Thursday, January 18, 2007

Chart Analysis

I discussed my new charts with a friend yesterday and was in a very friendly way reminded, that all I'm seeing might be hindsight. looking good in backtesting, but not tradable in real time. So I did my homework this morning and give you my analysis of yesterdays DAX trading

[02:36] hi, read what u wrote and looked at chart of dax but im wondering what u are looking for exactly....
[02:37] or are u just buying/selling off of the lines?
[02:37] with no other trigger action?
[02:37] after all how do u know its a peak on the vol until its past
[02:37] i could mark peaks on the price bars and say look at the top outs
[02:38] u know me well enough to know im not criticizing, im inquisitive that's all

[07:42] (croc): you are absolutely right, so let's see how the charts developed
[07:44] (croc): in the morning we saw range trading around 6764

[07:45] (croc): then prior to the first news release a ghost was developing and triggered 6764 short

[07:49] (croc): you always say in backtesting you don't see the news, you just see the signal
[07:50] (croc): the trade was great in hindsight as the news let DAX break down to 6732

[07:51] (croc): as I've written in my blog
[07:53] (croc): if a contract breaks up or down into new territory on low volume, it will reverse that move unless new volume comes into the market holding the contract down
[07:53] (croc): that's what's happening with DAX at the 6735-42 breakdown level
[07:54] (croc): an new volume mountain starts to form
[08:06] (croc): trend down, next CCI signal most likely is a zeroline rejection
[08:09] (croc): so short from the 6740-42 area, stop 46-47 as the moment we enter the low volume zone the theory is, that prices will cross it and go up again to 6765
[08:10] (croc): (if you think long instead 6732-34 would be the entry)
[08:11] (croc): we broke down again
[08:12] (croc): an inverted H&S is forming on the cci
[08:13] (croc): favoring a countertrend long (as I recall the YM was not breaking any further, also S&P was holding the post news level, so a snap back might be probable)
[08:14] (croc): 6715 was the 6675 DAX indexlevel, an area I was looking to hold, as I've noticed, that DAX traders look at 25point increments on the DAX as support or resistance levels
[08:15] (croc): if you take it long 6720 target would be the high volume zone formed after the breakdown at 6740

[08:18] (croc): the initial spike goes to 6739.50 and I would have been stopped on any long trade at 6737 most likely. If you held the target was hit and exceeded 10 minutes later

[08:20] (croc): still the low volume zone from 6752 down to 6745 remains untouched. If the next bar makes a lower low, with the turbo cci showing this nice little H&S, I would favor a short on a trend continuation
[08:22] (croc): that was violent, an stop limit short entry at 6736 would be fine, but I'm not sure I would have gotten it
[08:22] (croc): let's see the next bar
[08:23] (croc): interesting pattern forming now
[08:25] (croc): for me that's looking now as a Top at 6744, with a downside bias, the stop limit 6736 got us in short with a top 6738, I just don't like the stop to be within the trading range at 6741

[08:27] (croc): 6715 hit, which was the support level I mentioned above on the DAX index (6675), it also is a new daily low, for the entry 6736 a 20 point exit is really fine enough

[08:28] (croc): now we have a double bottom on price
[08:28] (croc): cci shows no signal atm
[08:29] (croc): we are in a low volume zone
[08:29] (croc): so either we break down fast into new territory (6700-6705 would be support on the daily)
[08:30] (croc): or we reverse again up to the 6730-40 zone (the volume is now evenly high at this level)
[08:30] (croc): I see no trigger so flat

[08:33] (croc): prices bounce up, aggressive long would have been 6720, as I said, no countertrend trigger signal on the cci, so I remain flat. On this chart the cci looks to be topping out and might form a rejection below the zeroline

[08:35] (croc): doing that, and testing the previous low
[08:36] (croc): we get a nasty rejection not tradable on the 5min chart
[08:37] (croc): a stop limit long on the cci zeroline cross at 6726 might have gotten you in
[08:39] (croc): cci is above the zeroline
[08:39] (croc): we have resistance at 6743.50
[08:39] (croc): looking for longs
[08:39] (croc): on a bounce from the zeroline
[08:40] (croc): 6730-32 would be a good entry it seems
[08:41] (croc): no entry, unless you trade the +100 sling with the break of resistance 6744 long
[08:41] (croc): I hate these trades, as they have so much pullback potential
[08:42] (croc): but this breakout worked
[08:42] (croc): target the higher high volume area marked by the red line 6762-6766

[08:44] (croc): target hit
[08:45] (croc): looking at a longer term chart, you know that the 6755-6775 was a range where DAX was trading for 2 days already, so resistance is to be expected on any further upmoves

[08:52] (croc): also DAX just made a 50 point run
[08:52] (croc): meaning consolidation
[08:53] (croc): short if the cci dips below zero from 6764
[08:54] (croc): short on a touch but without cci signal
[08:54] (croc): so no short yet
[08:55] (croc): but here a short is forming

[08:55] (croc): short 6752.5
[08:57] (croc): target 6740-36
[08:57] (croc): why? previous high volume area below

[08:58] (croc): end of trading