to use the analogy of poker, this will be the round where I'll go "ALL IN").

For now, it's clear that the market wants to go up. For how long, I don't quite care. I just know that no one knows for sure, everyone's guessing, and constantly looking for the more enlightened to provide some solid answers, and the smallest surprise will send the market drifting in all kinds of directions. Here I am, just scalping away daily - taking my few ticks per scalp - while watching for price to be stopped, turn around, and go back down to find its real bottom this time.

Again, the bottom could be 6000, or 5000, or maybe even 2500 - according to some seriously grisly bears (yup, that included me at one point) - and precisely because I don't have the SLIGHTEST inkling where price will stop nosediving, I'm going to continue to daytrade and scalp only, until I see that it makes sense for me to hold my trades longer. (It wouldn't make sense for me to take trades I'm not comfortable with. But it could make perfect sense for someone less risk averse/more aggressive/better capitalized to actually buy-and-hold, or sell-and-hold RIGHT NOW. There's really no one way to go about trading this market.)

For me to really believe that the market has bottomed, I would have to see successive bullish patterns developing above the 6000 to 6975 support. That's the only way I can be assured that the odds of DOW breaking above its high at 14200 have indeeed increased.

Since market's closed for holiday today, I'm going to take the chance to do something really terrible later - skate with a flu. If I keep believing that I'm sick, I will continue to be sick. That's the way my body works.

Indicators: NYSE TICK + Keltner Channel

The following describes how I would personally use the NYSE TICK and the Keltner Channel as indicators when I'm daytrading the TF FOR NOW.
_________________________________________________________________

On a generally BULLISH day

Signal: BUY

(When Tick is turning up from 0 or +150)

Conditions:

A) At Price Top

1) When all candles of the previous peak have moved back into the KC from outside the upper channel, and prices are confined within the lower channel, AND

2) When Tick's previous peak was above +500, then it came down to +150, and is now turning back up

B) At Price Bottom

1)When ALL candles of the valley have moved back into the KC from outside the lower channel, AND

2) When Tick's previous valley was below 0, and has turned up, and has now reached +150

(When Tick is turning up from +350)

Conditions:

1) When candles are seen bouncing off the KC centreline, or upper band of the the KC - after an impulse move up where prices had moved out of upper channel of KC, AND

2) When tick's previous peak was at +500 or above, came back down to +350, and turning back up towards +500 again

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Signal: Sell

(When Tick is turning down after having gone beyond +500)

Conditions:

1) When All the candles of the previous peaks are confined within the KC channel, and prices have been bouncing back and forth from KC ceiling to its centreline, AND

2) When Tick has gone above +500, then came back down to +350 - once price closed below KC centreline, and if it happens to be the breakout point of a trendline, that's a signal to SELL

_______________________________________________________________

On a generally BEARISH day

Signal: SELL

(When Tick is turning down at + 150)

Conditions:

1) When candles have gone back into the KC after having moved out of its upper channel, and when all the candles of the current peak are completely contained within the channel, AND

2) When Tick's previous peak was at +150, then it moved down, and then turned back up to +150, and is now turning back down

(When Tick is turning down at - 150)

Conditions:

1) When candles are bouncing between floor of KC and its centreline, and no bullish candles close above the centreline, AND

2) When Tick's previous peak was at -150, then it went down to -350, and then turned back up to -150

(NOTE: Do NOT sell after tick dropped beyond -350 and turned back from its valley - that's an oversold situation and the likelihood is that price will reverse from there)

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Signal: BUY

(When Tick is turning up at -350 or -500)

Conditions:

A)
1) When candles are seen bouncing off the floor of the KC channel and the MA (KC centreline), and when candles land again on the floor of the channel, AND

2) When Tick's previous peak was at 0 or -150, then it came all the way down to hit -350 or -500, and is now turning back up

B)
1) When candles are seen moving from the upper KC all the way down to the floor of the KC (NOTE: Candles must NEVER have gone out of the lower channel of the KC - that is an indication of a continuation of a downtrend), AND

2) When Tick's previous peaks are either in the positive region (0 to +150), or hovering between 0 and -150, from where it went down to -350 or -500, and is now turning back up