Price is like a gas gauge in trading

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Information about Price is like a gas gauge in trading

Published on February 20, 2014

Author: NetpicksTrading


Description -- Free Trade Analyzer

Does price leave clues when the trend may run out of gas? It does if you pay attention and this trading video will show you examples of what you'd see if you pay attention.

Price As A Gas Gauge

Price can tell you all sorts of things and you don’t even need an indicator to help you spot the obvious. Every car has a gas gauge. The gas tank, being an enclosed solid structure, doesn’t let you see how much gas is left.

You need an indicator to show you what is going on and without it, the chances of running out of gas is 99%. I left the 1% for those that would fill up to overflowing every time they passed a gas station. Price however, is mostly an open book.

Looking at a plain chart you can tell how far the market moved plus the high and low.

You can tell by the size and shape of the candles how much trading was going on and who won that particular battle. The war in trading between bulls and the bears is ongoing….until the end of time….or the end of the markets.

What you do with that information will either lead you to losing trader status or the coveted money making trader title.

One of the most important things you can learn as a trader is when is too late to take a trade on the current swing/trend. Think of this as showing how much gas is left in the current directions tank.

When we take positions, we have two choices: long or short. In a perfect world, we catch the turn and ride it until the opposing turn and we exit with a massive profit.

Since most can’t do that with any consistency (myself included), what else can we do?

We can read the signs the market is giving and be on alert for the change in direction. That by itself is not actionable but can certainly put you on the side of the realities the market is showing you.

Looking at the following chart, we can see a downtrend has occurred. I am showing you this after the fact of course because it is the only way to explain it. I urge you to prove all of this to yourself.

The arrows are pointing to swing points or as some call them, pivot highs. The first two arrows are 8 candles apart with the second one putting in a lower high. Not surprising because at the turns, a quick pullback is pretty normal.

We then have 18 candles before we see another pivot high. This tells me that there was not enough buying interest at any point before now to cause an obvious pivot. As well, not enough shorts are cashing out to form a pivot. Meaning…..?

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The down move is healthy and the bigger money is enjoying the ride.

Now there we only have 8 candles between the pivots BUT we are looking at lower highs as you can see by the dotted horizontal lines. Not enough buying pressure to have you concerned about being short. Price plummets for 17 candles.

Now it gets interesting. These pivot highs are only 4 candles apart which makes this the shortest span between highs. What else is the price telling us?

Look at the size and shape of the candles. Even though we go 8 candles between pivots, the bottom green candle with the wick plus the size of the highlighted green candle should be giving you a red flag. Price then rallies for 43 candles.

After reading the above and looking at the chart, where is the last area you would consider shorting on this or a lower time frame? For me, it is after the pivot that took only 4 candles. Why?

Price returned to the level too quick plus the green candle that brought it up is pretty strong in comparison to the prior candle. You can see how price is pretty smooth all the way down and then gets sloppy.

This is a sign that a bigger battle is going to be fought between the bulls and the bears. Price is hitting an area where traders find it to be a cheap place to buy.

The sloppy action is not a place where you want to take further shorts. If you tossed up an indicator such as the RSI standard settings you would find this area to be oversold.

RSI Oversold

However, oversold and overbought can be an indication but many times the market can stay in this position for quite a while.

On the previous chart, the RSI actually went below the 30 line (oversold) 5 times before reversing which may have had you long premature if you used that for signals.

Price tells a tale that you don't need an indicator to understand. Do some back testing and see if there are clues before the turns.

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