This is also one of the reasons I leverage a systematic process, filtering out rules of thumb or heuristics, or more simply stated 'surrendering' to the markets internal development or path. But we have to still assemble pieces to determine this, test and refine and re-iterate to create a product that may have some sense of the uncertain future or the markets direction in time.
I've spoken about the importance of 'time' or trading time in this blog as it relates to meaningful activity. I could not function without this reference. Looking at a chart without knowing this essential piece as a spatial reference would be like travelling in a foreign land without any directional guide, map, compass. Anyone can look at a chart and identify a directional bias or trend. I'm talking more about deriving meaningful price information as it relates to the trend or the direction, across multiple trading time frames and as it relates to your trade risk/portfolio risk.
In developing the 'Momentum Long Swing', which was discovered accidentally, by looking at variations of my program, I began to notice how this signal could forecast directional changes within larger time periods of reference (weekly, monthly, quarterly). I wanted to implement this approach as a intermediate term guide and hedge against my faster 'Short Swing' program, which in and of itself generates consistent 50% annual betting odds and 80+% monthly wins over 6 years of data. Moreover, I wanted to capture the 'meat' of any large price swing or trend. And so when we push out time as function of risk, we can also take a step back in our assessment of shorter duration trades and use the longer established bias to re-frame the risk-adjusted approach to trading the short term.
Below, we can see the OPEN trades from the $NQ day chart and 'red arrows':
1.Momentum Long Swing - Short Entry: Oct 1, 2012, 2783.50.
2.Short Swing - Short Entry - Nov 2: 2648.50.
I've alluded to the development and anticipation of the weak market initiation back in early Oct, which coincided with the Momentum Swing - Short - implying aggressive long inventory liquidation, possible fresh short interest, going into the 'blow-off' top at the Upthrust reversal - a key statistically significant pattern approach topping out formation - Oct 5. I stayed with the Momentum signal for a number of reasons that I've written about, primarily, the long duration of the Weekly Up-swing - into 80+ trading days (June - Oct) - which characterized the trend as exhausted by historical measures of trend duration in this timeframe.
Within the Momentum Swing Down as per the first series of red arrows, there have been a series of shorter term swing trades you can reference here. If we reference the chart above, going into elections the market began pricing in expected political grid-lock associated with Obama re-election and a Republican 'House.' Through October we see the accelerations in velocity of this short weekly structure (blue channel trending down since early Oct violation). This is the 'channel' to watch as anything meaningful will take the market back above the upper level of this 'blue' channel, implying a weekly reversal.
Currently, the market is breaking down through strong Monthly-Weekly support at 2600 and looks to want to retest old 2011 highs/quarterly lows at 2516. We can see how this down trend has been confined spatially to the lower boundary of the weekly channel, with the retest into the uptrend line ('2011 Long Term Trend Line'), taking price back into the top of the weekly boundary channel, which failed, and was associated with a new short swing signal (Nov 2).
Now, we are seeing an acceleration and possible 'Phase Shift' as per the 'Phase Shift Line - Accelerating Velocity' which would characterize this market a deviating from 'normal' activity and into a capitulation style bottom and different from the March-May 2012 pullback.
The most meaningful takeaway in price at this level is to see whether the market will break down below the 2600 weekly and monthly support by the end of the week. If it does, things will accelerate in direction and remain weak for the remainder of November with a significant intermediate turning point coming Nov 28. If the market is able to hang on here, and close out this week > 2600, we may see a short term bottom in price with some heightened volatility swings developing.