Good morning and a good week,
First off, Fourth of July, Tues-Wed the markets are closed.
Thurs. we gather data for our PL calculations. Friday is
open for PMT trading. See you on Mon, b"n.
If Friday was an example of pre-holiday trading,
Hopefully, the discussion of trend definition and trend
violation should somewhat fill the hole in commentary from
Friday's floating-out-of-reach, small-range, trading day.
Enjoy and be well,
DAILY PIVOT MAGIC TRADING JOURNAL - EXCERPT
Pivot Magic Trading
"Any time you don't know what
is happening, get out!"
E-mini ES U2
Friday 29 June 2012
1 = Friday morning opens gap-up beyond the R3, and promptly tapes an Anomaly (Overnight, bottom
left chart) Double bottom - mid-air, out of range of the R3. Sigh.
Thus ends Friday, as Price Action climbs briefly and the turns permanently sideways. Volume
dies, and the day drifts, untradably, to EOD Hiccup (plum lines).
TREND COUNT AND VIOLATION
For PMT day trading, we define a trend based on a minimum of three candles, comprised:
3 higher highs and higher lows
3 lower highs and lower lows
Let's take a look at Friday's Overnight (bottom left chart) preceding-trend qualifying Friday
morning's Anomaly wannabe signal.
A = The first (lower high and lower low) candle of the bear trend.
Each of the following red candles tapes a lower high and lower low as well, easily establishing
B = Red inverted Dragonfly is the 5th red candle in a row with a lower high and lower low. This,
it turns out, completes the first leg of the trend.
The Price Action tapes an S-stall and then continues south. Does this stall cancel/reset the
trend count? When is a preceding trend violated, requiring restarting the preceding-trend count?
Two types of trend count violation may occur, one dangerous, one fatal:
DANGEROUS (Bear example):
Violation of the high of the preceding lower high and lower low
candle cancels that candle from the count. Unless it was the first
candle in the trend, this is not fatal requiring restarting the
EXAMPLE FROM OVERNIGHT, BOTTOM LEFT CHART
The small red Bear Dragonfly following = B spikes a higher high and low. This cancels = B as the
next lower high and lower low in the trend. Thus, = C remains the last lower high and lower low
candle in the trend.
D = Though theoretically we might call the large white Bull Dragonfly a continuation of the trend,
a lower high and lower low, this candle (= d) violates it, and once again we revert to = C.
Since = D matches the high, but tapes a lower low, it does not cancel, but rather replaces = C as
number 4 in the trend count.
E = There's the fifth red candle in the preceding trend, and the Double Bottom Reversal begins.
FATAL (Bear example):
If the second (back two) preceding lower high and lower low is
violated, the trend is canceled and a new count begins. For
example, if the small red Bear Dragonfly (following = B), or any
succeeding candle, were to spike, violating the high of = C, the
trend would be fatally cancelled, and our Double Bottom would be
merely another stall.
I know this is a bit complicated. In fact, programming this rule once halted our attempt to turn
PMT into an automated mechanical system.
(Daily, bottom right chart)
Friday taped a giant white day candle, easily penetrating the LT SW
Channel Ceiling (blue channel lines). Note that the candle is
challenging a rather powerful Historic S/R (bright green line),
increasing the likelihood that Monday will likely stop to breathe,
maybe even rebound a bit.
REMEMBER: Trade the Tape, Not my Prognostics!
BE PREPARED FOR ANYTHING, AND GUARD YOUR FUNDS!
Friday's PMT Chart: