Just want to walk through some things about legs. It seems that a lot of what I consider obvious, isn’t so obvious to many people. Must be my ADD. But hopefully this will help clarify some things. Really there is a lot to be known about technical analysis. But the more you know, the more elementary the whole thing is. And I know a lot of you hate me for saying that. Your alternative is to learn a more complex technical analysis system, which will introduce you to a whole set of vocabulary. Or you go back to being a maroon who would say that the sell off the other day was “unusual” and would like to know what the news was that caused it.
Now, it would suck to do a re-run of the other day’s events, so today we will talk about CL. I’m severely ADD, so I want to talk about something new. Or I could make fun of all the maroon statements made by people. Because it is fun. I must admit, I was once a maroon. Like this maroon. “… But that was not a “normal”. IT was trending higher and then tanked like 40 points in 2 minutes”. Now that is funny! He wanted to know what the news was that was responsible for the sell. Maroon! But I digress.
Lets talk about legs. Legs are hawt! So lets look at one right now.
This is the leg down that CL produced in May. This becomes your primary leg as the price action basically goes sideways at its foot. Momentum to the upside is trying to build as we see signs of accumulation. There was a lot of volume that was displaced to bring this price down. But very little has come back since. And so a large base is forming. Some maroons were projecting more selling of CL today below 97. Obviously these people have no clue and probably full of botox. We will discuss this accumulation process more. But for now, lets dissect this leg. A and B are the limits of the leg. The very top and the very bottom respectively. If you break out of A, you will go straight to the next level of resistance. If you break out of B, you will go straight to the next level of support. Very simple so far? Good!
Lets go to the next step shall we. This leg can be further subdivided. As you can see, you can see clear segmentation of this leg (i, ii, iii, iv). Generally segmentation occurs because a level was encountered, where it was not tested in the process of accumulation or distribution. Since we produced a leg down, the process that was needed to help the selling process would obviously be distribution. So what happens is that we bounce off of those untested levels (1st touch) and then re-test to plow through them on (2nd touch) down toward the next level of support. If by chance that level was already tested, it will be a 2nd touch scenario which will allow you to continue down to the next level of support. Now, I brought up that maroon story up there not because I am so shallow. There is a purpose! To illustrate the said process just described.
From the previous Issue:
Why did it stop there at 11.25 then made the price go sideways? Because that level was not tested before during the distribution process from 5/25/11. The technicals were setup to allow the market to respond accordingly when the news was “publicly” announced. What you actually think you get the news first? Because you’re special how? O wait…you watch CNBC? You must be a pro or someone who is really starved for entertainment.
Now you will notice that I have dash lines. Those lines represent support lines that were lost at each segmentation of the leg. When you arrive at those lines you should see some resistance. It is only natural right? I will spell it out. If price action falls below support. That support becomes…resistance. If price action goes above resistance. That resistance becomes…support. Simple? Of course it is!
To the left of the leg, we see, 1,2,3 and 4. These peaks reveal to you levels that were not tested or not tested enough to segment the leg. Most of the time, you already did a 1st touch scenario before the sell to produce the leg down. Remember also, that this is an hourly chart, and you may have tested the levels in the lower time frames. If a level was significant enough when the price got to it the first time, it will be significant again, when you come back to it. So the peaks of 1-2-3 and 4 represents the current resistance or previous support lost. Now, there is also an order that you will gather. Not so much the numbering, that was just a convenience. But on 1st touch at 1, you fail, then on return allows you to go to 2. 1st touch at 2 you fail, then on return, you will get to 3. And then 1st touch at 3 you fail and then on return you go to 4. So difficult. So for your home work go find them on your own.
No you don’t want to wait to identify these “hidden” level after the fact! You identify them before you get to them so you can actually take advantage of them. You know make profit. If you don’t know how because you have never been to this blog before. Check the archives. I’ll even give you a hint. The hidden levels are left of the primary leg. Shh…don’t tell anyone. So far we’ve discussed quantum physics right? Or do you think it was pretty common sense? Well that is it for this primer. Tune in next time.