Market Background
Market background: Do your eyes immediately go to the right edge of the chart or are you first assessing market background? It’s an important question. Accurate chart reading and successful trading requires more than looking at the last few price bars at the right edge. We emphasize market background in all our work. But traders can still find it difficult when the think they see a trade setting up on the right edge. Too often, I see them jump into a poor trade. Market background is always more important than the last few bars. Last night’s trading in Crude Oil offers an excellent example of the need to understand the market’s background.
Market Background in Crude Oil
Yesterday, Crude had a modest rally into the noon hour (Eastern Time) at A. We can see by the Weis Wave that not much demand came out on that rally. After going sideways, an UpThrust formed that drew supply and was then Tested (B), The market then retraced almost all its morning gains on good quality selling as it reacted from the UpThrust at C.
The rally to D shows large volume, but little gain. Buyers were there, but sellers were a greater force. This set up another no demand UpThrust at E for a nice short trade in the Asian session. All the market background starting from the day before set up this trade—not a few bars on the right side of the chart.
Selling again flooded the market to F. As the European session began, a weak rally to G right into resistance gave traders who had been assessing the market’s background another short opportunity.
Market Background & Higher Time Frames
Although we’ve been discussing the immediate market background on the intraday time frame, the larger time frames also have their market backgrounds. The daily, for example, has a market background of continued weakness and a still unfulfilled point & figure projection to around the August low. Fitting the intraday market background into the daily market background adds even more power to the trader’s playbook. Again, the last few bars on the right edge are almost meaningless. It’s the market background that is most important.
Because it is so vitally important for successful trading, we discuss market background and market structure in virtually every Wyckoff tutorial. And, right now, every tutorial is on sale. You can save 25% on educational tutorials. For more, click here …
Hi,
Thanks for the article.
Recently I was studying your book “trade mindfully”. After studying about recency effect, my chart reading skills have improved a lot. As now I always consider background first and then look at the right edge of the chart..
Initially it was like going against what my mind was telling. But as chart unfolds in real time and do as per its background, has saved me from loosing money, which used to happen earlier when I took the trade by overlooking the background.
Thanks for sharing your knowledge.
Regards,
Nitin
Letting your mind become trapped by recency and not considering market background is a sure-fire way to lose money–and, lots of it. Recency has us basing decisions from the perspective of the most recent actions. If a trade setup worked well yesterday and the same setup occurs today, we will take that setup because, our reasoning goes, it was good the last time it occurred. But that is overweighting recent data and not considering other data which may be just as or even more important. If today the market is trending in the opposite direction of the trade setup, it makes no difference how well the trade worked yesterday. Today, the odds favor it will be run over by the market. Background–what I call structure–is both King and Queen in the markets. You cannot trade effectively by ignoring it.