Monday, March 31, 2014

Failed Breakouts are strong signals

Here is a quick look at the recent breakout and failure of the Gold futures on the Hourly and Daily charts.  First notice the four points of contact on the left hand side hourly chart which solidifies this trendline as significant.  On the right side Daily chart the oval highlights the reversal above trendline resistance.  The lack of surging and sustained expanding Volume didn't help the Bulls on the breakout.

(Click on chart to expand)


Next the Hourly chart also has a breakdown and back-test as well.  The new swing low on the hourly chart opened the flood gates a bit after losing trendline support.  There was the re-test of the significant trendline on the above chart, but the Bulls failed to make a new swing high afterward which might have had the Bears scrambling.  The lack of follow through from the bigger picture Daily chart hurt the Bulls in this case for the time being. 

(Click on chart to expand)


This horizontal zone at $1275 is a major level in the Big Picture.


Saturday, March 15, 2014

Nasdaq 100 is in a bad spot for the Bulls near term

There has not been many reasons to favor the short trade intraday when trading the Nasdaq 100 futures, but now the Bears are in control of the path of least resistance in the near term picture, which can be seen by the breakdown of the Hourly chart pattern, see left hand side below.  This details of this pattern was laid out in a prior post here before the breakdown.  The Daily chart looks overextended to the upside with the volatile expanding triangle or megaphone pattern, see right hand side below.  The details of this pattern and the implications were also laid out in a prior post here.

Until the Nasdaq 100 can re-take the 3640 level to the upside, and preferably on surging volume, I believe the better day-trade for now is going to be on the short side with any failed breakouts to the upside intraday or with any bearish reversal patterns or bearish continuation patterns.  The opportunities to short this market have been so few and far between for years, but until this market reverses back above this prior support level on the hourly chart the probabilities favor that trade in my opinion.  This horizontal level should now act as a decent overhead resistance level.  If the Bulls rip it higher from here what can you do but step aside and take the small loss if trading is on the short side. 

(Click on chart to expand)


One thing to point out that has been a huge concern for me with the health of the Bull market is the pattern in Volume in the Daily timeframe, which can be seen on the lower sub-graph of the Daily chart.  That chart is dominated with large red bars, which means it was accompanying Bearish Price action.  The supply side pressure is much more intense.  If I remove the upper graph, and a non-biased trader spent time looking at only the chart in Volume, without knowing price, one would swear this was a Bear market with every rally getting crushed.  It is a must to click on the charts and spend time observing.

The fact that this is a Bull market screams that this is a pattern of Distribution.  Smart money accumulated a long time ago, and what it looks like from a historical perspective is the smart money is dishing it out to the "late to the party misinformed public" who has been whipped up by greed.


(Click on chart to expand)




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Wednesday, March 12, 2014

Gold is breaking out on multiple timeframes

Gold futures broke out from trendline resistance on the 30 min chart and this also coincided with the breakout in the Daily timeframe as well.   Will we see confirmation in Volume and with continuation patterns developing from here?  We shall see, and I know what I am looking for.

Notice the three points of contact at trendline resistance on both charts below.  Any trendline with three points of contact is a significant key reference area to trade from in a given timeframe.  This provides a favorable trade location in terms of probabilities for an increase or decrease in the supply and demand probabilities.  Should the Volume start expanding with the bullish price action from here the Bears are going to start feeling some heat. 

Bears want to see a failed breakout and reversal back below the prior resistance.  These levels may act as support on any pullback and that would likely be a big test between the Bulls and Bears.

(Click on chart to expand)


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Monday, March 10, 2014

Nasdaq 100 has a significant near term pattern

The Hourly chart in the Nasdaq 100 has an "inverted ascending triangle pattern", with horizontal support around 3640.  I have this pattern drawn with trendline on the left hand side chart below.  Basically what this pattern is showing is strong demand at certain level (3640), but should that demand be depleted, then next test of that level can crack down hard and become strong resistance in a given timeframe.  Any recent open interest on the long side of the contract taken place inside of the triangle formation would be bleeding red, and depending on how much leverage is being used this could fuel further long liquidation and encourage short initiation.  I'm sure there are many Bears out there licking their chops at favorable trade locations to enter a short trade with good reward to risk.  Volume has been heavy with Bearish price action compared to Bullish price action in the Daily timeframe which can be seen clearly on the lower sub-graph of the Daily chart, right hand side below.  Notice also the "Megaphone" pattern on the Daily chart that has Bearish implications as well.  The megaphone is depicts a market that is excited with rampant speculation.

