Without a sturdy model of price action, you are flying blind trying to analyse markets. When is a market ‘going up’? When you start trying to answer such questions in a detailed manner you quickly find that the whole idea of ‘up’ and ‘down’ is a relative concept. Prices may be going up in relation to last week’s close, but going down in relation to yesterday’s range. Which one is correct? Both? So is it going up or down?
My own method for overcoming the confusion is to rely on concrete definitions of what up and down looks like across different time scales. Also, an understanding of how ranges develop is imperative.
By combining a few simple concepts together, you can build a robust framework on which to start your analysis. It will take some time for you to understand my approach but if you put a little bit of effort in and follow along with my analysis over a period of time by watching the market update videos each Monday, I am sure I can convince you of the power of viewing markets in this way.
By using buy and sell pivots to define waves across different time scales I can quickly analyse what the current situation is for the market. In today’s update I show you that the monthly and quarterly charts on the S&P 500 are pointing down, but the daily and weekly charts are pointing up. Once you have strong definitions that can define direction across time scales, you can then potentially make far better decisions. In this instance I can say quite confidently that the current situation is a bit of a ‘no man’s land’, because we need to wait until the short-term forces realign with the longer-term forces.
I can also say that prices may be rallying up into stiff overhead resistance, so if you are a buyer of this current rally you would want to keep your wits about you and be mindful of any signs of trouble.
The biggest opportunity right now, in my view, is to remain patient and wait until prices confirm a shift in short-term momentum back to the downside. My preference is for prices to continue rallying up into the ‘sell zone’ [Watch the video to see the levels], before turning back down.
With prices in no man’s land I thought it would be a good time to delve a bit deeper into technical analysis theory for you so you can easily follow along during my presentations. I outline the key concepts behind the development of ranges and how you can make calculations off the initial range to help you enter trades.
I then show you how prices have developed in the S&P 500 over the past year using this theory.
Editor, Alpha Wave Trader