The longer the base the bigger the BO. Why?

TracerBullet

Well-Known Member
#2
Before thinking about why, first ask whether the effect is real. Best way to do that is to test it yourself. There are many theories, but many ideas do not work.

From my own eyes, period of rest and movement can generally alternate. But that in itself may not be an edge as you will have fakeouts too.
We can think of it as markets in balance and markets processing news. Sometimes market overreacts and then goes back to balance. Very large base can also be considered as random and awaiting market impacting news. So it may not necessarily be better.. What might work better is to wait for price to start moving out of the base and then enter based on whatever chart pattern that works. Or another way, enter on some fakeouts in reverse direction. But test, different markets and timeframes can behave differently ...
 
#3
Before thinking about why, first ask whether the effect is real. Best way to do that is to test it yourself. There are many theories, but many ideas do not work.

From my own eyes, period of rest and movement can generally alternate. But that in itself may not be an edge as you will have fakeouts too.
We can think of it as markets in balance and markets processing news. Sometimes market overreacts and then goes back to balance. Very large base can also be considered as random and awaiting market impacting news. So it may not necessarily be better.. What might work better is to wait for price to start moving out of the base and then enter based on whatever chart pattern that works. Or another way, enter on some fakeouts in reverse direction. But test, different markets and timeframes can behave differently ...
Thanks for the reply. Though my question is not about Edge or how to trade.

I am more keen to know: What causes a big BO after a long Base?
 

TracerBullet

Well-Known Member
#4
Thanks for the reply. Though my question is not about Edge or how to trade.

I am more keen to know: What causes a big BO after a long Base?
It is still relevant - anything can happen after any single event. That does not mean anything.
Question is - Does a big BO happen after a long base, more often than not ? How do you know ? Because you saw a youtube video ?
When you do the work yourself, you have a way to ask question to the market itself on how it behaves. Instead of following some guru. This way of working, atleast for me, has made all the difference from being a struggling trader to not being one.

I do not say concept is invalid, just that proof of effect is needed before asking why. And then you can speculate and make theories.
Anyway, as i said, the way i see it is Base = market in balance. And trend move = market reacting to price changing news or to changing decisions by big players based on news or based on their analysis. News flow results in orderflow. Volatility is usually lower in bases vs trends and so you get range expansion and a big move. But dont assume big base => big move on next BO. Big base also implies that market is in agreement on value, and so until clear momentum move out of base you may have more fakeouts too.
 
#5
It is still relevant - anything can happen after any single event. That does not mean anything.
Question is - Does a big BO happen after a long base, more often than not ? How do you know ? Because you saw a youtube video ?
When you do the work yourself, you have a way to ask question to the market itself on how it behaves. Instead of following some guru. This way of working, atleast for me, has made all the difference from being a struggling trader to not being one.

I do not say concept is invalid, just that proof of effect is needed before asking why. And then you can speculate and make theories.
Anyway, as i said, the way i see it is Base = market in balance. And trend move = market reacting to price changing news or to changing decisions by big players based on news or based on their analysis. News flow results in orderflow. Volatility is usually lower in bases vs trends and so you get range expansion and a big move. But dont assume big base => big move on next BO. Big base also implies that market is in agreement on value, and so until clear momentum move out of base you may have more fakeouts too.
Thanks now I understand some of your points better.

BTW, I am not assuming that Base will inevitably lead to BO. But it usually does. Usually there is a big move after consolidation. And I wonder what causes it?

Also, I feel there is more to such movement than only news flow. Why? Coz even when there is news, there is a move 1, followed by consolidation, and then again move 2. So what causes the move 2?
 
#6
Also even in intra-day we see such moves. So I assume news flow is not causing all such moves.

Perhaps something to do with Buyer/Seller dynamics?

As an example, I am looking for an explanation of the kind that William J. O'Neil provides for Cup&handle (i.e. weak hands leaving the stock, trader getting tired out, and then strong hands being left, leading to the BO).
 

TracerBullet

Well-Known Member
#7
Yeah, something like that. There may be patterns in how big players take positions too. This cycle of move and rest ( basically pullbacks) has apparently existed since hundreds of years (cant find reference, but i read somewhere from reliable source), so it might be ingrained in human behaviour. In the end though i am more concerned with what a market usually does rather than why. Also, how market behaves can change. So its not set in stone.

Somewhat related articles
https://adamhgrimes.com/reader-question-patterns-work/
https://adamhgrimes.com/simple-things-work/

btw, Adam Grimes has some great stuff in his blog and 1st book among others.
Also, cup and handle is a nice pattern.
 
#8
Yeah, something like that. There may be patterns in how big players take positions too. This cycle of move and rest ( basically pullbacks) has apparently existed since hundreds of years (cant find reference, but i read somewhere from reliable source), so it might be ingrained in human behaviour. In the end though i am more concerned with what a market usually does rather than why. Also, how market behaves can change. So its not set in stone.

Somewhat related articles
https://adamhgrimes.com/reader-question-patterns-work/
https://adamhgrimes.com/simple-things-work/

btw, Adam Grimes has some great stuff in his blog and 1st book among others.
Also, cup and handle is a nice pattern.
Awesome reply and reference--thx!
 
#9
In the end though i am more concerned with what a market usually does rather than why..
Actually this is an interesting dot. I have read in multiple books the same thing that you have said. Even in Magee's book I think they have mentioned the same. Even O'Neil explains the Why for C&H, but fails to do so for his other patterns.

Nevertheless, I am quite keen on the Why. As I feel it helps in conviction and prediction. In a way my personality is not to "follow", but to "foresee" (in a contingent manner. e.g. If the Price touched this Support level for the 3rd time and if some other conditions are met, then it will very likely breach the Support).

Even JL was a foreseer I feel.

Any idea if there are indeed 2 separate schools of thought in Trading: Those focussing on Why vs What?

Is yes, then who would have created these 2 separate schools?

My current sensemaking (WIP): The greats such as O Neil, Magee, Pring, Murphy, etc. have not focussed much on the "Why", because they are not able to..
 

TracerBullet

Well-Known Member
#10
I think conviction is dangerous in trading. It can interfere with what you need to do, and to accept when trade is wrong/not working ( even if a trade works just after you exit). "Strong opinion, loosely held" is perhaps what you can call as conviction in trading. Does not mean get out at first sign of trouble, just that you need to follow your tested plan and not let conviction get in your way.

So yeah if you need some whys to give you conviction, then no harm but it likely will be unknowable and so just speculative.

You don't have to follow. Simply form your ideas and test them. Take the winners - the losers and costs and slippages.
So ". If the Price touched this Support level for the 3rd time and if some other conditions are met, then it will very likely breach the Support)." is fine and a testable idea, but you will still have a decent % of of failed trades.

I have not read as much, i have not even read Magee and likely wont. My path was in moving from some blogs to traderji + misc sources, none of which worked.
But finally read Adam Grimes blog and then 1st book and a lot more and that has been enough. Right now, i am busy in my own work so have not done focused study of other authors, only made a list of people whose podcasts sounded interesting. But Grimes is highly recommended. Blog is free to read, so good way to decide. And often he does give reasons on why some idea works. Maybe I could have saved a few years if i had started reading earlier - but also, it might still take a while to turn profitable even after reading. I think its hard to follow someone exactly, you have to take the ideas and then adapt it to make it work. I dont trade like him but most of ideas are from him.
 
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