I expect the S&P 500 index to trade between the recent high and low for a while, several weeks o...
Forecasting Market Direction with “The Balance Line” (Part 1)
05/18/2009 11:01 am EST
The market moves; the market rests. The market trends; the market trades in a range. There are times when the market pauses, poised, ready to make a move, and then makes a countermove. If we are skilled enough as traders, we can read the trends changing into ranges and feel the pauses between the moves and countermoves.
Trending markets can be likened to large pendulums, swinging with increasing velocity until they begin to reach the end of their arc, the area where they naturally run out of energy, and then, a slowing and a pause is inevitable. Are we talented enough to see these shifts in energy states? Can we read the shadow left by the pendulum as it swings through its arc and anticipate the pause before the countermove back down the arc?
There is a tiny moment in time—a near-zero state of time—when price stops, price pauses, price turns inward and gathers itself, and then it is off again, racing down the arc of a new trend. Can we find the tracks time leaves when it reaches these near-zero pause states?
Let's look at a chart. It happens to be a 20-minute bar chart of the cash euro FX against the US dollar, but since we are looking for shadows on the far side of time and price, any chart would work:
There is a line here, the Balance Line, that is the shadow of the arc price is making, moving between action and inaction, between trending and ranging, between movement and countermovement.
If we can see it, if we can draw it, if we can stalk it like a hunter stalks the tracks of a huge beast running full out and then pausing for breath, can we trade it? If we can identify this Balance Line, this glimpse into the energy that fuels both the cycle of movement and the cycle of rest in the markets, will it give us an edge?
The shadow of the arc above paints the area where time and price will pause before resuming activity. This is a road widely traveled and clearly marked, and most hunters will see the tracks above that create the Balance Line and be ready.
|More tomorrow in part 2.||Part 2 | Part 3 | Part 4|
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