I’ve covered some basics in the last few blog entries. In this entry, I want to highlight some key points before moving further. It is amazing however, how people just want to make things more complex than what they really are. Some people think they can learn more than one thing at once. It isn’t really a question of whether they can or cannot, but when you are being taught something, learn that thing being taught. When I was learning new concepts like trend lines, that is all I did, trend lines. When I learned, wedges, all I did was wedges. Many of my trader buddies who went through the learning with our old buddy Bucky, know how I worked on my charts. I didn’t just say I understood what I was being taught, I rigorously applied one concept at a time. As soon as I got comfortable with the concept, then I tried to apply all the other things I learned to see how they work together. That is what I did with FMM’s lessons on candle stick mechanics. I learned what he said, then put it together with my buckets and voila accu/dist with legs. So, when you are learning legs, just do legs. So lets review some basic concepts:
Concepts of Price Action and Legs
1. When Price is going down, look to the immediate left and use the leg that brought the price up.
2. When Price is going up, look to the immediate left and use the leg that brought the price down.
Did I blow your mind yet?
3. Now the leg on the left, describes the levels that you will encounter as you move up/down that leg.
Some may say, I can’t get how I’m suppose to find the levels. “sighs deeply” … I would say, go back and review my old blog posts. There are a few that covered support and resistance and doji magic. This is where the issue of how to learn something comes into play.
The simple answer is, points of consolidation. If there is a pause in the price action, then there has to be a level there. If you look to the left of the of that left leg, and you see tops and bottoms of peaks and valleys in the general area of the consolidation, its easy to say there is a level there. There is a reason why we note levels as support and resistance. It seems hard to understand why people use the terms but have no clue how to find them and what they really are. If it seems I am venting a bit, its because I am. It is for your own good. Really.
The very important point that you must learn is that levels whether in the function of support/resistance when approaching it, must be respected whenever you pass through them. That is the whole idea why we find certain prices to be support or resistance. It is a terribly complex notion. You do need a degree in quantum physics to understand that.
4. When you approach these levels on the 1st attempt, you will be repelled.
I love how people love to point out the “fake” pops and drops. It popped there because that was a level and it was repelled hard because that was a significant level and it was your first attempt. This is a fact of how the market moves. It isn’t about the news. It is a core idea of what support/resistance do.
When do you actually go through a level?
5. Generally, with momentum allowing, you will pierce through a support/resistance on the 2nd try.
Note, I placed a qualifier there. Momentum allowing. I will not go through this in detail here. I’ve covered them in previous posts. The whole idea is, if the market has set up a longer term distribution, don’t be playing a hard pop up to new highs when you are not even at a significant leg stop.
Points 4 & 5 is very key to calling out those gooroo’s who were calling for 1304 to happen early last week. These maroons, as Bugs Bunny would call them, forget these 2 key concepts. And more than likely, they blame other things like news, HFT, government, MM, QE2, POMO and whatever else they can make up. And because they don’t understand them, how well do they really know how to trade? Blessings and guarantees indeed.
Point 4&5 is the why we form double bottoms. It is also how double tops work and hns and inverse hns. It is how the market moves. If you get it, you should be able to understand where to go long, short and where to exit with much certainty.
I did not provide graphics in this entry. I saved them for you to find and understand. Find them on your own. If you are too busy, you can find many samples in this blog. Learn these concepts and understand them thoroughly. You can’t progress to other things till you do. Don’t just say. “O I get it. It is so clear now.” Do some work and see how they do work when applied in live price action. If you are too lazy, there is this guy who says he guarantees you will make money if not he’s fee for his service is free. You should go see him.