smilingsynic trading observations etc.

“Paradoxically, the most effective way to operate at work is like a sprinter, working with single-minded focus for periods of no longer than 90 minutes, and then taking a break. That way when you’re working, you’re really working, and when you’re recovering, you’re truly refueling the tank.”

http://blogs.hbr.org/schwartz/2011/10/the-core-rhythem-weve-lost.html#ixzz1f1iHJVUa

Gaps on December contract: 1253, 1244.25, 1236.25
1198.50, 1191, 1146.75

Is this the year we go back to 1525-1575 SPX, to test the all-time high? If so, a potential expanding triangle on the monthly charts. 1550, and then back to under 700?

Who cares? Focus on the here and now.

Back at school for the first week of Spring semester. Cleaned out the chair’s office today and am back to being just faculty. More time to trade. 🙂

Free.

Brooks, book 2 (Trading Ranges), notes, part one:

The market is always trying to break out, and then the market tries to make every breakout fail. This is the most fundamental aspect of all trading and is at the heart of everything that we do. Remember, every trend bar is a breakout, and there are buyers and sellers at the top and bottom of every bull and bear trend bar, no matter how strong the bar appears. Since every trend bar is a breakout, and trend bars are common, traders must understand that they have to be assessing every few bars all day long whether a breakout will continue or fail and then reverse. This is the most fundamental concept in trading, and it is crucial to a trader’s financial success to understand it.
Big traders do not hesitate to enter a trend during its spike phase, because they expect significant follow through, even if there is a pullback immediately after their entry. If the pullback occurs, they increase the size of their position.
At some resistance level, the early buyers take some profits, and then the market pulls back a little. When it does, the traders who want a large position quickly buy, thereby keeping the initial pullback small. Also, the bulls who missed the earlier entries will use the pullback to finally get long.
Trading ranges regularly have sharp bull spikes that race to the top, only to reverse. The market races to the bottom, and that breakout attempt also fails. Because of this, buying the closes of strong bull bars near the top of the trading range is risky, and it is usually better to look to buy pullbacks instead. Traders should trade the market like a trading range until it is clearly in a trend.
A move above the prior high in a bull trend will generally lead to one of three outcomes: more buying, profit taking, or shorting. When the trend is strong, strong bulls will press – add to –their longs by buying the breakout of the old high, and there will be a measured move up of some kind. If the market goes up far enough up above the breakout to enable a trader to make at least a profitable scalp before there is a pullback, then assume that there was mostly new buying at the high. If it goes sideways and the breakout shows signs of weakness, assume that there was profit taking and that the bulls are looking to buy a little lower. If the market reverses down hard, assume that the strong bears dominated at the new high and that the market will likely trade down for at least a couple of legs and at least 10 bars.
Every new high is a potential top, but most reversal attempts fail and become the beginning of bull flags, only to be followed by another new high.
Traders must force themselves to take at least a small position as soon as they believe that there is a reliable breakout spike. When they feel themselves hoping for a pullback but fearing that it will not come for many more bars, they should assume that the breakout is strong.
When everyone wants a pullback, it usually will not come for a long time this is because everyone believes that the market will soon be higher but they do not necessarily believe it will be lower anytime soon. Smart traders notice and therefore start buying in pieces. Since they have to risk to the bottom of the spike, they buy small. If the risk is three times normal, they will buy only one- third of their usual size to keep their absolute risk within their normal range. When the strong bulls keep buying in small pieces, this buying pressure works against the formulation of a pullback. The strong bears see the trend and they do believe that the market will soon be higher. If they think it will be higher soon they will stop looking to short. It does not make sense for them to short if they think that they can short at a better price after a few more bars. So the strong bears are not shorting and the strong bulls are buying in small pieces in case there is no pullback for a long time.
The important point is that as soon as you decide that buying a pullback is a great idea, you should do exactly what the strong bulls are doing and buy at least a small position at the market.

