Supply/Demand/Reversals/Chart Prep

[_strange_]

Something that bewildered me up until about a month ago was reversals. Big trend up, close outside and 2 legs to a new high/low - then boom go short/long and get a thousand ticks in the bank. But that is completely arbitrary! 2 legs to a new high? Thats it? Everytime I made the mistake of attempting it to catch a reversal obviously I did not get a thousand ticks, I got burned. One minute its said not to pick tops and bottoms and then the next miniute mack is... picking tops and bottoms?

I now see its possible to not pick arbitrarily 2 legs to a new extreme but to wait for a trend to playout at a supply/demand zone. An example from 9/27 attached that I was actually waiting on in that area and it behaved as I figured. Loads of examples of this and very easy to find. I get it now, trendline rules are a measure of intensity and momentum and a way to judge when things are waining and combined with horizontal areas, it no longer becomes completely arbitrary and blind guesswork. Trading this information successfully is another thing entirely but I think im on the right path?

2 questions though:

1) Im really overwhelmed by this supply & demand horizontal stuff, especially the micro level. I think I get it, trendlines are a measure of momentum, and the stronger the trend, the more likely its going to push through these areas, although sometimes its frustrating because once ive noticed it all, I find my bias is a little mixed. Is it going to push through? Should I be thinking about reversal? Can you give a little guidance on a reasonable amount of chart prep a person should do premarket, and a reasonable amount of trade planning a trader should do? I am starting to wonder if these major horizontal areas should absolutely be included in the daily plan. Theres usually a massive reaction at these areas so it seems to make sense to obviously trade towards them but have a plan once they get there too? How much trade planning is a reasonable amount? I now think I have been sitting down without any real plan other than ONH ONL Previous day high/low etc and then waiting for a trend etc, but at the same time its all a little overwhelming LOL any guidance would be appreciated.

2) Am I overthinking all this? Mack doesnt explicitly talk about this stuff in depth, but Im sure if you spend enough time with a chart you dont really NEED it maybe, but without it it just seems like prices are moving wildly and unpredictably and turning at blank points in space.

Any words would be helpful, especially any to help focus on the important components and discard the rest, or help send me back to the right planet. I have a habit of overthinking and going overboard, but this all seems absolutely critical.

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[eric-pal]

It is kind of funny how things can be right in front of us, and we never become aware of them until some things are explicitly pointed out. Seriously, one can train for years and just exist in a blind state. Especially since most of the individuals who are supposedly teaching "how to trade" have very little knowledge of what really makes everything tick.

Momentum, support, and resistance. That is everything (and in the correct order). However, a last aspect is becoming comfortable with being uncomfortable and working from probability. This means first, not everything is knowable, second seeing enough similar situations and their success to understand high vs low probability, and be able to execute and manage.

Thousands of $$$$$ are right there. However, remember there are shifting probabilities. At the edges, large sums of money are available on reversals, but the probability of reversing is low. With higher probability, one isn't necessarily getting into the move at the beginning. There are tradeoffs and seeing what your personality requires to operate reasonably well is important. The characteristics to define high probability are easier than 70% (on the edge). However, the zones at the edge often have trading range characteristics, but at the edges are sometimes less defined boundaries. That is the difficulty of many types of trading ranges.

Horizontal areas, especially with many bars of overlap and reversals show where large volume has occurred. . . Individuals and firms making decisions and biases. As smart money relates to these volume areas, stop placement - which is critical to money management shows these places of importance and where biases may change (break outs, surprise breakouts, etc).

So towards all of this, one watches how the markets react approaching areas of importance. Is there strength, is there weakness. Remember the rule of 2s (attempts) - after a few efforts to do something doesn't one get tired ? The markets function is to maximize volume of trading (which is how the exchanges make money - hmmmmmm is this fair. . .).

Reviewing the above, will solidify your understanding of the market, and the answer for which you are looking.

One learns to see the probability from how things react in important areas. Remember, we do not have to know ahead of time. If one can wait to see the market "show her hand". This isn't about proving anything. . . fleas on an elephants back. Just need to wait for the elephant to wake up and begin moving. There aren't any reigns to control it either. LOL.

Hopefully helpful and good trades to you!

