Today someone asked me in the chat room why I took a long position when we where at the high of the day. Well if you look at my last post it will explain what confirmations I had to take the long by looking at other charts, but the trigger that set me off to enter the position was pure price action. The price action showed a valid uptrend confirmation. Think of the market as always “looking to facilitate trade”. Bottom line is that price will move from one value area to another area to see if that area will be accepted as value now. So when the price action confirms (how to look for this will be in other posts, or email me) that buyers are willing to take it to another level you want to get on board. Once the new “area” is tested it will do one of two things. It will accept the price in this new “area”, and trade will usually settle down and congest for a bit before setting up to head for some place new. The second action that can occurs is that price can get to this new “area” and get rejected, in which case we will typically fall back to test the last area of value again. Nowing if price is being accepted or rejected is a matter of seeing how actual price and volume interact with one another. Also note then when price takes off looking for a new value area it will move with some force.I will be honest that this took me a long time to get my head around. For some reason its seems the case that new traders learn all the typical indicators like RSI, MACD and so forth first but look at volume later, if ever. This is a bad bad thing. Volume is so important but it’s not something you can look at and understand how to interpret as easy as watching two lines cross one another. It takes time, but it will be worth it.
To try to show an example of price action and acceptance /rejection lets take a look at the YM une contract chart I posted below. I will watch and repost this chart as the next few days occur so we can together look at how price action and volume work
So looking at the chart below. Recall when I said the market will move with force when searching for new value. Well you can see these areas in the blue squares. The last big blue square you can see I drew a fib retrace on. Notice the 12820 level. This is a very key level. If the market can get above this level AND find interest it will typically take off higher with some force looking to test a new area for acceptance. So over the next few days we want to see how this chart trades around these levels and we will discuss it. Something to note here before I head to dinner is that voluem on this slow grind up to the 61.8 line has been weak. Generally this signals that this level we will see a pullback before testing above the 12820 area. As you can see from today’s trading we are doing that now. Volume needs to come in here and help us to determine the direction. I don’t really care if it’s up or down, but I want to see volume come in and work in accord with price action to confirm the direction that is decided. Their are some key levels popping out if we do break to the long side. I will leave it to you guys as an exercise to email some levels that might strike you. Both upside and downside. Time for dinner. Can’t wait to get back to trading in the morning. See you then.
