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This may or may not be basic information to you. I still use these fundamental techniques when analyzing the markets. I want to quickly determine what trend the market I am looking at is presently exhibiting. |
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As you develop your own methodology in determining what the trend is, it is important to make sure that your overall methodology works in all time frames. Although a 5-minute chart of the S&P will exhibit certain characteristics that will not be seen on a monthly chart, the overall characteristics will be similar. Your goal is to be able to quickly and efficiently determine what the continuity of thought is in the particular market that you are looking at. At this point you are attempting to determine, not when or at what price to enter the market, just what operating mode it is in at this point in time. |
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Remember that once you can accurately and quickly determine what mode the market is in, you have determined only what the trend has been. You are looking at past information. You have determined what the market has been doing, what the continuity of thought has been. To paraphrase Sir Isaac Newton, unless there is a change in continuity of thought to act upon a market, then that market will continue in the direction it was originally heading. Unfortunately, the continuity of thought could change instantly. |
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This is where many novice traders make a fatal error. After much research they arrive at a point that they are certain they can look at a chart using their methodology and state that ''this is a bear market." So they promptly go short, and then the very next day the continuity of thought that the market had is broken, and the market rallies. Now their ego gets involved and they stay with the trade. As the market rallies, they insist that it is a bear market and that they will eventually be vindicatedthat is, until they can no longer meet the margin call, or stand the pain, and have to exit their losing trade. |
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When determining the continuity of thought using yesterday's data, always keep in mind that you are looking at past, old, stagnant information. Although the market is influenced by yesterday's price action, what the continuity of thought is right now will always be reflected in what the market is doing right now! Your goal is always to determine what the continuity of thought is for the time period you are trading in, and to be ready to exit the trade at the first indication of trouble. What the market did today (or the current period if you are not trading daily charts) will give an indication of what it might be doing tomorrow. By entering the market when its direction right now agrees with your perception of what the market was doing previously, |
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