The majority start their journey into technical analysis by looking for what moves markets and stocks.
The answer is supply and demand based on beliefs and expectations about the future created with money.
How one determines how to read those beliefs and expectations using technical analysis may be endless. And that is where the entry to the black hole begins.
What Most Are Led to Believe About Technical Analysis
Most are led to believe that knowing where support and resistance is requires technical analysis tools like Trendlines, Fibonacci Retracements, Elliott Waves, Moving Averages, Proprietary indicators, and other price action measurements.
By the time you’ve spent your money buying and trying the technical analysis tools mentioned, odds are you’ll be done.
You are done with the markets since your ego will be eternally crushed or bank account.
Why Technical Analysis is Looking to the Left and, at times, looking again.
In the above chart, pivot highs and lows are marked by defining what a pivot is.
For our technical analysis strategies, we define a high pivot as a high with three lower high bars to the left and right of the pivot bar. And a low pivot is a bar with three higher lows to the left and right of the pivot bar.
These defined pivots are the starting point for analyzing of support, resistance, trends and more.
Once a high pivot has formed, new resistance exists; when a low pivot forms, there is new support. No analysis tools are needed.
Now starts the Master Trader’s Thought Process of Technical Analysis.
An uptrend is defined as a higher pivot, highs, and lows. A downtrend is defined as lower pivot highs and lows. That is universal to all technical analysis techniques.
As prices approach a prior pivot high, we know sellers were there before because an increase in supply created that pivot, and the odds are good they will be there again.
Pivot lows are created by an increase in demand from buyers, so as prices approach the prior low, odds are good that there will be buyers again.
In the middle of the chart, after a fast decline, pivots lows formed by buyers/demand increased. However, at the pivot highs, sellers turned prices lower again.
At the right of the chart is another fast move creating a void of pivot highs.
Once a pivot low is formed, we have a new support point.
There is the potential that demand/buyers form a “Retest and Reversal Pattern” for a counter-trend trade.
Why Technical Analysis is Looking to the Left and, at times, looking again.
Above is the updated chart and a Retest and Reversal of the prior one.
Looking to the left of the past, we see the prior area where demand increased.
As prices neared that area again after a fast move, we “think” that buyers will show up again in the same area. Now, wait for a pivot low to form.
We don’t know if the pivot will form or the exact location, but we don’t have to.
We wait and watch. We don’t want to trade after the first pivot since prices will already be up three bars in a row, and the trend is down.
When prices approach the pivot low, we wait for a Reversal Bar to form and buy above the reversal bar high. We are Not waiting for the second pivot to form.
Master Trader Technical Strategies (MTS) builds a Thought Process.
That thought process is created using individual technical analysis concepts.
Trading strategies are multiple concepts that form trading opportunities to trade stocks, options, futures, and ETFs.
The FastTrack to learning how to profit in the markets is Education.
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Happy trading! If you have any questions or comments,
Please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director of Master Trader
Dan Gibby
Chief Options Strategist
