Support, Resistance & Chart patterns

[madwt]

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The other time the wedge can form is off a base - lets say the price has been falling, hits an area of support and starts to bounce. As it rises, it immediately forms an ascending wedge. Do you short on the assumption that its a reversal pattern signifying that the previous downtrend will continue? This is always a tough one. A wedge like this can form because big money are loading up long but trying hard not to drive up the price, but the small-fry sellers are thinning out & the price is starting to run despite their best efforts. When this happens there's no reversal, but instead a strong upwards spike - that's why I try and avoid trading wedges in that context.

OK, unless I can build a clear picture and explain this back to you, then I have failed the lesson. I have drawn what I have understood your statement to be. In this instance, are you saying that you would not enter a short, assuming you would be rejoining the trend?

ww2.png

[slipshod]

Yep that's close, I'll see if I can find some real examples, might make it easier to explain.

[madwt]

I just watched this happen. I get it. Thanks.

[madwt]

Watched some more set ups live on the lower time frames... yep, its sunk in now what you were saying. Thanks. This has helped me. I really appreciate the time you have put into this thread. I need to go offline for a few days, though I would like to continue this discussion... it's filled in some blanks.

d

[madwt]

Compression is a term I picked up recently from http://www.acegazette.com (great site, you should check it out), which basically means a lot of retracing/backtesting throughout a move. What that tends to do is eliminate any areas of pent-up demand (if its an upwards move) as the frequent retraces give opportunity for everyone to go long who wants to.

So when a reversal comes, there's no big block of pending orders there to stop it in its tracks, it can just smash straight through. GU over the last week is a great example.

Conversely, if the price just flies in series of big candles without a pause, that can be just as fragile - a reversal can do just the same thing in return. Look at UCAD's bouncing up & down in its 80 pip range last week as an example.

What you want to see is a short pause in a strong rise/fall where the move was challenged, followed by a strong breakout move in the same direction. For this to happen, big money has to have decided to chase the price a bit, and their presence overwhelms opposition to the move. This is the kind of thing Sam Seiden describes & its what I identify on my charts as Supply/Demand levels as distinct from the more traditional Support & Resistance. Usually the first or 2nd retrace to a Supply/Demand level will provide a great entry, assuming big money still have a bunch of orders there waiting to be executed.

After re-reading this... brilliant. Thanks for the tip about ace gazette.

d

[slipshod]

Sorry I haven't posted anything for a week or so - I've started another programming contract, so once again my time is very limited & I'm placing pending orders based on supply/demand/patterns on H4 or longer charts (ie I can't watch the market at all). Still getting on some nice trades though. Hopefully will have a little time on the weekend to throw some charts up.

[madwt]

It's not a problem slip. I have been busy as well.

[slipshod]

Just noticed an uncanny resemblance between XAUUSD, which I've traded this week, and AUDUSD back in April/May last year. Here's AU to start with:-

au-h4-20120501.gif

and now XAUUSD...

xu-h4-20121103.gif

In both cases the apparent reversals were false, the Wolfe Waves failed to hit their price target lines, and the previous trend resumed with a vengeance. Its a good example of how supply & demand are supreme & chart patterns, while extremely useful, are always of secondary importance.

[slipshod]

Time for an update on the S&P 500 index - you might want to revisit a post I made about it on 24th September here: http://www.stevehopwoodforex.com/phpBB3 ... 810#p23810

So where is it now? Two daily charts below, one zoomed out & the other nice & close.

sp500_20121103a.png

[slipshod]

Just to finish up - here's the downside of using pending orders & not being able to watch the markets (or perhaps I should have been a bit less greedy & had my order a little lower in the zone) ...