There is the mistaken impression in general that TA is about predicting the future.
I agree here. I use TA to help me anticipate what price can do in the next few days. There is a significant difference between anticipating a move and *predicting* a move by using TA. But when I look at some of the threads here at SI, I find many do not seem to understand this important difference.
TA is about defining probable outcomes and assigning risk and reward to these outcomes.
Actually I use TA in two different ways. The way you mention here is what I use in the time frame I trade in. The other method I use is anticipating market direction using the longer time frames like 45-min or longer. If and when it happens, I will be then ready to look for a way to capitalize on it in the time frame that I am trading in.
For example, when the NDX broke the downtrend line from Mar-00 on decent volume, we had a nice situation where going long was less risky
Another common setup along these lines is when we get a breakout through such a downtrend line followed by a pullback to the line -- this is an excellent low risk setup.
Both excellent observations. I want to note that volume analysis is more worthwhile on the daily charts. On the intraday time frames that I trade in, I find volume to be meaningless much of the time. Also you mentioned in your post that it is worth paying attention to low risk situations where you can quickly know when you are wrong and lose an abnormally small amount of money. This I agree with too. Except in the intraday time frames, if I follow price action in the wrong time frame like one that is much too short for the way the market is trading, I can be whipsawed two or more times before the actual breakout occurs. So I have to be careful here. Also that breakout followed by a touchback is a very powerful setup. Not only does price tend to move rapidly with strength in this situation, but also a breakout and touchback actually confirms support which makes this support more significant to the trader in their placement of their stop loss order.
Where does NDX go from here? I have no idea, but I do know that this is another low-risk opportunity. If we close over this level with vigor, then I am eager to be long, if we fade back, then protect longs and look for shorts as there is a better than average possibility that the rejection at this important resistance level will lead to more down.
A agree with you here. Sound reasoning on your part. I do not think traders spend enough time looking for those low risk setups that still can yield good profits, and in some cases like the touch back of a breakout point, unusually high profits despite the very low risk point of entry. This includes me! :-)
Good post, AllansAlias!
Bob Graham |