[_strange_]

During the summer doldrums a few months ago, I thought I had a decent understanding the market. Then one week I had 4 trades where the market was trending and I took a second entry at the top/bottom with room to the high/lows (happened both ways) and the market moved 1 single tick and filled my order and then completely reversed. A total reversal and never came back. I was so pissed off I had convinced myself that the market was tricking people in letting buyers pile up and then shoving the market the opposite way, and if thats how the markets work where the institutions somehow know this and are targeting people, how can anyone possibly trade a rigged game where big money has all the cards and kills the little guy? I was convinced this was all intentional and that I was following all the rules and it wasnt my fault. I then sobered up from my frustration and set out to try and workout what my mistake was, and clearly it wasnt the market tricking people, it was me not following the rules and not noticing these massive reactive areas. I still think the markets are trapping and baiting but not at the scale I had convinced myself of. They are moving the markets and setting the price but there is a bit of a method to it as well it seems.

This is all to say that this process has had lots of light bulb moments and you can really map out whats going on and dont have to be completely blind. Friday, I had charted out in gold major areas of support/resistance, and low and behold the day played out fighting out those areas. The red lines were price points and clearly 15000 was high enough for the day even though the market is oversold. But is 15000 the critical point or is it support turned resistance from 3 months ago? They both align almost perfectly. Odd.

Weirdly, and this happens alot, 15000 ended up being the median line of a range for a while. Why does this happen? its almost always equidistant on both sides of an important area. Weird because range median lines are often the critical point of the price action, we trade the outsides in but the fight is alot of the time over the middle. Market opened for the day at almost 15000 to the tick, odd.

Why is it when we have a trend, all of a sudden itll completely runaway, overshoot, bounce hard, overshoot the otherside, and maybe/maybe not get a retest? It might bounce and completely reverse, it might just overshoot the otherside and push down again? It seems like what happens is the market falls out of a support area and theres no other area nearby to fight over so everybody and their mother agrees and brings it to the next big area of importance, and everyone agrees when it gets to this next area that they are going to dogplie it the other way. Seems like most people are in agreement and everyone sees these big areas. I dont think there are "bulls" and "bears" because everyone is a bull AND a bear.

Second entries, 2 attempts, the rule of 2's etc.... This is what brings the probabilities up extremely high, its like the key to it all, but ONLY when you are already biased correctly, which is insanely difficult. Second entries are fantastic entries when you are certain of the direction, but just as good of an entry as they are if your bias is right, they are exceptional "traps" if your bias is wrong. Great if your right, but you dont stand a chance if youre wrong, at least with my trading anyway. When im wrong I dont even get lucky even occasionally, rarely even get a chance to get out at breakeven.

I think I "get it" well enough so far but every time I have felt this way, some other aspect shows itself and its back to the drawing board. Sometimes is soooooo easy to see after the fact, but in the moment its wildly difficult. Clearly the easiest and most reliable setups are second entries with the trend, but you can add layers to that too. Trading reversals isnt an important thing for me, but understanding them is. If you dont know when or why to be thinking reversal, when and why to change bias or keep an open mind about it, how can anyone keep their probabilities high enough and consistent enough to make money?

Anyway im writing a novel here but I wanted to get these thoughts out for your feedback and direction. Not so much any direct question, more if my thoughts and observations are more "right" than they are "wrong" so I can stay on the right path. The attached charts are without trendlines etc from the day, but as the trading day goes on they get quite busy and noisy so ive been trying to workout the cleanest way to keep up with the important stuff without having a messy chart thats hard to follow.

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[eric-pal]

Well, there is a lot there and a shortened summary would be as follows:

1. Be aware of market state: trend / trading range. If trending, what part of the cycle [breakout / channel]
2. Trends are much more reliable in their behavior and expectations and happen less frequently.
a. A breakout and channel are traded differently.
3. Trading ranges are areas of general consensus where the biases exist at the edge. There is more "flex need for trading trading ranges" because the probabilities are lower. Also there are a greater variety of trading range behavior.

Note, there is transitioning between trends and trading ranges through the cycle. So awareness of market cycle and state as well as areas of support and resistance [horizontal / vertical] show biasing (or lack thereof), and areas of opportunity.

In general, both bulls and bears win through good risk management. That is an aspect most miss. There will be periods when both sides agree that a particular direction is correct, and then the market will trend for a bit until the appropriate risk makes sense through good money management (essentially becoming more balanced as a greater amount of participants from both sides become involved). Simple, and yet complex as there are an infinite variations.

It might be worthwhile to tackle the quizzes sequentially again - working bar by bar and trade by trade.

The course manages analyzing the above aspects, part by part . Keep moving forward!!

Good trades to you!

[_strange_]

Jeepers I got some sleep and re-read this thread and a gallon of coffee combined with minimal sleep = long ass wordsalad post

Thanks for the feedback Eric