I’ve been having a great trading conversation through the comment section about the NZDCHF chart for this week with Rolando. I think it highlights how 2 traders can look at the same chart and see different things.
I’m going to continue the conversation in this post because I think it benefits the majority of you that visit this site. Rolando will be in italic
The 5 distinct swings are :
1.- Low of Nov. 17.
2.- High of Nov. 22.
3.- Low of Nov. 24.
4.- Hign of Nov. 28.
5.- Low of Nov. 30.
(This is about the rectangle area where Rolando sees a megaphone pattern.) Distinct would be in the eye of the beholder. For me, these are not really swings nor distinct as price is travelling sideways and since S/R are zones rather than lines, it could simply be tests. We are also missing price acceptance at those levels.
I agree. I read that most of the time they are reversal patterns. Is it true?
(This is about megaphones being both continuation or reversals.) I have never done any testing on this pattern and discount rule of thumb acceptance. What I do know is that, as suggested by expanding upper and lower swings, is it’s a market without clear direction. I stay away with that type of price action.
You are right. This chart does not qualify as a 3 push pattern. In the book Street Smart (Laurence and Linda) they do not require such a “push”. And they call their non-push, push-like pattern, Three Little Indians.
It is a good pattern to watch for as it does show up quite a bit. I don’t trade the actual event but look for a setup in the opposing direction when they are clear on the chart.
Why don’t you use fibs?
The ratios….never found them to be much use. The closest I get to using them is the extension tool for symmetry in swings.
If doing my homework profits are just ok, can you imagine not doing my homework?
(You have clearly shown you’ve done your homework in terms of tech analysis.) Simplify.
No. I have only used true market data. Tell me, what’s the purpose of quantifying my learnings over random data?
(Have you quantified any of your learnings over a large sample set using both true market data and random data?) If something is showing up in random data sets, the question becomes how do you know that what you are trading over true data is not better than random? If the market data result is similar to the random data baseline, do you really have an edge?
Very intersting. Do you share the results of these tests with your subscribers? I’m getting familiar with your website. Did I miss such results?
(My work is using not only commonly accepted market behaviors but also tested out over those sample sets) No. Quantitative work is a brain drain and not something I would give away. I already get enough naysayers with the setups I post. Intelligent discussion is more than welcome (such as yours) but others are low-brow.
Let me see if I got it … 1.- Tech analysis … 2.- Test over large samples … right?
(Most importantly of those two, tested out over large samples is the key.) You certainly want to have your ideas drafted out. What you are looking for. Then test. Most traders just scroll through charts but there are testing platforms out there that are better suited for that purpose.
(Much conventional wisdom is not accurate and does not prove out.) There are some that still think a moving average has some magical quality that it is actually support and resistance.
Is “testing over a large sample” the simple approach?
(There is an edge in this simple approach.) Without testing, you don’t know if what you have is better than random. But that’s not what I meant. Simple mean reversion and momentum approaches actually have a statistical edge.
You are correct. But wouldn’t you reserve the boxes for a type of consolidation where you could limit price action between a horizontal channel? I’m sorry. I’m still biased. I keep seeing a megaphone with 5 distinct swings. Maybe it’s not there.
(The box I drew was intentional because in simple terms, we are looking at consolidation. Consolidations at support instead of price rejection lean towards continued downside move. Think of the logic behind that statement.) Horizontal channels allow for splash as support and resistance is not an exact price. These are zones and I could have made the box larger to encompass the tests of resistance. If however I saw true swings and not sideways, my look at this chart would be different.
“Lean towards bears”? … I already went long … Don’t jinx my trade …
(Inside that consolidation, we have failed tests of the resistance zone with price falling back into the smaller range. This also leans towards bears.) What was the trigger for the trade? What also happens, remember I trade daily charts, is that inside these consolidations, lower time frames can often have clean trends to trade as price rises and falls within the higher time frame pattern. Your trade certainly can work, anything can happen. This was, as the chart explained, a support holding or failing trade setup. I didn’t take a position and don’t just take a position because price hits a support/resistance zone.
Yup. And this curbs my enthusiasm. I had an initial profit target in the vicinity of the 4th swing high (Nov.28), as the Wolffe Waves call for a test of the trend line from the 1st swing low (Nov. 17) to the 4th swing high (Nov. 28).
(The weekly chart showed momentum into support, did not break support but also was not rejected.) I keep it simple. What I wrote is how I look at things. If this was an actual inflection point with a greater imbalance of one or the other, I would like to see something happen that shows it.
I went back to the daily chart, and saw everything, but concluded nothing … what did you see?
(As we watch the daily chart, we want to see some type of action indicating which side the imbalance is.) Same as you..nothing. So the question is what prompted a long trade for you?
And did you see anything of interest?
(You can see these either at the close on daily or smaller time frames – failed tests of lows/highs, breakouts of smaller ranges.) Nothing. Price is just oscillating in a range for me.
PS: Is there a way to upload pics, charts?
No. You can screen capture with Jing and upload there.