Legs can get all tangled up and can be fun. But people can muddle up legs on their charts and get all discombobulated. Lots of people say they have levels all over the place. Some would probably draw all the lines and make their charts so busy, you can’t see the candles. I don’t see why you would go overboard with them lines. People want to scalp but then they look to play off the hourly, 2 hour or worse off the 4hr. I mean sure you can see a nice setup off of those time frames but to scalp? Them time frames ain’t for scalping. Them time frames are for you to get levels of importance that is relative to current action. Wouldn’t it be better if you just pay attention and mark up the lines that are significant for now? What is currently possible?
Then comes the comment about indicators not lining up with each other. Or I’m accumulating here but distributing here. How can you accu and dist at the same time or dist and accu. Muddled thinking sets in and people can’t relate the action of one time frame over another. Generally the problem is they see what is going on in a higher time frame, then become befuddled because the lower time frame wants to go in the opposite direction. Seriously, this excuse about indicators not lining up, really strengthens the fact that you have no understanding of time frames and how markets move all together. Yes you do get larger moves when they line up. But there are other ways in which indicators line up other than how they are pointing. Ever consider progression?
People make everything too hard. And because they lack understanding they rely on the news as a crutch to support their views or bias or as a source to find blame their miscalculations. The other reason is they really lack understanding of basic TA. You must have a solid idea of basic TA to apply them to what we discuss in this blog. But instead, they implement the basic fundamentals inconsistently and improperly. They don’t even understand what support or resistance are, how they work, why they are significant and how to identify them.
Common sense tells you that if you have lofty goals from the 4hr time frame, you shouldn’t expect it to come to you in 1min. You would think that that would be a no brainer but people have those expectations. People think that things in the charts just happen. But the charts tell you they must set up everything that happens. Legs also setup. In order to play legs, you must understand the progression. You must know what has been tested before. You must know how the market has moved to setup a pop or a drop in the time frame you are looking to play in. So in order to position your-self properly if you are playing the 4hr chart, wouldn’t it be helpful to understand how the shorter time frames have setup?
Common sense? Probably too common for some. The correlation that you should be aware of is how your charts of long and short time frames work together. People put so much effort correlating other market entities when what matters most is already before them. Charts develop over time. And you must work to understand how progression of price action setup the moves that come. How do you know things setup over time? How do chart patterns develop? People love to deny the obvious because they are so brain washed about the news and correlations. And brain washed about other things they think they know that have no real bearing or fail to bear consistent fruits. In order to untangle them legs, you got to clear out the myths and focus your mind on the single entity being described on your charts.
Market correlations are many. People accept that they work till it doesn’t. And yet, this inconsistency is held by many as a tool to be used daily. People say when the dollar goes up, the market should go down. But in recent weeks, there have been examples when it did the opposite. You want to know why people become overwhelmed while trading? They need extra monitors to check their correlations.
Legs as a concept is quite easy. When going down the leg, you will bounce at the support that started the leg up. When going up the leg you find resistance at the support lost that started the leg down. It is not difficult to understand that the leg you are currently retracing up on can describe how you are progressing in the longer term setups. If you are distributing or accumulating in the longer term progression, you will notice that the market is going side ways. Legs will test the significant levels to allow for the bigger move up/down during the accumulation and distribution phase.
There are 2 key points where you will find strong support or resistance on a leg that is produced as a result of a pop. Near the top of the leg where you find the support of the legs high, you will find strong resistance. Because that spot will always be 1st touch or 1st test situation when you retrace back up to it. If you do not have strong momentum when you get there, you will always fail. How do you determine the momentum leading up to that spot? Look at the lower time frame. Where will you experience the resistance and see magnitude of its influence? Lower time frame. How do you gauge the magnitude? Do you have significant momentum erosion signalling distribution? Do you have a chart pattern to show how it is topping on approach? A chart pattern? Yes, the price action will tell you what it will do and should coincide with weakening momentum. Don’t ignore price action. Don’t ignore simple chart patterns. Do we not use chart patterns to help us see progression? Logical? Common sense?
The other spot is near the bottom of the leg where the move up started from. When you retrace back down a leg whose origin is from a pop, this level of support where the leg up started from. It will result in a pop when you test down to it because it will be a first touch scenario of that level of support. How strong? How significant? Same line of reasoning as above.
I’ll leave it to you to figure out how things work when the leg you are working on is a leg resulting from a down move. Seriously if the thinking behind it is not consistent with the thinking with a leg that resulted from a pop, then don’t bother coming here for technical analysis.
The extreme ends of the leg help you understand progression. You must relate the tips with the leg immediate to its left. You will understand if you are progressing up or down. A signal that you may be accumulating or distributing. Are you in a series of peaks forming a consolidation? Are the peaks in this progression working in an upward progression or downward? In relation to the price run that started the consolidation, did the price drop, and are we consolidation to accumulate or did the price run up and we are consolidating to distribute? Are we basing/topping enough to effect a momentum change in the longer term or is this a temporary pause? Is this pause in response to a first touch situation? What is going on with the momentum? How is all this looking in the higher time frame? Am I at a significant level of support or resistance in the higher time frame? If so, do I have a significant price action to suggest some kind of accumulation or distribution pattern? Am I at a 1st touch scenario? Am I on a second touch scenario? If I am, do i have enough momentum to break through, because I’m on a tick chart and I may be accumulating? If you are not going to bother to try to understand what is going on, how can you trade? Well this is all getting to complex. There is so much to think about? If you were accustomed to thinking in this matter, the answers should come to you at a glance. I must also state, that some of these questions can be lopped off from consideration depending on the situation. And no I wont elaborate how to determine what to lop off. You have a brain, use it!! If you want to be effective at chart reading and trading? Why would you not bother to develop the skill?
Have fun! Dawg is out on vaca. See ya in 2months.