Several people have sent emails asking about the high volume around the August 8-11 lows and argue that such high volume must mean a shakeout and the (comparatively) lighter volume of the last two days must be a test.
First off, there are no musts in trading, only probabilities and thankfully so. If there were musts, then there wouldn’t be trading.
My view of the market is this: We have just broken from a five
month trading range. Within that trading range, buyers had at least four opportunities to rally the price higher (1-4) and failed to do so. The price action at the area labeled 1 was an UpThrust. This UT was Tested at 3 (which was, itself, another UT) and again at 4. Buyers were unable to drive prices higher.
Sellers, on the other hand, took the market down and decisively broke all trading range supports. And, that break was pretty sharp with a lot of volume. The rally back up to the 1200 level showed no demand at that level. In my book, sellers are in control and will be until buyers prove themselves.
The selling has been building for quite a while. You can review my blog posts over the past several months where I frequently alerted traders to the supply that was coming into the market throughout March, April, June & July.
All of this is not likely to go away by a couple of days of high volume.
Today’s price action was not particularly constructive. Through most of the US session, price bled lower. The one little mid-day rally had no volume and quickly ran out of steam. As stated above, buyers must prove themselves. They may do that at any time, but so far, I don’t see any evidence of that.
Try to look at the chart dispassionately when viewing a market, and – above all else – use logic. Do not try to force an impression on the chart. Forget patterns. Forget clichéd formulas of one or two price bars. Learn to look at structure. Learn to look at overall market behavior. Learn to identify ease of movement or momentum and lack of momentum. Learn to identify where the trading becomes active and where it tires out. Learn to put all this together into a reasoned, if not compelling picture of the market. This is the (almost lost) art of tape reading. It will serve you well.
Dr. Gary’s Chart Reading Mastery course and his emphasis on structure has turned my trading around. I’ve been trying to trade for almost a decade with little success. Granted, I don’t have the best psychological make up for being a trader. I’ve lacked discipline, patience, chased and revenge traded all to my detriment. I work hard to overcome these short comings, and I do this by looking at the structure. I don’t need to pick a bottom or a top. I let the chart tell me what that market wants to do. If I try to predict or trade what I think It usually goes against me. Let the chart tell you how to proceed and trade what you see. The 3-10 Oscillator is a nice little tool as well.
David
Thanks for the kind comments, David. I have been following some of your work and see the improvement you are making. Nicee job!
As you know, market structure is the key thing to understand about the market. Any setup you trade will not produce well unless it is taken in the right context, and that is all about structure. Few traders understand this. They focus all their energy on setups and ignore structure. They then wonder why trading doesn’t work for them and become frustrated. This can quickly lead to all the psychological issues of undisiplined trading, lack of patience, chasing the market, fearful trading, and other erratic trading actions. It is why we start with structure in Chart Reading Mastery. And, it definately helps with the psychology of trading. All the good psychology in the world will be of little help if you don’t understand the chart. The better you can read structure, the more confident you become. It is as straightforward as that, though, of course, it is a skill that takes effort to develop just like any other skill. And yes, one of nice features of the simple momentum oscillator is that it helps us see the structure.