How I Analyze the Markets - Part 4 of 4
PUTTING IT ALL TOGETHER
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Window 1 shows the yearly candlesticks. Here I can see the long term trend is down. I can also see the real body of the 2019 candle is bearish (red) and is completely below the long term swing level at 77.217. This exposes the next lower support level at 66.19. I also know that it will take a new yearly candle, either 2020 or beyond, to reverse this long term downward trend. Further a yearly candle would have to close above 77.217 at the end of the year before this price level can be considered broken. Think about that! It will take more than a year from now for resistance from 77.217 to turn into new support. When we think about this we begin to understand why this price level is so important for us to know about as we analyze the short term markets.
Window 2 shows the monthly candlesticks along with the yearly pivot points. Here I can see the year started with candles below the pivot point "P" indicating the year started out with a bearish bias. When the market is below "P" I want to be a seller so I look for pullbacks. The ideal pullback candle occurred in April when April's candle formed a Pin Bar labeled "P" on the chart. This was a signal to go short. There were no other short signals before April. With the market in bear mode I would expect price to move down to support S2. Here I see the market tried to move down to S2 put then started to reject lower prices in August when the candle formed in August formed a lower shadow. This was a warning of a potential reversal ahead. September's candle formed an inside candle rejecting to move above S1 now acting a resistance. This is seen by noting the upper shadow in September's candle. I can now see October's candle breaking out above resistance at S1. Octobers candle made a higher low and if October closes the month with a higher high it will signal a reversal in trend from down to up for the intermediate term time frame (monthly chart).
Note: I also recognize on the monthly chart that a support or resistance level cannot be considered broken until the end of the month as the market must close above or below a support or resistance level at the end of the month for it to be considered to be broken. Another way of looking at this is that it takes one month for a support or resistance level on the monthly chart to be broken. This concept is important to understand as it gives us insight as to how significant certain support and resistance levels are.
Window 3 shows the daily candllesticks along with the monthly pivot points. Here I can see the month of October started out with a bearish bias. When the market opens below the monthly pivot point "P" I want to be a seller so I look for a pullback followed by a Short trade setup. No short trade setups occurred and price moved above "P". I also notice price never did trade down to support at S1. This tells me there were more buyers in the market than sellers and is a warning of a trend reversal. Once price moved above "P" it confirmed the trend reversal. Now I want to be a buyer and I look for a Long Trade Setup. The long trade setup came in the form of 3 doji's. A close above the first doji is a signal to go Long this market. However, I then realized price was too close to potential resistance at R1. So now I am waiting for a pullback for a better long term entry into this market.
Note: It is also important to understand that on the daily chart it only takes one daily candle to close above a support or resistance level in order to break that level.
Conclusion: It is important to gain an overall understanding of what the markets are doing or as to understand what the markets will do in the future. In this analysis I can see the long term trend is down but the intermediate term trend is up. I can also see the intermediate term trend will run into very strong resistance at 77.217. I can also see that until this market reaches 77.217 it is in a shorter term upward trend that could last until it reaches 77.217. At 77.217 I would then expect this market to turn back downward. There are several nuances I did not cover in this tutorial that I also take into consideration when analyzing the markets as it was not my intention to provide a complete description on how I analyze the markets but just to give enough of a description so as to provide a basic understanding of how I do analyze the markets.
This might seem quite involved and a long an intensive method of analysis, however when viewing the 3 windows side by side the analysis goes very quickly. This complete analysis is important so as to understand where all the important support and resistance levels are in order to gain a better understanding of what the market might do in the future.
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Window 1 shows the yearly candlesticks. Here I can see the long term trend is down. I can also see the real body of the 2019 candle is bearish (red) and is completely below the long term swing level at 77.217. This exposes the next lower support level at 66.19. I also know that it will take a new yearly candle, either 2020 or beyond, to reverse this long term downward trend. Further a yearly candle would have to close above 77.217 at the end of the year before this price level can be considered broken. Think about that! It will take more than a year from now for resistance from 77.217 to turn into new support. When we think about this we begin to understand why this price level is so important for us to know about as we analyze the short term markets.
Window 2 shows the monthly candlesticks along with the yearly pivot points. Here I can see the year started with candles below the pivot point "P" indicating the year started out with a bearish bias. When the market is below "P" I want to be a seller so I look for pullbacks. The ideal pullback candle occurred in April when April's candle formed a Pin Bar labeled "P" on the chart. This was a signal to go short. There were no other short signals before April. With the market in bear mode I would expect price to move down to support S2. Here I see the market tried to move down to S2 put then started to reject lower prices in August when the candle formed in August formed a lower shadow. This was a warning of a potential reversal ahead. September's candle formed an inside candle rejecting to move above S1 now acting a resistance. This is seen by noting the upper shadow in September's candle. I can now see October's candle breaking out above resistance at S1. Octobers candle made a higher low and if October closes the month with a higher high it will signal a reversal in trend from down to up for the intermediate term time frame (monthly chart).
Note: I also recognize on the monthly chart that a support or resistance level cannot be considered broken until the end of the month as the market must close above or below a support or resistance level at the end of the month for it to be considered to be broken. Another way of looking at this is that it takes one month for a support or resistance level on the monthly chart to be broken. This concept is important to understand as it gives us insight as to how significant certain support and resistance levels are.
Window 3 shows the daily candllesticks along with the monthly pivot points. Here I can see the month of October started out with a bearish bias. When the market opens below the monthly pivot point "P" I want to be a seller so I look for a pullback followed by a Short trade setup. No short trade setups occurred and price moved above "P". I also notice price never did trade down to support at S1. This tells me there were more buyers in the market than sellers and is a warning of a trend reversal. Once price moved above "P" it confirmed the trend reversal. Now I want to be a buyer and I look for a Long Trade Setup. The long trade setup came in the form of 3 doji's. A close above the first doji is a signal to go Long this market. However, I then realized price was too close to potential resistance at R1. So now I am waiting for a pullback for a better long term entry into this market.
Note: It is also important to understand that on the daily chart it only takes one daily candle to close above a support or resistance level in order to break that level.
Conclusion: It is important to gain an overall understanding of what the markets are doing or as to understand what the markets will do in the future. In this analysis I can see the long term trend is down but the intermediate term trend is up. I can also see the intermediate term trend will run into very strong resistance at 77.217. I can also see that until this market reaches 77.217 it is in a shorter term upward trend that could last until it reaches 77.217. At 77.217 I would then expect this market to turn back downward. There are several nuances I did not cover in this tutorial that I also take into consideration when analyzing the markets as it was not my intention to provide a complete description on how I analyze the markets but just to give enough of a description so as to provide a basic understanding of how I do analyze the markets.
This might seem quite involved and a long an intensive method of analysis, however when viewing the 3 windows side by side the analysis goes very quickly. This complete analysis is important so as to understand where all the important support and resistance levels are in order to gain a better understanding of what the market might do in the future.