Edition 619 - April 22, 2016
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The Law of Charts with Commentary
by Master Trader Joe Ross
Author, Trader, Trading Mentor, and Founder of Trading Educators, Inc.
Thrust Reversals
Last week we looked at a "Spike Reversal." This week we are going to look at a different kind of reversal, which I call a "Thrust Reversal."
Quite often "Thrust" is the first step in what turns out to be at the very least a short-term move. By that, I mean you can usually count on some sort of follow-through in the short-term.
The stock chart I'm going to show you is one that has been previously shown, Watts Water Technologies (WWT). But what you see occurs in all markets and in all time frames. I had expressed that the chart showing was a sudden and rapid "melt-down" of prices that was nothing more than stop running, and that you see such stop running quite often in the stock market. My point then was that what we were seeing was not a downtrend. It was simply a collapse brought about by one or more market movers powerful enough to put the squeeze on investors who were long the shares of the company. Such moves often accompany disappointing financial reports by a company, but not always. Sometimes a melt-down is initiated by news affecting an entire industry, or even by news affecting the whole economy.
In the case of the up-thrust bar in the share price of WWT, I feel certain that what we are seeing is directly related to the recent hurricane that hit the gulf coast of the U.S.A. Is this the beginning of an uptrend? That is possible, yes. But more likely it is the beginning of a short-term move that could quite possibly last only a day or two. When I see a thrust reversal, I get ready for some quick short-term profits. In essence, this is a scalping situation. Take some money and run. Possibly move any remaining portion of your position to breakeven, and count your blessings if the thrust bar results in a real move.
It looks as follows:
The up-thrust bar we are seeing with this chart is defined in the Law of Charts as a breakout from congestion.
© by Joe Ross. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Low Probability Setups
by Master Trader Joe Ross
Author, Trader, Trading Mentor, and Founder of Trading Educators, Inc.
How many times do you tell yourself “I'll worry about it later”?
When trying to deal with the fact that we must eventually cope with an onerous, unpleasant event, such statements help us to get through life. We often put off things we don't want to do, hoping that we will muster enough energy and enthusiasm to deal with them in the future. We prefer to put off facing an unpleasant reality until the very last minute. The same thing seems to happen when we make trading or investment decisions. Traders may be willing to enter low probability setups as long as they don't have to deal with the consequences of the trade.
Research participants were asked to imagine making various economic decisions, and to indicate which economic decision they would prefer, and under what conditions. In the first hypothetical economic decision, the payoff was high, but the chance of receiving the payoff was low. In the second economic decision, the payoff was low, but the chance of receiving the payoff was high. People’s preferences depended on whether the payoff was to be received immediately or in the distant future. People indicated that they would be willing to accept a low probability of success if the potential payoff was high, and they didn't need to find out what happened until the distant future. People did not prefer an economic decision that had a low probability of success if they had to deal with the outcome of the decision in the near future. Indeed, if they had to make an economic decision that had consequences for the near future, they would take the option of receiving a low payoff as long as it had a high probability of success.
These research findings may explain how decisions about long-term investments are made. When it comes to long-term investments, people are willing to risk money on a low probability setup as long as they believe the potential profit is high. This is somewhat irrational, however. The probability of success is an important element when deciding whether or not to risk capital. It doesn't matter whether it is a long-term investment or a short-term trade, a trade setup should have a high probability of success. But people have a natural human tendency to accept a low probability setup as long as they don't have to face the outcome until the distant future, and they believe that the potential payoff is high.
If we believe that the potential profits from an investment are high, we tend to irrationally risk capital even when the odds of success are low. In the end, however, it's more beneficial to look for setups that have a high probability of success, even if it means standing aside until we find them.
© by Joe Ross. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Trading Idea
by Master Trader Andy Jordan
Educator for Spreads, Options, Swing/Day Trading, and Editor of Traders Notebook
Today, Andy is looking into Natural Gas and provides the details for an options trade.
© by Andy Jordan. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Andy's Trading Plan Series
Stay tuned for the next several weeks as Andy starts his trading plan series which explains what every trader needs in order to make a successful plan.
© by Andy Jordan. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Q&A Series
by Master Trader Marco Mayer
Educator for Forex and Futures, Systematic Trader, and Creator of Ambush Trading Method
In this episode, Marco answers a follow up question on disciplined trading, and talks about the limited life on trading-systems and how to deal with that. If you have a question, feel free to This email address is being protected from spambots. You need JavaScript enabled to view it., post it in our Blog or Forum.
© by Marco Mayer. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
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Note: Unless otherwise noted, all charts used in Chart Scan commentary were created
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