04 Oct How to analyze the markets?

How to analyze the markets?

Tech­ni­cal Analy­sis as part of my dai­ly take on the WTI crude oil market.

Less = more

To start with under­neath we can see the Dai­ly chart. On this chart I have plot­ted a few things that I think will help me bet­ter under­stand the ‘pres­sure points’ of the mar­ket. I used to crowd my charts with so many indi­ca­tors and ‘art’ thrown on there. Then I real­ized that it was just me try­ing to force my will onto the mar­kets, which is futile. It is my ‘phi­los­o­phy’ at this time (until I give up and call it the big ran­dom­ness of trad­ing and start using a dice) that price action is like a form of ener­gy. Ener­gy that builds up into a cor­ner and then the pres­sure builds up too much and we have a break out. I am not con­vinced (yet) that we can accu­rate­ly mea­sure which way there is a high­er prob­a­bil­i­ty of a break out. How­ev­er, If I do find out at some point? Sure as hell won’t share that with you! Unless you say ‘pret­ty please?!’ If you are at a loss of some of the terms in this arti­cle, unless oth­er­wise indi­cat­ed, you can just go out and google them. 

Extras! Extras! Get your news here! Only 25 cents!

Most peo­ple on news out­lets and forums scream a lot of things and like gam­bling when it comes to trad­ing they are some­times right. Take me. I said prices would reverse for a pull­back which they now did but I was so wrong on the tim­ing. I hope I’ll get bet­ter at tim­ing these things. My point is that most peo­ple shout some­thing and wait for it to hap­pen and call them­selves a genius for their pre­dic­tions. I under­stand that if it’s your job you are caught up in this cycle of ‘pre­tend ana­lyt­i­cal jour­nal­ism’. Don’t even wan­na talk about all the oth­ers. I under­stand that the gen­er­al pub­lic is not wait­ing for a ‘it might go that way, it might not’ kind of news. They crave absolute answers but don’t real­ize it’s in the form of enter­tain­ment worth less than 25 cents. I don’t have any­one to lie for. I can be just as objec­tive as my own fal­lac­i­es lead me to believe 🙂 Take this whichev­er way you want.

Bird’s eye view

Let’s do some plotting

SRA

Let’s start with the most obvi­ous ones. The big green rec­tan­gles. I plot these on the charts to help me iden­ti­fy where I think the sup­port and resis­tance areas (SRA) are. There’s a big one and then I have small­er ones. I believe these SRA func­tion as a sort of attrac­tion point to prices because of the density. 

MA

Then I have the Aqua blu 20 sim­ple mov­ing aver­age, the Vio­let pur­ple 50 sim­ple mov­ing aver­age and the Gold 200 sim­ple mov­ing aver­age. I have these because I plot my cal­cu­la­tions on the assump­tion that prices move away and to the mov­ing aver­ages (even though they are the result of price action and not price action the result of them). These mov­ing aver­ages give us a sim­pler way of visu­al­iz­ing the direc­tion of the mar­kets. When we look at the red square we can see that all mov­ing aver­ages crossed at that point in time. The faster 20 SMA crossed down the 50 and 200 SMA. The 50 SMA crossed down on the 200SMA. This to me is a very bear­ish sign and as you can see prices have been in a down­trend since until late­ly where it broke this trend. Now we are in a bit of a ‘twi­light zone’ and are not sure what way things will go from here. Mov­ing aver­ages are lag­ging indi­ca­tors so the chal­lenge of using them to cal­cu­late prob­a­bil­i­ty is a bit well… lag­ging. In the blue square on the right we can see that the 20 SMA has already crossed over the 50 and 200 SMA and the 50 has just crossed the 200 sma. This ‘pre­ma­ture’ cross­ing of the 20 SMA (as opposed of the cross­ing of the 50 and 200 SMA)  might be an indi­ca­tor that we haven’t ful­ly turned the trend into a bull­ish one yet. We’ll prob­a­bly see prices go a bit up and then return to this same lev­el or even low­er before prices decide to go on a con­firmed bull­ish trend. 

