发帖
雷达卡
[size=1.1em]Forcing action occurs during emotional markets: short covering rallies, long liquidation breaks, in response to knee-jerk reactions to both scheduled and unscheduled economic news announcements, and at other times when unexpected (exogenous) events or rumors invade the marketplace. To understand forcing action is to recognize it as quickly as possible. Why? Because your tactics, your trade expectations and your developing market perspective are strongly influenced by this particular market situation.
[size=1.1em]Momentum trading is another form of forcing action. As a new auction gets underway momentum is usually very positive; as we cycle through the innovators, early adopters, early and late majorities, and finally the laggards, the final effect is very similar to forcing action. How often have you observed accumulating poor structure at the waning stages of a tired auction as it continues to proceed directionally.
[size=1.1em]The practice of carrying information forward will help you navigate periods when forcing action is occurring. During forcing action, the use of structure to gage directional opportunities, along with the risk/reward associated with those opportunities, is temporarily suspended. During these suspended periods it is important to carry the traditional structural references forward, while also recognizing that repair or revisiting of this structure is likely to be delayed. A typical structural repair example that we experience, quite often, is the prominent or very prominent POC.
[size=1.1em]The temporary suspension of structural reliance is market-generated information; not recognizing this temporary suspension is a risk that can undo traders. During forcing action environments traders often get caught “leaning into the wind”; they correctly observe the structural anomalies and the imminent end of the current auction, but they often act too early. These traders (and most of us fall under this category at some time or another) do not appreciate completion and the fact that it takes time for the majority of the momentum traders to give it up. Traders do what works until it doesn’t work anymore. What is working often continues well beyond our imaginations and observations of exponential poor structure. The recent June downside auction and corresponding reversal in the S&Ps are examples of the danger—the risk—of being over anxious to assert one's market view. Not only is there a risk of losing money but the trading opportunity to go with momentum is passed up as well. If you fully understand how momentum traders operate, then you are in a position to take advantage of their behavior. The following graphic of the recent S&P auction down and its ensuing counter auction back up illustrates how extended markets often become before repair or revisiting takes place. This example also shows how repair can happen at any time.
[size=1.1em]
Notice how extended the downside move is before repair takes place. Did you attempt to trade the accumulating poor structure prior to the exhaustion of the short-term auction?
[size=1.1em]Notice too how prominent POCs often serve as day timeframe ‘destinations’ as they’re revisited; there was marginal follow through after many of these prominent POCs were reached in later sessions.
[size=1.1em]As of July 3rd the 13 point gap above has yet to be completely filled—after three attempts there remains a 1.5 point gap. The lower poor structure has yet to be repaired.
[size=1.1em]This concept is far broader than just POCs. Multiple POCs that are carried forward along with declining volume, for example, can be used to understand the developing and increasing odds that lead to volatile and sudden reversals. As you’ve heard me say before, understanding the odds of any given market situation can keep you from being positioned the wrong way at a potentially explosive time.
[size=1.1em]Can you feel the emotion as you observe these non-symmetrical Profiles. Combinations of prominent POCs, anomalies, poor lows and highs, and ledges: these are the sign posts of forcing action.
[size=1.1em]A question that comes up very often actually starts with a statement, “Jim, value has been higher [lower] along with a higher [lower] POC for the past three days.” This exchange usually begins following an update where I suggested that the current risk was opposite the direction of the most recent auction. This is an example where interpreting market-generated information too linearly can narrow your focus and divert your attention away from the bigger picture. Always ask yourself, “What is really going on here?” Using volume to confirm moves, observing other markets that are indirectly related to the one you’re trading, current news and sentiment, and understanding inventory conditions can help bring you back to the bigger perspective.
[size=1.1em]Once the cause of the suspension has ended or been diminished it is quite common to see the important structure, that was left behind during the forcing action, revisited or ‘repaired’. Being aware of this you can exit your trade and look forward to where the auction is likely heading. Note—in this most recent example not all poor structure was repaired from the downside move; however, we continue to carry this information forward along with current developing structure. This practice will keep your mind open to various scenarios.
[size=1.1em]Monitoring market-generated information: Among the many concepts that we discuss the two most important are value and visualization. Price leads value; value develops as time and price work together. As we wrote in Mind over Markets, “[market logic creates the impetus, time generates the signal, and structure provides the confirmation.]” Being able to visualize developing value and the evolving structure will allow you to better keep up with the daily auctions. However, by the time value and structure are clearly established it will be too late for great or good trade location. This is where carrying information forward and maintaining a wide lens will aid in your visualization of where the auction may be headed.
[size=1.1em]We also wrote in Mind over Markets, “Never lose sight of the big picture.” Understanding what was occurring in the S&P example above did not involve numbers—it required an awareness of the bigger picture—the conditions leading up to the break, the behavior of traders as the break gathered momentum, and finally, the inevitable end of the party and realization that inventory had gone too far too fast. An equally emotionally-charged short covering rally ensued. Once the market gapped higher on June 25th and attempted to auction back down and found no sellers, the shorts were trapped. I can hear myself saying, “They got ‘em. They’re caught.”
[size=1.1em]Think of short positions and the change that occurred overnight and into the stock market open on June 25th. Margin clerks get involved as the laggards and late majority are underwater; shorts are covered at market prices. Earlier participants cover as they suspect the move is over, while traders on the sidelines, seeing what is transpiring, join the bid. The short covering rally is underway, the tone is established. It’s important to remember that once the tone for the day is established the move is rarely taken back the same day. Traders who were carrying forward the poor structure that had formed above were armed with the context to recognize that June 25thwas a ‘go with’ auction.
[size=1.1em]Summary—this discussion contains detailed information that is necessary to record but in order to understand what is transpiring as these situations unfold requires you to step back and observe the information in totality. Forcing action is packed with emotion with multiple dynamics playing out. Observing the auctions too narrowly will limit your ability to appreciate the broader perspective.
[size=1.1em]Packed with emotion, not easy. One of the most difficult articles to read, understand and act on. You’re only going to appreciate this discussion if you’re able to step back and see what is going on. You can only understand it from a broader view. Very detailed but understanding what is going on require broader. It can’t be undserstood under magnify it.
[size=1.1em]You have to look at how dynamic it is too closely without look at it in total.too narrowly have to have a broader interpretation.
京公网安备 11010802022788号
