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Forecasting Market Direction with "The Balance Line" (Part 4)

05/21/2009 12:01 am EST


Timothy Morge


Most traders are quick to realize that the market has moved on without them. Their limit sell orders were not filled and it is quickly obvious they are not likely to be filled. Price has already paused and changed direction, and if they want to catch any of this new swing, they must use a more aggressive tactic to enter a short position.


I am already short at the pause and change in direction.

When price begins to plunge lower, traders who missed the pause and change in direction have two choices:

  1. They can wait for another swing of the pendulum and stalk its next pause and change in direction.
  2. They can try to jump on the current swing lower and hope it goes far enough, fast enough that their market entry allows them to catch a good portion of this new swing lower.

Most traders are not particularly patient. They choose the second option and sell “at the market” as the plunge of price accelerates. And their selling briefly adds additional momentum to the current swing lower, accelerating its motion. This additional selling, in fact, is a new swirling eddy added to the path of the market's pendulum. As the market moves forward in time and space, it will influence the “normal' path of price and a new reaction will form, slightly off the horizontal projection made by the Balance Line.

As most traders elect to sell “at the market,” price plunges faster and faster. Because I was able to enter my short position at the pause in the market, before it changed direction, this new acceleration in trend pushes price toward my potential profit targets.

So what edge do I have?

By entering at the pause of price before it changed direction, the majority of traders are now working for me, pushing price lower to my profit targets. As the market continues lower and other traders scramble to find a short entry, I ride the pendulum of price and manage my trade.

There is a tiny moment in time, a near-zero state of time, when price stops, pauses, turns inward, and gathers itself, but then is off again, racing down the arc of a new trend. If we can identify these near-zero pause states and use them to our advantage, we can use the power of the entire market to power our trades towards our profit targets.

I wish you all good trading. Read Part 1 | Read Part 2 | Read Part 3

Timothy Morge

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