Jul

19

Eyeballing June and July turns shows the turn off the bottom characterized by volatility and a range but the turn at the top is characterized by stagnation, a few doji's, then a sharp reversal. Is this a generalizable characteristic of big turns a la Magee or Nison? Second question. Will the top of the June range at bottom provide "support" at this level? What is "support" and how does it work? Is it psychological, or are the actual orders in place? Despite despised topic of the question its kind of hard to ignore. Certainly patterns can be quantified and tested but not without problems of generalization.

Paolo Pezzutti writes:

The top was printed as exhaustion of buyers. But the importance of the 1300 level should also be considered. It means that at present few people have the guts to buy new highs. However there are still many out there willing to buy dips, supports (such as round numbers), retracements, new moons and so forth. Don't know what would be needed to change this approach of investors and traders and start a new 'cycle' with different behaviors. What is needed to shake this confidence? Bad news about the US debt? Or the European crisis? No way. Already tried… Probably an unsatisfactory earnings report by Apple…. Paolo


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2 Comments so far

  1. Tom on July 19, 2011 1:27 pm

    I like your questions, as they lead to more interesting questions, and indeed the answers themselves are interesting (the ones I know at least - I have some of the answers and many questions).

    However, I am really quite reticent to comment on the Internet. It is one thing to have general discussion - quite another to give out what I have learned and believe to be correct but that which may be beyond many potential competitors to produce themselves.

    What is support? Giving the full answer to this question would give too much away, don’t you think? Even some of the other questions which could arise from the first question - the areas the new questions refer to is giving information in its own right.

    “Patterns” can be quantified and tested. The problem arises when we only test patterns in price data, volume data, time data, news data - without actually looking at what is creating the price and what the activity represents. Then the context is missed entirely, and we end up with educated guessing (however sophisticated). I see some individuals and institutions have had some degree of success when the educated guesses have corresponded to a sufficient degree with what actually happened. However not for the reasons assumed and is this little edge in itself with is temporary in nature enough to overcome the vig long term? The problems of generalisation can be eliminated, but the how eludes most and I suspect those who have figured out solutions (or at least more accurate ways to assess data, excluding that which can be logically reasoned not to work) will keep this very quiet indeed.

    Even the reasons for bottoms being violent and tops being quiet, and the nature behind doji type days with context and location taken into account may be too much to publish. Or even some of the relevant questions.

    Jeff Watson has posted a few things here and elsewhere which are relevant. One is that for trading size you want to know who is on the other end of your trade and why. The second is that edges generally wear out, and it is difficult to produce over the truly long term because of vig and other factors. The third is that if too many people use an edge, it will get hammered out. I think there are little edges and big edges, but giving a big edge away - or even hinting too much at the ingredients - could cause a larger, better equipped entity to research, develop, and exploit in size taking liquidity that one would have later relied on to make good trading profits for themselves.

    To this extent, I think that there will be a general lack of comment on these sorts of queries. A shame as it is an interesting subject - however I do think that those who know won’t share too much and this is prudent.

    Thoughts?

  2. Jim on July 20, 2011 2:44 pm

    Tom, Excellent post.

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