Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17
These Two Articles Debunk The Biggest Financial Nonsense I See In The Media - 18th Sep 17
Bitcoin Price Crash 40% In 3 Days Underlining Gold’s Safe Haven Credentials - 18th Sep 17
The Sum of Risks – Global, Strategic, Political, and Financial - 18th Sep 17
The Netflix Of Canada’s Cannabis Boom - 18th Sep 17
Stock Market Sentiment Speaks: Either You Learn From The Events Of The Past Week, Or You Are Hopeless - 18th Sep 17
SPX 2500 … At Last! - 18th Sep 17
Inflation Lies, Lies and OMG More Lies - 18th Sep 17
How to Choose right Forex Trader? - 18th Sep 17
Who Has Shaped the World the Most? The Dozen Greatest Achievers - 17th Sep 17
Riding the ‘Slide’: Is This What the Next Stocks Bear Market Looks Like? - 17th Sep 17
Gold Up, Markets Fatigued As War Talk Boils Over - 17th Sep 17
Predicting the Future of the U.S. and the World - 16th Sep 17
Deceit in the Financial Food Chain - 16th Sep 17
Gold GLD ETF Investment Resuming - 16th Sep 17
Extreme Weather & Energy Markets: What's Next? - Video - 15th Sep 17
Trump’s Path to IP Wars - 15th Sep 17
GBP USD Approaches Fibonacci Target - 15th Sep 17
Higher US Interest Rates May Force Higher Inflation Rates - 15th Sep 17
Stock Market Investors: Taking the Road "Less Traveled" Has Its Perks - 15th Sep 17
The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis - 15th Sep 17
The US Debt Bubble Will Soon Warrant Serious Measures - 15th Sep 17
Why it is Often Difficult to Sell a House Fast - 15th Sep 17
S&P 500 At New Record High, Will It Break Above 2,500? - 14th Sep 17
Capital Market Trends - 14th Sep 17
Mike Maloney: The Top 10 Reasons I Own Gold and Silver - 14th Sep 17
The Only Real Europe is Greece - 14th Sep 17
7 Security Tips for Online Traders - 14th Sep 17
5 Markets Ready to Move Before Year-End. Eexpert Analysis and New Trading Opportunities - 13th Sep 17
Massive Equifax Hack Shows Cyber Risk to Deposits and Investments Today - 13th Sep 17
Investment Advice for My Children & Grandchildren - 13th Sep 17
TRADE FOR A CHANGE - 13th Sep 17
The Stock Performance of Public Casino Companies in 2017 - 13th Sep 17
Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - 13th Sep 17
Precious Metals Bull Analogs Update - 13th Sep 17
Tip: When “This” Happens, A Stock Price Goes Up… - 13th Sep 17

Market Oracle FREE Newsletter

5 Markets Ready to Move Before Year-End. Eexpert Analysis and New Trading Opportunities

How To Find Trades USing Chart Analysis - 10 Year Note And Wheat

InvestorEducation / Learn to Trade Dec 02, 2012 - 03:29 PM GMT

By: Michael_Noonan

InvestorEducation

The one question so many want to know is where to find a good trade? From our perspective, we could care less what the underlying futures/stock is, because when reduced to charts, they are all subject to the forces of supply and demand, and they all have the same underlying factors of fear and greed.


The single-most important consideration for any potential trade is knowledge of the trend, and then the location of price within that trend. What we want to do is ferret out the story being developed and depicted in any chart. By viewing various time frames, the objective is to find a consistency and synergy amongst them, for that is what can provide an edge in making a trade. Without an edge, it is like being in a boat without any guiding system to steer clear of unseen hazards.

The trend on the monthly 10 Year Note remains up, but weakened, and we chose the 10 Year over the 30 Year Bond because it has much greater volume and less volatility. A weakened trend leads to a possible turn, in this case from up to sideways, before turning down. The earlier one can catch a market turn, the less is the risk factor.

