The past few days have been tumultuous to say the least. As you may have guessed, I have been receiving lots of emails and commentary. There is a recurrent theme I would like to address. We won’t hope to solve the debate here, but there has been an on-going debate for a very long time between trading by the news or by the charts. Which is better?
Let me state up front that I don’t have the slightest interest in which style or method other traders take. If it works, I might want to study it. (Some people probably have a way to make money by reading tarot cards. If it works, I am happy for you…) But as for me, I don’t really care all that much about the “news”. To re-phrase, I care from an intellectual point of view – I like to know what is going on. But I purposely try not to let “news” dictate my trading.
I actually received a humorous email from a rather opinionated trader telling me that the news cycle was too strong for an asset to fall to levels I had publicly suggested. I almost smiled when that particular coin fell significantly below that forecasted level just a few days later. Believe it or not, the charts don’t care about the news or the sentiment. For some esoteric reason I can hardly even guess at, the charts forecast the news.
If one scours the journals every day, for hours on end, they will encounter 1,000 reasons to be bearish, and another 1,000 reasons to be bullish. Plus, the news often has an agenda. Press reports and other news events are often designed to push assets in the upward direction. I receive press reports regularly in my inbox, and almost never get one that has a bearish tilt to it. That’s OK, I get it.
I want to focus on the Monday morning ETH massacre as a recent example. It was a wipe-out that bankrupted many ETH traders. That is a given. After my column on the event, which I tried to get up on the site as soon as I could when I saw the action starting to unfold, I received a plethora of mails suggesting that it was a non-event. It was a news event. It had nothing to do with trading. A simple glitch in software, a DDoS, or something else. All that may be true. But none of that makes any difference to the traders who lost their trading accounts, I am sure.
The charts are multi-faceted and hard to read, particularly when you are trying to follow more than 2-3 of them. BUT THEY DON’T LIE. They almost always give a warning before they react in a big way. Sometimes we see the warnings and sometimes we don’t see them until after the fact, when we know to look a little closer.
Mind you, I am not trying to convince readers to believe as I do. I am just trying to explain why I don’t care about the news, when I am trading. In fact I try very hard to not let news influence my thinking.
Let’s finish the segment by looking at the massacre a bit closer, now that we know a significant event has occurred.
Looking at the 3 hour ETH chart above, we can see the warnings were there. Note the red arrow indicating that pricetime had reversed at the top of the square, while inside an arc pair, where “anything can happen”. That was a sell signal. Had we traded this chart we would have been out of this coin at ~ $96. (The next buy signal was to be when pricetime closes above the arc pair, but that has not yet happened.) More importantly, note the blue arrow. That is where the collapse occurred. Note that the DDoS (or whatever it was) happened EXACTLY at the end of the square. This is where reversals often happen. Had we been focused exclusively on this chart, we would have known to be very careful at that time.
In closing, note that an energy point approaches (pink line). I will watch that candle closely to see if the arc above it yields (I suspect it will). If so, a trading opportunity may be approaching.
Remember: The author is a trader who is subject to all manner of error in judgment. Do your own research, and be prepared to take full responsibility for your own trades.
Jim has an MBA from the University of Southern California. He has had a long career in both Corporate Finance and IT. Along the way he discovered that trading was a vehicle with great promise, but struggled for a long time without a mentor. After having been knocked down many times and having struggled to get back up, he had an epiphany and realized that geometry was a solution. He shares his experience here.
Follow him on Twitter (@jimfred1276) or email him at jimfred1276 at gmail.