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Date: Thursday, July 30, 1998 3:10 am
Subject: Re: Major Question?
>You guys talk about keeping trading as simple as possible and that Price
>Action is the only indicator you need. Could you explain a little more on
>what exactly price action is and how you use it. Just out of curiosity, do
>you use any other type of indicators?
>
>JMP
I kinda' think it is down to me to answer this, but I hope very much others
will come in here. Not everyone is going to agree that Price Action is the
be all and end all. The EW guys will have totally different view. The Gann
boys will have something to say and all those that swear by Pitchforks,
Stochastics, RSI and heaven knows what else, will have yet further views.
Then, of course, there are the fundamental afficionados. In the end, I am
sure they are right, but I just ain't got those sort of deep pockets. I'd
love to make my fortune on a wonderful run at coffee, or cotton or anything,
but I'm just not into the margins, drawdowns, etc - usually caused by and
easily explained by some A, B,C correction of the umpteenth wave before it
is finally going to go my way.
Let's face it - and I am sure it is all my fault - but I can only see EW
waves after the fact. I know nothing of Gann, nor come to think of it,
astrology (but I just love it when there is a full moon and the markets go
crazy...). For me, all the conventional indicators lag and I am enough
behind the market, sitting at my computer, without hanging onto those
things. (Whatever indicator it is, you can bet your life it is pointing up
just as you are going to enter the market and then is dips down as soon as
you have - so it is always right when you look back!)
That leaves, price action. For me, it has to be what one has to
understand - and as soon as I did, I could. Simple as that. Of course,
one has to look at price action in association with sup/res lines and the
set ups of various price patterns. This snip from my manual, based on
trading the T-Bonds, describes some of what I think:
"...In other words we have a well marked map and a good compass, but what we
now need to be able to do, is read the road signs. We need to know the
equivalent warning of the double bend, the T-junction, the slippery road,
motorway ahead, etc. We must know the signs and these take the shape of
price patterns.
As I have said before, and will say again now: none of the tools we use
can be used in isolation. The whole of trading is very much a question of
combining, of confirming, of confidence. The price action is what tells you
what is going on at the sharp end and mainly, but not always, as it unfolds,
it does so by producing patterns which are oft repeated. In fact, oft
repeated, often!
The first thing you have to do is to recognise the price patterns as they
occur and then, be able to put them into context with all that is happening,
at that moment – taking all the different time frames into account, as well.
Once you have been able to assess what the pattern indicates within the
context of the trading situation at that time, then you have to accept or
reject the signal which is offered. That, basically, is where you have to
assess the risk/reward ratio of the potential trade and make your decision –
all of which we will discuss in Chapter 9.
Logic will tell you that there must be a myriad of price patterns, but what
we are looking for are selective patterns which when they occur, in certain
circumstances, usually have a distinct affect on what the market does
thereafter. In other words, patterns which tend to be in the van of a
change in market direction...
Let me emphasize that the manual is not written as an expert. I have just
had to learn the hard way and, at the risk of sounding dogmatic about price
action, it seems to me to be the one consistent thing that works. Anyway, I
find it works day in, day out, in the T-Bonds, in association with sup/res
lines, etc. Without trying to be coy, to go into detail requires a legion
of charts and examples, which I just cannot do here, but which I believe I
have done tolerably well in the compilation of the manual.
Finally, in fairness to those who have been on RT for awhile, let me say
that this manual (which really will be out in early September!!!) is aimed
at helping the 'newbie' traders (and therefore, presumably, only a small
percentage of this lis), or those who would look at the T-Bonds as a new
market for them and worth learning about. Since I already have a lengthy
list of RTers who have asked me to send them details on publication, I will
leave it to one of them, in due course, to post their opinion. The idea,
you must appreciate, is for a raw recruit to the markets to be able to sit
down with the manual and learn to trade, or, having read and aborbed the
whole thing, save a small fortune by concluding that this is not a business
for them. It is a working tool and not a book. It is written on the basis
that I wish I had had just such a manual when I started, rather than... and
we all know the story from there!
So, look left and trade right - that's how to do it!
Bill Eykyn
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