Price is trading right in the middle of the current down-sloping trading range. Price has just left a lower high and I have no indication that this pattern of lower highs and lower lows is likely to be broken.
Then, price breaks above a single minor swing high. To ponder the probable path of price, I make a fresh chart and add a blue up sloping Median Line and its Parallel Lines. You can clearly see price has left triple bottoms below where it is currently trading.
It’s important for me to emphasize that this chart covers the same market action as the prior chart, although five bars have now gone by.
If I completely forget the first chart, it is quite easy for me to ignore the series of lower highs and lower lows that are on this chart. By simply replacing the red, down-sloping lines with blue, up-sloping lines and marking the break above a single minor swing high, I have completely changed the psychology of this chart. If I step back and compare the two, the red chart makes me feel bearish and the blue chart makes me feel bullish.
If I show these two charts to 1,000 traders, a good 90% of them will switch from being bearish to bullish when I replace the red, down-sloping lines with the blue, up-sloping lines, especially after pointing out that price just broke above a minor swing high. Why do these minor changes on the same chart alter their opinion? Let me show you these two charts of the same action side by side so you can see that bringing your opinion to any chart can completely change what you draw, feel, and see.
It almost hurts your eyes to try to see the same visual cues on both charts. That’s how powerful the slope and color of the lines can be!
Humans are visual in nature, and we see what we want to see, so it is vitally important to do our analysis with as clean and clear a mind as possible.
More tomorrow in Part 3.
Timothy Morge
timmorge@gmail.com
www.medianline.com
www.marketgeometry.com
