This would be a long one, so grab a cup of a tea.
To understand the story of the market, the very first thing to do is to ditch the single-line moving averages and start using double lines instead – and the correct sample sizes.
Using my LEMA 30N indicator would be perfect for this.
See, you have to be able to decide if you saw a Failure or a Ricochet. With a single line this becomes very uncertain.
With one EMA plotted on the highs and the lows, you can start calling the turn-aways at the closer line as Rebounds / Ricochets and the turnarounds at the further line as Failures. (You may pick your tolerance, but the ones I went with – for the purpose of the screen plots – up to 3 pips beyond and falling within 2 pips of the actual line.)
It is not because an F cannot be under/over cut, but it certainly should give you more confidence that the base would be holding up for a while, and to give you a suggestion for the trading direction: away from the F.
Ricochets simply make price Relapse having to make a part or all of the progression Repeated.
Now, let’s sort out quickly what happened at the Lower Guard Rail – which is at 1x Fluctuation Maximum Measured from the Green River above.
Was that a Failure or a Ricochet?
It was a quick dip into Bear Zone 1 from the neutral. The weak handed / short term bears cover in this area, making it potentially a very bad location to go short at. I would call this a Failure of penetrating into the Bear Zone.
Following the same, “in the vicinity of” logic with the BURN lines, the following can be said:
You want to initiate your shorts just above the white line (the green, overbought line is there to fine-tune), and only for up to 8 pips above the line. After that you would need another white line to be crossed for your next entry position.
Similarly, your covers would be just under a white line, preferably 2 white lines out. (When two lines are much too close to each other, they should be counted as one).
So, why did this consolidation in the Spark Zone (which is between Mr. Maroon and the Green River) played out to the dark side after the area putting on a squeeze?
Well, it is one thing eyeing the Blue Pair, and noticing the direction going in and the R1 resistance plotted above along with the Upper Guard Rail.
The answer is in the market type. The market is long term embedded oversold, that you can figure out with my Comfort Levels indicator.
To quote myself, in the Embedded Oversold Market the Longs Fail and the Shorts Prevail.
So now you have the right music on.
You can see that there was a BUR(N) just printed to keep you to the right side of the market, along with the Blue Ellipses that mean “short” by Wishing on a Star indicator.
I actually did the very things that would make for a good text book:
I sold just above the freshly printed white marker 1/2 size and added another 1/2 upon a move above the next white line.
On the first, 30-minute break candle I covered both, one somewhere on route achieving more than $500 (10% relative to base account size), and the other half pretty close to the next white line (almost 20% gains in twenty minutes – I’m trying to teach the thinking here, this is not about bragging.)
There is more in the way of signs to be had in getting the direction right.
If you were to plot the 88 Luftballons in “thrusts only” mode, you would see the thrust boxes.
The first, DDI-T prompt’s red target box was called off by the F failure at the Green River high. The SDD (Screw Driver Down) had a projection box as well, but an R, Ricochet at Mr. Maroon put a stop to playing out immediately. There was a D, that was grayed out because of its location, and price never made it to those heights again. On the downside you had another SDD printed, and since price spiked into it (and even exceeded it a little), some of the downside force was taken away.
As you can see, that box has a Cover by 1.1211 print at the low (was plotted real time with the SDD print), and as intelligent that routine is, the next projection box, that was a D (Driven) condition to the downside had an additional Cover Below print with 1.1208, but this time at the top of the projection box. (It was spiked into basically immediately.)
So, where are we at now? In an Embedded Oversold Market. The LEMAs have bearish configuration still. Yet, the short term memory is that the bears covered for now and there was a Ricochet at Mr. Maroon. Price is out of the oversold. It has to adjust the overbought level.
The Maroon Fake out – Fake out pair (with the second F in blue) is the cap of the move for now. A brake above it, and you can be headed towards R1 that is now at 1.1264 – the Blue Lema (the 30-minute one) just started coasting into place.
The second doji up is at 1.1239 – right below the current overbought level. This is where I set my long targets to.