(Click on chart to expand)


We shall see what comes next.  Everything in chart analysis is at best present tense.  Once you read it from someone else it is PAST tense. 

Bottom line is develop a trade plan that is based on your own beliefs about what is taking place right now.
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Wednesday, March 5, 2014

Russell 2000 at resistance

Here is a quick look at the Daily chart in the Russell 2000, and it is at a multipoint trendline resistance in the big picture and this is a key reference area for me.  Markets can do the opposite of the waterfall decline on surging breakouts from rising trendline resistance, but the failure to breakout is a potential strong reversal signals as well.  A trader does not have to be right all the time, they only need good reward to risk and high enough probabilities in being right to have an edge.  An edge is not just the entry or favorable trade location, it is in the management of the trade, matched to the appropriate position sizing/money management and risk management.  Risk management is knowing when you are wrong and not paying a lot of money for that information.

As a day trader, I want to correctly identify the current order flow in the big picture or a change in order flow in the big picture, and then fine tune the trade opportunities on the smaller degree timeframe at those key reference areas.

(Click on chart to expand)



Wednesday, February 19, 2014

Why the study of Volume is as important as Price in chart analysis and "Trade Management"

In my experience I have found that markets that are in downward trend are very risky to trade on the long side without the Volume expanding with Bullish price action or surging counter trend.  One market to keep an eye on for possibly making bottom is the Japanese Yen.  Notice on the Daily chart the many large bars of above average Volume accompanying bullish price action since this market made a low.  I have highlighted this with a Blue Rectangle on the lower sub-graph.  Path of least resistance is still lower, so a trader should be conservative with any long here there are no breakouts yet that I see to even establish a position, but the Yen is on my radar.

A market that is rallying off lows with diminishing Volume I believe is a scary place to be in for Bulls and I would avoid entering into any position that was long.  Is that a guarantee the market won't keep rallying, the answer is no, but what is most important is a trader should have a trade system that is built upon their beliefs, and a trade system that is built upon probabilities taken consistently over time, measured to the reward and risk.  Nobody is going to be right all the time.

The bottom line is I believe the Yen may be seeing signs of "Accumulation" in the big picture.  It is still not a contract to be aggressively trading long until the path of least resistance is higher, or this market is ripe for a breakout from a Bullish pricing pattern or up through a significant trendline or horizontal level of resistance.

(Click on chart to expand)


To me the greatest traders in the history of this business all had one thing in common having listened or read their interviews, and that theme has always been "hold your winners, and cut your losers short".  But that is easier said than done.  A trader must have a "Valid" reason to hold and a valid reason to exit based on consistent and disciplined analysis of supply and demand.  Volume measures intensity in supply and demand, so I would not ignore it.  It can be the single greatest reason to sit tight with a winning trade when Volume is expanding, or the single greatest reason to get out when it is not pouring in with the direction of your trade, or worse if it is expanding in the adverse direction.  A perfect example of a market that was seeing heavy Volume on breakouts, and expanding with rally's off support was Coffee.  Those who were short and ignored the intensity in "demand" by paying attention to the Volume, with the reactions at key reference areas got blasted at best or ruined.  Besides that those who ignored the Volume and were long based on this timeframe, and took a small profit are probably kicking themselves.  But most importantly those who sat tight or added to their position at the key reference areas due to the patterns in Price AND Volume crushed it out of the park.

Notice the small blue ovals in the chart below.  These trendline in Coffee are significant key reference areas as they had three points of contact.  I would not ignore these major trendlines.  Pay extra careful attention to the lower sub-graph of Volume and not just the Candlesticks at these key reference areas.

Getting into a position now in Coffee is like jumping on a screaming locomotive.  The point here is to build intuition for the future when markets are seeing Volume at key reference areas, and to keep the focus not just on entries, but on the trade management, since that is what clearly separates the great ones from the rest.

(Click on chart to expand)


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Thursday, February 13, 2014

Nasdaq 100 now has a scary Bearish pattern brewing

The Nasdaq 100 has a pattern known as an "Expanding Triangle", and it looks like a "Megaphone".  It is a market historically that is out of control with wild speculation, near hysteria, and has bearish implications. 

