The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Forecasting Market Direction with "The Balance Line" (Part 3)
05/20/2009 12:01 am EST
I can read the tracks and see the shadow. If I can recognize and exploit the movement of the pendulum in more than the traditional dimensions that most traders track, I do have an edge I can exploit and I won't be left with the crowd to poke at the shadow of the pendulum, hoping to catch the great arc as it slows and pauses.
If I can walk between the three dimensions of space and the dimension of time, and slip between the cracks that most traders travel, I can stand ready for the pause in the arc of the pendulum well before they sense it. Sometimes, I can find the pause and change in movement before they find it. And sometimes, I find the pause when it falls short of where they expected it to happen, because of the extra dimensions I travel, the measurements of the arc and its pause are oh so precise.
In the very long run, the arc seems to be on a constant, repeatable path. But when I view it in multiple dimensions, I see the swirling eddies in its path. I see the small variations from the easily spotted, long-term horizontal path of the Balance Line. I can move between the traditional dimensions to meet the pendulum at the occasional pauses that fall outside its normal horizontal path.
Most traders will be entering their orders to sell this market at the trend line, the long horizontal Balance Line, where price has stopped so many times. This line marks the most likely location where price will pause before changing direction. Selling at this level is popular among traders, and over time, it pays off because price does often pause and change directions at this line.
But looking at the horizontal Balance Line, I see that there are times when price pauses and changes direction before and after the horizontal Balance Line. These are the swirling eddies in its path, the small variations from the easily spotted, long-term horizontal path.
I marked a multi-dimensional line in red on the chart above. This line has caught several of these pauses that occurred away from the obvious horizontal Balance Line. Looking at the current path of price, I see that I can stand on the red multi-dimensional line and perhaps catch a pause and change in direction of the large pendulum of price before it reaches the horizontal Balance Line.
If the pendulum pauses and stops before the horizontal Balance Line, where most traders are trying to enter short positions, what edge will I have?
As price moves towards the horizontal Balance Line where most traders have left their limit sell orders, price slows, pauses, and changes direction. And it changes direction well before it reached the horizontal Balance Line.
But I have stalked the swirling eddies and small variations in its path and my limit sell orders were filled when it paused and changed direction. As the large pendulum of price changes direction, most traders want to be short, but are not short. They left their orders at the horizontal Balance line and the travel of the pendulum of price never made it that far this time. Price has changed direction and most traders have missed the change in direction.
What edge do I have?
|More tomorrow in part 4.||Part 1 | Part 2 | Part 4|
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