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Just Takes Some Pressure
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by Rick J. Ratchford
Much in this world benefits from pressure. The vehicles we drive or the
aircraft we fly all depend on pressure to PROPEL us in the direction we
wish to go.
There are other types of pressures that we can just do without, such as
that which pounds our temples under stress. Yet at the right level, it
can help us excel in our endeavors.
The market requires pressure to operate. Without it, the market would
just disappear. There is buying pressure, and selling pressure. Both
work against each other with the market moving in the direction of the
greatest pressure.
Pressure in the markets seem to form pockets where it is the greatest at
any given moment. Seems that certain pressure areas in the past come
back into service once again when price returns to that area.
This area of pressure many times has both faces in that at one time it
supplied selling pressure, but then later on after prices had finally
passed thru it, it becomes buying pressure when price returns again to
pass.
The amazing thing about pressure is how once it is defeated, it then
just gives out completely. Consider a balloon. Filled with air and tied,
putting pressure against the sides with our hands we find it harder and
harder to get our hands to reach each other as we get closer and closer.
Yet, once we've defeated this pressure, as when the balloon finally
'pops', our hands come together with a sudden burst of speed.
This is the same many times when pressure is overtaken in the markets.
Once overcome, then the market appears to 'propel' in the direction it
was fighting to go.
Understanding this can be very helpful when we are looking to enter or
even exit our trades. If we are trading at a location where we expect
pressure to keep us from going into the negative in points, and it
holds, then we may be in a good position to profit. However, if our
pressure area gives way, do we want to stay in the trade?
Usually not.
Knowing this helps us to determine where we may wish to put our exit
stops.
These pressure areas are commonly known as SUPPORT and RESISTANCE areas.
If the pressure is below the current price, this is support. If it is
above, this is resistance.
Are there any ways that we can determine whether such pressure areas are
going to give way? To a degree, yes.
We really won't know until we see the market respond, so advance
knowledge may be difficult at best. However, there are some ways that
give us some good 'clues' as to whether an area will hold or not.
One way is with PRICE and TIME techniques. Expecting a turn in advance
and seeing it happens provides good indication of such an pressure area
that should hold long enough to profit.
Another way is VOLUME. As we near past pressure areas, if we notice
volume starting to lesson at somewhat of a linear fashion while the
market is retracing a recently made range, this provides a clue that a
move is losing steam (pressure) and should soon taper off.
As well, if we come to a past pressure area and it fails the first
attempt, then on the next attempt we notice volume is picking up each
time it attempts to go through, soon it will give way. Usually 2 to 3
hits are about all a pressure area can take before it gives away and
prices move right on by.
Pressure areas can be visually discerned many times by just noting past
TOPS and BOTTOMS. Why do you think they are tops and bottoms in the
first place? Because they were formed by pressure.
Pressure of a move is usually greatest in the direction of the trend.
Counter trend moves seem to be more of a lessoning of pressure rather
than pressure reversed. In other words, open interests declining on
profit taking and so forth tends to decrease pressure rather than
reverse it.
Noting pressure based on volume can help you be on the right side of a
trade as well. If you note volume increasing when the market is making a
move up but decreasing when it is going down, you can use this
information along with other techniques such as momentum, swing
charting, stocastics or some other indicators to discern which way the
pressure is truly the greatest.
Oh, and there is one other kind of pressure that can be helpful if you
are in tune with it. If you are in a losing trend and you know you
should get out but don't, as the market continues to move against you
the pressure of losing should soon become so great that you finally come
make that call to exit your trade. Once done, many times even though you
lost money, you feel the pressure start to go back to normal....
....unless the market then finally turns and goes your way after you've
gotten out. :)
cheers!
:)
rick
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