Pullback = trends converting to trading ranges.
If the market is a strong trend that everyone expects continue, why would a pullback ever happen? To understand why, consider the example of the bull trend. A reversal down into the pullback is due to profit taking by the bulls and, to a lesser extent, scalping by the Bears.
Some of the buying also begins to dry up as bulls become unwilling to continue providing only one to three – tick dips. They grow cautious and suspect that a larger pullback is imminent.
Bears also see the weakening of the trend and begin to sell above the highs of bars and above swing highs for scalps, and they scale in higher. Once they see more selling pressure, they will also short below the lows of bars, expecting a deeper pullback.
In a bull trend, there is a series of higher highs and lower lows. When the trend is strong, bulls will buy for any reason, and many will trail their protective stops. If the market makes a new high, they will raise their stops to below the most recent low. If enough bears short and enough bulls take profits, the reversal can be stronger than what traders initially expected. This often happens later in the trend after several prior pullbacks were followed by new highs. However, both the bulls and the bears believe that the market will turn back up above the most recent swing low, and both will usually buy at or above that low. This results in either a double bottom bull flag or another higher low. The selloff can be sharp, but as long as enough traders believe that the bull trend is intact, traders will buy and the market will test the old high, where bulls will take partial or full profits, and the Bears will short again.
Once the market begins to make lower highs, the bulls will usually only look to buy deeper pullbacks, and their absence of buying helped to create those deeper pullbacks to the Bears see the same price action, and transition to holding on to their shorts or larger profits, expecting the sell-offs to become larger.
Weak reversal bar= small trend bar with tails.
Markets tend to test areas of two – sided trading.
You are never going to be 100% certain of any trade, but when you are reasonably confident that a trade looks good, you have to trust the math, take the trade, and simply accept the reality that you will lose some of the time. That is the nature of the business, and you cannot make a living as a trader unless you are willing to take losses.
If a pullback is small compared to the trend, it is usually safe to enter as soon as it ends. If it is large enough to be a tradable, strong countertrend move, it is better to wait until a second signal sets up.
Pullbacks are often strong spikes that make traders wonder if the trend has reversed. For example, in any bull trend, there might be a large bear trend bar or two that break below the moving average and maybe several ticks below a trading range. Traders will then wonder if the always – in direction is in the process of flipping to down. What they need to see is follow – through selling in the form of maybe just one more bear trend bar. Everyone will watch that next bar closely. If it is a large bear trend bar, most traders will believe the reversal has been confirmed and will start shorting the market and on pullbacks. If the bar instead has a bull close, they will suspect that the reversal attempt has failed and that the soul is just a brief but short markdown price and therefore a chance to buy. New traders see the strong bear spike and ignore the strong bull trend in which it is occurring. They sell the close of the bear trend bar, below its low, and at any small bounce over the next few bars. Smart bulls are taking the opposite side of these trades because they understand what is happening.
The market is always trying to reverse, but 80% of those reversal attempts fail and become bull flags.
A reversal attempt without follow through= great opportunity for a with-trend trade.
A pullback that lasts too long= trading range.
Once you believe that the market has reversed, it usually will pull back to test the prior trends extreme before a new trend begins.
When the trend is strong, it is often better to enter the market then to wait for a pullback.
One of the cardinal rules about trading reversals is to exit on the market’s second attempt to resume the trend.
Every pullback begins with some kind of reversal set up. The reversal is needed for many with – trend traders to begin to take profits, and for countertrend traders to initiate trades.
When a channel is steep, it is better not to enter a reversal trade on the breakout through the trend line and instead wait to see if there is a breakout pullback that sets up a second signal.
As a bull trend progresses, eventually as momentum, becomes more two – decided, it starts to have pulled back. The pullbacks become larger and evolve into a trading range, and eventually a trading range will reverse into a bear trend.
A double bottom bull flag is a reliable set up for at least a scalp.
Market stays on one side of the moving average without touching it for 20 consecutive bars or more, the trend is strong, but it is overdone and will likely soon pull back to the moving average, creating a 20 gap bar set up.

More Brooks later, when I have time.

For the record, I think that this book on TRADING RANGES is weak, compared to his other efforts. I am growing tired of his lack of evidence for his conclusions, the charts with no losing trades and with plenty of inconsistencies, and with his poor writing ability, as if every sentence has to be a two independent clauses linked together with a coordinating conjunction.

The notes are from Dragon software, so there may be a few typos, like “couple bottom” for “double bottom”, lol.