A false breakout through resistance sets up a bias to short this market, with a jugular type trade below support.

The Expanding Triangle, or Megaphone is similar to the "Head and Shoulders" and "Triple Top" pattern, except it has a raised right shoulder.  Both are five point reversal patterns.

Notice the Vol was thin in the middle peak, and heavy on the selloff toward the "neckline", and now diminishing on the latest rally.  This is a textbook pattern.

(Click on chart to expand)



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Monday, February 3, 2014

Waterfall Decline in the S&P 500, Now on major trendline support here.

This is a follow up to Friday's post on the S&P 500, where it looked ripe to trend out of the Wedge pattern.  That post can be seen here.

What is now important to note is in the big picture the S&P 500 is now on major trendline support on the Daily chart.  See right hand side below.  There is a ton of space below here to the next level of support.  Volume continues to be intense with Bearish price action.

(Click on chart to expand)


Check out the educational video on "Ego in Trading" in the tab at the top of the blog.  Understanding the Ego and how it relates to trading is in my opinion as important as understanding any price chart.

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Wednesday, January 29, 2014

Pattern of the day (Natural Gas)

Natural Gas had a Bullish "Cup with a Handle" continuation pattern today, but what is most important to note is the expansion in Volume at the breakout point on the 5 min chart.  NG went from trading 1,000-1,500 contracts on the 5 min bars for the most part all morning to trading 4,000-5,000 contracts afterward.  It is a good reason to sit tight with a winning trade when Volume is pouring in with the direction of your trade. 

Those traders who got short early today in NG and ignored the Volume at the breakout point above resistance, and kept adding to their losing trade, got annihilated. 

The Daily chart is also something to look back on and again notice the expansion in Volume at the breakout through trendline resistance, and then again on the rally off the extended trendline after the low volume pullback.

Price and Volume are equal in importance to me and I would not separate the two in terms of importance in understanding the supply and demand probabilities for reversal or continuation taking place in the auction over time.

Check out the educational videos on Ego in Trading which is more important than any price chart.

(Click on chart to expand)



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Friday, January 24, 2014

Why it is important to identify key reference areas and price/volume patterns (S&P 500 and Russell 2000)

This morning there were posts here on blog on the S&P 500 being on Major Support, which can be found here, as well as a post about the Japanese Candlestick Bearish Reversal Pattern in the Russell 2000 which can be found here.  It is important to know where there are increasing "probabilities" for Supply vs Demand as well as what is a sign of continuation at those key reference areas.  Most importantly is to be objective in the analysis of Price and Volume. This is for both putting on a position such as a short, or exiting one such as a long.  Making money or saving money is ultimately the same thing.

The S&P 500 went south after losing Horizontal Support in a big way on large Volume and it was a blood bath in the Russell 2000 as well.  Notice the Volume and the large bodied Candlesticks on the Daily charts.  This is massive supply.  A market that is seeing heavy volume and large candlesticks like this at the end of a trend could be viewed as a "washout" or "Climax", but coming up near the highs, there may be much more supply coming.  Today was very Bearish.  Friday's for the most part over the past year have seen the melt-up rally to close out the week on the highs, so this is also another change in that pattern that sounds an alarm as well.

(Click on charts to expand)

Russell 2000 - This is zoomed in a bit on the Daily from this morning's chart.


S&P 500 - The S&P 500 now has some overhead supply in the range that took place above 1812 and plenty of more space to trendline support.



There was some destruction in the charts today for the Bulls.  History here tells me more is to come base on the large candlesticks and volume until there is a change in the near term trend at the very least.  The Bulls are in a bad spot in the near term until they are back above 1812 or some Bullish reversal pattern takes place next as well.  I wouldn't count that out as the order flow is still Bullish above those next levels of support.  When the path of least resistance goes lower in the big picture in Equities, due to the lousy foundation in Volume during this Bull Market run, things will get very interesting...


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I had planned to post the video on Ego today, but due to these events that that video will be posted tomorrow, stay tuned to that as well.  The Ego in Trading is a subject that should be taken very seriously in my opinion. One should be not only aware of their own Ego, but be wary of the Ego of those they listen to.