Tuesday, June 4, 2013

In the beginning - The Strategy

"For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs."

1 Timothy 6:10

That Tim fellow sure had some powerful insight on human behavior and it looks like things haven't changed all that much two thousand or so years later.  Yeah! Greedy people rock!  We humans are creatures of habit and the old adage that the market is based on fear and greed has never been more true.

So what is my point?  Good question.  My ADHD aside my point is that the market just like people has a mannerism to it that is understood and exploited by professionals.  Simply put the tendency is to get greedy at the top and fearful at the bottom and lose money.  But don't feel bad because this is exactly what is expected of you by those that understand the human psyche (and can control their own) to make them profitable.  See you do serve a purpose in this world.  Now this is nothing original by any stretch but it does make up the basis of my trading strategy, which is to try to identify potentially profitable trading opportunities during times of fear and greed.  I said 'potentially profitable' because there is no holy grail here kids.  We are searching for high probability set ups.

My tools are not very impressive but the way I use these tools is what I think is important.   Price and volume are my weapons of choice.  You will NOT see a MACD (I remember the first time I heard someone can it the MAC-D I thought of McDonalds), no RSI, no Stochastics, no <Insert the Last Name of some mathematician> Indicator on any of my charts.

I use Point and Figure (PnF) charts to analyze price action.  This simple but powerful chart of just Xs and Os is all I need to identify major support and resistance levels with pinpoint accuracy that I can use to trade.  Very few people I know actually use PnF charts which I think is why I like them so much.  I have to feel special.  However, my analysis of price is two fold:  1: To determine significant levels of support and resistance  2:  Analyze the price range for a specific period of time to assess the strength of the price move for that period.

Volume is always analyzed with respects to what price has done.  I believe that volume is the primary indicator of supply and demand. When analyzing price (i.e. support and resistance levels) with volume analysis (i.e supply and demand) a very simple and powerful tool set to assess market movements arises like a phoenix from the ashes of your trading account.  The plan of this blog besides to amuse myself is to show this in action and provide a perspective on how I analysis the markets. 

So here is my trading secret ladies and gents! 

Support = Demand overcomes Supply
Resistance = Supply overcomes Demand
Support is broken when Supply overcomes Demand (definition of Resistance)
Resistance is broken when Demand overcomes Supply (definition of Support)

Don't worry this will make more sense over time as you follow me on this fruitless and thankless  journey of charting the markets using the simple tools I've described.

Thanks for reading!


  1. This is GREAT short read and im just starting out.
    Following you blog:)PnF charts still trying to learn it.

  2. Thanks Dario! I will posting quite a bit more on PnF charting and volume analysis which is the basis of my trading.

    Thanks for reading.