How To Avoid Getting “Washed and Rinsed” in the Markets (Part 7)

07/29/2008 12:00 am EST


Timothy Morge


Median Lines are one of the few indicators I can name that do not lag the market. They are predictive in nature and have a mathematical set of statistical probabilities associated with them when they are first drawn. When price finally shows a sign of strength by breaking above the top of the narrow trading range, I draw in a new blue up sloping Median Line and its Parallel Lines.

I’m not ready to trade yet, I don’t have an opinion yet, but this sign of strength has me interested, because many of the long positions in the market were ‘washed out’ by that steep down move. I’ll watch a bit and see if this Median Line and its Parallels helps me spot an entry I recognize as a high probability trade entry set up that I trade on a regular basis.

Price pulls back again, below the low of the narrow Energy Coil or trading range. You can imagine that the traders that went long again on the break above this same narrow range are pulling their hair out in frustration as they chase price up, down and sideways. Many of them exit their new long positions at a loss when price closes below the trading range; some hold their position, but few of them have a plan or can stomach much more of this type of torture.

If you look closely at the Lower Median Line Parallel I added to this chart, price has now come down to test it. This is the first ‘test’ of the Median Line and its Parallels and price closes on the Lower Median Line Parallel with no separation—that means it literally closes on the line. This gives me no clue whether buyers or sellers are currently in control of the market, so my decision is simple: I’ll wait and watch another bar form. Price will tell me when the buyers or sellers are in control—and until then, I will simply wait patiently. I never chase the market.  I wait for trade entry set ups I recognize and they all begin with a sign from the market that either the buyers or sellers are in control.

More in part 8.

Timothy Morge

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