Fib. Chan­nel

The diag­o­nal lines are plot­ted with the Fibonac­ci chan­nel tool. If you don’t know Fibonac­ci and you’re try­ing to trade, good luck to you. Go on and Google. The two big blue arrows indi­cat­ed to which points in the chart I plot­ted the Fib. chan­nel tool. This then gave me diag­o­nal trend lines based on Fib. sequences that do a pret­ty damn good job of indi­cat­ing the bounds of price action. We’ll get to the red arrows later.

Let’s dive in a bit deeper

This is the 4H chart where we can see a few things. I have drawn a diag­o­nal line across the top and bot­tom of where prices retreat­ed back to indi­cat­ed by the red arrows. This diag­o­nal line inter­sects with the Fib. chan­nel lines at the cen­ter of the red cir­cle. I believe that this is one of those pres­sure points I men­tioned ear­li­er. This is the point that I believe we will see a sig­nif­i­cant move either up or down. Let’s look at the oth­er indicators.

Sim­ply Mov­ing Averagely

This sim­ple mov­ing aver­ages here tell us the fol­low­ing. The blue 20 SMA has crossed under the pur­ple 50 SMA. Both are point­ing down­wards indi­cat­ing a down­wards pres­sure on prices for the moment. Fur­ther­more, they have been mov­ing away from the 200 sma which would indi­cate prices to retract to it as well. Trans­la­tion, anoth­er indi­ca­tor for more down­wards pres­sure. Like I said ear­li­er, mov­ing aver­ages are lag­ging indi­ca­tors but they do give us a ‘feel’ for the direc­tion. I am in no way say­ing that this is an exact sci­ence. What I am try­ing to do with this is to give myself a bias for the mar­ket and time frame I want to trade in. Based on this bias I can work my strategies. 

A closer look

This is the 1H chart that we’re look­ing at get a clos­er look and per­haps a bet­ter under­stand­ing. If we use the attract­ing and repelling nature of mov­ing aver­ages as our premise. On top of this some ‘com­mon sense’ that when prices go down in a fair­ly steep way to tend the go back up the same way at least for a while. This is more appar­ent on the big­ger time frame just go and look back. Do you like the way I inter­ject­ed ‘com­mon sense’ there? 🙂 By this I mere­ly refer to the ‘gut feel­ing’ you devel­op when active­ly observ­ing the mar­kets. I am not say­ing that I am right of course. It’s just a ‘feel­ing’. Like I said time and time again. I just look for these pres­sure points and let the mag­ic hap­pen. If prices don’t go towards that red cir­cle. Than they are most like­ly to con­tin­ue their drop down. 

So where do we enter?

I will wait for prices to touch and close on the lev­el of the red arrows to get ready to enter. Then enter when the next can­dle clos­es into that direction.

Exit targets

On the long side I would aim for exit­ing around the lev­el of the red arrow. Below we see where I would exit on the short side.

Final thoughts

As I am fin­ish­ing up writ­ing this arti­cle we can see that prices have climbed high­er so pres­sure is build­ing up in the apex of this tri­an­gle. Let’s see what hap­pens after­wards. I will update this arti­cle with the results of any trades tak­en etc.

Aftermath

In the after­math part of this arti­cle I will reflect, if you will, on my analy­sis I wrote above. What did I do write? What did I do wrong kind of thing. So let’s take a look at the chart in the ‘after­math’ of break­ing out of the pres­sure point.

If you look at the part above where I said that if prices would break off to the upside it would go there where it has gone now. A quick pat on the back and off in dis­tant mem­o­ry it goes. Don’t linger on past suc­cess­es and loss­es. Won’t do you any good.

What hap­pened after­wards is def­i­nite­ly a les­son for me. Let’s take a look. We can see here that indeed the prices went up, like thought of before. Straight up through the apex of the pres­sure point. Stayed above the hor­i­zon­tal blue trend line. Made his way up through the green and white SRA, to ‘touch’ the upper part of the green SRA. Then it just went straight down, broke through the hor­i­zon­tal blue trend­line, but kind of ‘obeyed’ the diag­o­nal blue trend line. This is def­i­nite­ly a bear­ish move. I will have to get back to the ‘draw­ing board’ and ‘see’ what will hap­pen next. 

Thank you for reading

Please leave a com­ment and tell me I’m an idiot with my pres­sure points etc. Go on! You know u want to!