I would say, it’s true in the first part – price reflects it all, what about 2 other? Will trends continue and will history repeat itself? It’s a big question because nobody knows what «trend» is for example.
Some people draw «trend lines», but more often than not they provide information that is already useless. Trend line shows trend when it is already confirmed, therefore it has lower odds for continuation.
Traders also use support and resistance, but it works only when strong demand or supply drives the market. Those technical methods will not help you identify strong supply and demand – the fact that price has touched some level twice is not the indication of strong demand.
But what is that?
Einstein once said that you can’t solve the problem using mindset that created this problem. To combine information that price gives us, we should apply one more parameter, and this parameter is time.
Of course you are using it in some ways, but traders often don’t use in consciously.
What time gives us?
Time is one of components of value. The more time we have, the more value we can create. Simple example is interest rate. If you put some money in the bank, interest rate multiplied by time will increase your capital.
The same is in trading. The more time market spends near some given level, the more this level is validated.
There are some clues when you employ parameter of time compared to parameter of price.
Corrections are not deep enough.
On screenshot below you see no spikes on the way down:
Trend is likely strong if:
Usually they don’t exceed 25% of previous move up.
It means that strong buyers are probably dominating. To make things clear – by strong buyers I mean «buyers with distant stops», not «buyers with unlimited pockets». But more often than not those who can move the market and yet have distant stops are huge enough, be sure about that.
Why does it work that way? If you see weak buyers involved, they would liquidate quickly and market will go after their stops – you will see rapid «spikes» on the way down.
I will cover more on this topic in the days to come ! Keep Checking for Updates
