This is the trading 101 series, here I talk about what I think can be defined, what works and also that which does not work. I try to exaplain widely known concepts and put them in perspective using my own thoughts and examples from the real world of trading.
For starters i'd like to talk about the concept of "buying low and selling high".
For starters i'd like to talk about the concept of "buying low and selling high".
Look at this picture which was taken from www.freestockcharts.com. I want to share this because I first got the idea of the formation by looking at this image. With the concept "buy low / sell high", even though hindsight is 20 * 20, you want to buy low. Let's start there. I mean how do you know or define what low is, is this low is that low or is there an even lower place where i could buy and for how long would I want to wait before buying there?
For those of you that are used to the concept of fractals. I'd like to point out that a place where price turned most often is there same as where the high or low point of a fractal later is formed.
Take a look at the picture below. I've edited the above picture and added a few lines and symbols to show some examples. The idea here is that I want to show how a previous place where price for example turned down, let's say at point A, later often becomes a place where a similar reaction occurs. That is not to say that this is some kind of law, because it most certainly is not, I merely point out that in my opinion this happens a lot.
Take a look at the picture below. I've edited the above picture and added a few lines and symbols to show some examples. The idea here is that I want to show how a previous place where price for example turned down, let's say at point A, later often becomes a place where a similar reaction occurs. That is not to say that this is some kind of law, because it most certainly is not, I merely point out that in my opinion this happens a lot.
Although as previously pointed out "it is easy to look back and say you want to buy low", I also want to highlight a problem with this methodology. Where the expert trader easily can see which price levels are more relevant then others. The core problem here is that I cannot fathom a way to describe exactly how to define a level perfectly. I can however point some important things out. Take a look at the symbol Y, price turned down from there and later at A it happened again. Yet again at B it happened.
What's interesting here is not the fact that it happened but how close, in hight, a similar reaction appeared once more. It is hard to define and teach, a computer would have a very hard time with this, although i believe it is possible. But i degress.
If we take a look at the low side notice how the previous reaction at X later was enacted yet again by D and E. By now my point should be clear, at certain places price wants to react. There is though no telling where it would go nor how far just the fact that "here" something should happen. It's also worth mentioning here the concept of support and resistance, where in this case the definition of support is a level lower then the current price as previously reacted/enacted upon. Resistance would then be a level higher then price where the opposite is true. One would expect for price to have a hard time going through either support or resistance.
An example of this principle "the two contrarians" 1) if short at B one would expect for price to go to what later becomes E and 2) if long at D one would expect for price to go up to B at a minimum.
As it happens price often breaks through a level only to later return and act upon it, for example where once was support there is now resistance. The level holds true but i think I'll leave the complexness of it all there.
I think i am making myself clear by now so let's get into the more philosophical and even more troublesome part.
While the concept arguably could be said to be simple the overlying problem still remains firm and very solid. What is a level and why is it? What is not a level? What is to say that if a trader found a decent level to work with but price later did not respond according to plan? Was the trader wrong? Although both cases can be argued for and this is trading and what i am getting at. Because as i often state to people in my native language "even if you know the concepts at a level of 100% they will still fail". Therein lies the problem with trading. It happens daily that i read something about trading on a website and at the same time another site states the reverse facts. Therefore i find it extremely difficult define anything in this business.
In closing i'd like to point out that if you can, by all means, buy low and sell high. That is if you can see the levels. You do know this now don't you? And please remember this is taken mostly from my own personal experience and knowledge, i can be wrong, have the wrong idea, say the wrong things but still end up in the green where the profit is. Take it all with a grain of salt.
What's interesting here is not the fact that it happened but how close, in hight, a similar reaction appeared once more. It is hard to define and teach, a computer would have a very hard time with this, although i believe it is possible. But i degress.
If we take a look at the low side notice how the previous reaction at X later was enacted yet again by D and E. By now my point should be clear, at certain places price wants to react. There is though no telling where it would go nor how far just the fact that "here" something should happen. It's also worth mentioning here the concept of support and resistance, where in this case the definition of support is a level lower then the current price as previously reacted/enacted upon. Resistance would then be a level higher then price where the opposite is true. One would expect for price to have a hard time going through either support or resistance.
An example of this principle "the two contrarians" 1) if short at B one would expect for price to go to what later becomes E and 2) if long at D one would expect for price to go up to B at a minimum.
As it happens price often breaks through a level only to later return and act upon it, for example where once was support there is now resistance. The level holds true but i think I'll leave the complexness of it all there.
I think i am making myself clear by now so let's get into the more philosophical and even more troublesome part.
While the concept arguably could be said to be simple the overlying problem still remains firm and very solid. What is a level and why is it? What is not a level? What is to say that if a trader found a decent level to work with but price later did not respond according to plan? Was the trader wrong? Although both cases can be argued for and this is trading and what i am getting at. Because as i often state to people in my native language "even if you know the concepts at a level of 100% they will still fail". Therein lies the problem with trading. It happens daily that i read something about trading on a website and at the same time another site states the reverse facts. Therefore i find it extremely difficult define anything in this business.
In closing i'd like to point out that if you can, by all means, buy low and sell high. That is if you can see the levels. You do know this now don't you? And please remember this is taken mostly from my own personal experience and knowledge, i can be wrong, have the wrong idea, say the wrong things but still end up in the green where the profit is. Take it all with a grain of salt.
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