How to “See” the True Message of the Markets (Part 4)
02/05/2009 12:01 am EST
My first comment to the trader doing his pre-trade analysis, once I presented this chart, was that price may have completed its downside run for now, or in effect, completed its journey. I then noted that in my simple swing analysis, price was still in an uptrend. It may turn lower, but on my first two charts, I see no clues that price will turn lower.
Let’s see more of the detailed analysis I presented to him:
Price has fallen in a near-vertical fashion twice on this chart, and there is a tool that was modified to be particularly useful after near vertical falls: the modified Schiff Median Line. If you study the chart above, you’ll see that it is a derived version of the traditional Median Line, formed by moving the original starting point of the Median Line handle horizontally and vertically halfway towards the pivots that form the Median Line width. The easiest way I have found to illustrate the shift of the first pivot is the construction of a box that begins at the pivot A and continues to the pivot B on the diagonal, and by shifting the origin of the handle to the center of this box, a modified Schiff Median Line is formed.
I take the trader’s original Median Line and make it a Schiff Median Line. I chose this down-sloping Schiff Median Line over a traditional Median Line because it adjusts well to the near vertical falls this market has experienced and will do a better job projecting the probable path of price. By modifying the trader’s own Median Line, I also keep him in tune with my analysis, since I am building on his own analysis.
Now I want to consider both the downside and upside possibilities. I add in a blue, up-sloping Median Line and its parallels. As soon as I add this Median Line set, I note that price has violated the blue lower Median Line early on, but has now moved well above the lower parallel. Looking closer, I see that when price violated the blue, up-sloping lower Median Line parallel, it stopped at the down-sloping lower Median Line parallel, where price should run out of downside directional energy. I add in a line parallel to the up-sloping Median Line that goes through the low for this move at the down-sloping lower parallel. All further downside movement should find that this new up-sloping, sliding parallel line acts as support.
More tomorrow in Part 5…
I wish you all good trading.