The rising wedge provides some important information, not because of its geometric shape, but because it tells us that each time the market makes new highs, there are less gains from the previous swing high. The straight line up from the last important low, marked A, B, and C shows the diminishing gains from the low to swing high A; from swing high A to B, and then to C. If the market in the Ten Year is indeed weakening, it should also be evidenced in the smaller time frames, weekly and daily.

The weekly gives a totally different look not apparent on the monthly. We see two trading ranges, and while the net gain of the second range is relatively small, it is the character of each range that adds to the context of a developing story. In range 1, most of the trading activity is close to the top of the range. This is an example of absorption, where buyers are taking all the offerings of sellers. While the sellers were persistent, it was the buyers who maintained control.

Once we get to the second trading range, still in progress, it echoes the monthly observation of a weakening trend. Note how price is struggling to get above 50% of the trading range band. It was positive in range 1 when price was hugging the 132 area of resistance. In trading range 2, it is hugging 132 again, but at the bottom of the area, unable to rally away from it.
The range is still developing, without a resolve, but we are looking for a potential trade that will provide an edge, reducing risk and increasing the probability of a positive outcome. We go to the daily to see if there is a potential trade to make.

The July high and the failed swing highs of August and September provide a band of resistance. the most recent swing high has rallied into that area, but there are two signs of trouble. The first is the failed probe at the high. Price rallied above the past few days highs, but selling entered the market to push the close nearer to mid-range the bar, and just under the small resistance line.

The second sign of potential trouble was the sharp spike in volume, three trading days ago. Volume is the energy behind a price move. In this instance, the energy level was unusually high. Note the range of the bar, a little less than average over the past month, or more. What we take away from that is the likelihood that sellers were meeting the effort of buyers and preventing the range from expanding higher. If that is the case, then buyers are losing control, but it is not apparent to most of the trading participants who do not understand the dynamics between price and volume behavior. We see it as a red flag, warning of a potential reversal in price, and the observance of weakness is apparent on all three time frames, presenting what could be an excellent trade potential.

The point is to present the situation before anything happens, to demonstrate that developing market activity does advertise its intent. We do not need to predict anything. We do not even have to guess as to what the market may or may not do. With trading rules in place, we simply wait to see if there is an indication to go short at what would be best described as the danger point, allowing for a reasonable , if not small risk in a possible trade.

It is a bit ironic to call the location of a potential trade at the danger point, because risk is actually smaller than it would be when there is additional information that makes taking a short more apparent. When it does become more apparent, price will be lower, and seemingly be a more secure trade, but the risk will be higher!

What makes this exercise worth while is that it allows for planning, and it then becomes a matter of execution, IF and ONLY if other factors fall into place. If not, there will be no trade and no risk exposure.

We will come back to this at some point when a resolve is determined that will demonstrate that market activity is the best source for locating potential trades. What we like about the market is, it never lies.

To be continued… [See Wheat, below]

Here is how the trade was handled, for better or worse: Next chart…

Next day, price opened and began to sell off, early. Immediately, we exited half the
position, at 882.5, and raised the stop on the balance. The first sell was near the lows
of the day, but at the time, that was an unknown. When price subsequently rallied to
the 895 area, we opted to exit the balance, at 893, with a “Thank you for the opportunity,”
thought in mind.

You can see, by the end of the day, the market was still looking positive, or so it would
seem. Yes, wheat closed higher, but note the smaller range of the bar, and then look
at the volume for that day…still running quite high, and disproportionate to the size
of the range. For all of that volume effort, why did price not go higher? For us, the
answer was that sellers were more than matching the efforts of the buyers, they had
stopped the buying effort, entirely.

One more chart.

We always maintain that “Anything can happen,” in the markets, and there is absolutely
no way to know HOW a market will develop from one day to the next. All anyone can do
is to use the developing market activity, with its implied message, and act accordingly.

This is why we are watching the 10 year.

By Michael Noonan

http://edgetraderplus.com

Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

© 2012 Copyright Michael Noonan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Noonan Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife