John Reese, editor of Validea, assesses stocks based on the known investing criteria of many of the ...
Knowing When to Take Money Off the Table (Part 2)
07/08/2008 12:00 am EST
When price zooms through the up-sloping blue Median Line and closes on its low, I add a red down-sloping Median Line and its Parallel Lines. You can see that price has already tested this new down-sloping Upper Median Line Parallel, so I now have two sets of Median Lines on my chart—one up-sloping and one down-sloping—that have been tested.
Though it sounds like it will only confuse the issue, instead it spawns areas where Lines of Opposing Force meet—and I call these areas Energy Points. My research has shown that these Energy Points can act as price attractors, giving me both a price target and in some sense, a good feel for the time it will take price to make it to any specific Energy Point; in other words, you know where price SHOULD go and how fast it SHOULD get there. Of course, price doesn’t always cooperate, but the probabilities once price starts heading for these areas is quite high, so they are quite useful.
You can see on the chart above that price did head down toward the area where the up-sloping and down-sloping Lines of Opposing Force met, but price drifted too far to the right [in time or space] to touch or interact with that Energy Point.
Instead, price tested the up-sloping Lower Median Line Parallel and it closed nicely above it with great separation. This close is the first sign of strength since price broke back below the up-sloping Median Line. But I could not consider simply buying Bond futures at this line, because there are no natural price structures [swing lows where other traders will have resting limit buy orders, for example] to hide my initial stop loss order below.
At the moment, I am left with a gorgeous chart. Price stopped where it was supposed to, leaving double bottoms, but there is no good trade entry set up.
More tomorrow in part three.
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