Step 3 :- Identifying the strength of

the trend. Introduction..

Posted onApril 28, 2015AuthorJagadeesh Chandra KolliLeave a comment

Hello all,
We now have our battle field . We also know the trend the price is moving
and the trend violation point. Before going further, let me add few more
points so that you will understand the remaining procedure clearly.
When price is in uptrend,
Bulls are attacking and Bears are defending. Bulls will give up when the trend
violation point is broken. If the bulls are strong enough, they can also attack
even after breaking the trend violation pivot,but that happens rare.
When price is in downtrend,
Bears are attacking and Bulls are defending. Bears will give up when the
trend violation point is broken. Same as above, bears can also attack even
after breaking the trend violation point if they are strong enough.
When price is in sideways range,
Bulls and Bears are in equilibrium. Each one protects their own boundaries.
Bulls will try to defend the range support. Bears will try to defend the range
resistance.
So far, so good. What next? How can we use the above data in our decision
making process? One thing remained before going to that prediction stuff, ie.
determining the strength within the trend.
We already know that bulls are strong in uptrend and bears are strong in
downtrend.Then,
What is this strength of the trend?
When you are attacking, you are expending relatively more energy than the
defenders, your opponent. You might start the battle aggressively, but as the
battle progresses, the attacking army will be tired and give up. Then,
How can you know that the attackers are tired?
You can know that just by comparing the attackers present energy with the
energy they have fought with in the past. You can also do that by comparing
the speed at which the attackers are attacking with the speed of them in the
past. You can also do that by comparing the force with which the attackers
are moving front after crushing the defender line. Indirectly, you can also do
that by comparing the the strength of defenders at present with their
strenght in the past. If the defenders are showing more strength than

previous, it might mean that the attackers are weakening in the course of the
battle.
To make it a bit clear, you can say that a car is decelerating only when you
know the speed with which it traveled in the past.
The same logic applies to trading. Bulls might fed up in an extended uptrend.
Bears might fed up in an extended downtrend. If Bulls/Bears are not so
strong, they can even get tired in the initial stages of the trend. But one
thing, just because the bulls/bears are tired doesnt mean that the trend will
change. They can relax and attack again if the opponents are not strong
enough to grab the opportunity to take the charge. Now that you understand
what I am trying to say, lets get into the topic with a small introduction.
I have been using the words battlefield , bulls, bears, battle between bulls
and bears, terrain, attack, defend etc. Because trading includes each and
every aspect of the warfare. Battlefield, enemies, strategies, opponent
psychologies, choosing the correct battles and running away from the strong
opponents, economic warfare, what not. Everything in trading resembles a
war. Before I started trading, I didnt have much interest in wars. In fact, I
was the last in the class when history marks were announced in my high
school. For me, only military people are destined to know the answers
to how questions of the battle and I used to think that a war is won when the
opponent is crushed with the winners entire force.
One of my mentors said, If you want to be successful in the
profession you have chosen, no matter what stream it is, no matter
how ridiculous it appears to people around you, treat it like a war.
You know what it takes to win a war. You have to fight until the last
drop of your sweat ignoring the chaos around. Winning the battle is
the only thing that should dance in front of you. No distractions. No
attractions. Learn about wars and apply them to the daily life.
Someday, you can smile at the people who ridiculed in the past.
Each and every word in the above paragraph were uttered by him. I havent
changed a single word.
That triggered my curiosity to learn about warfare. Bought and read around
half a dozen books on war strategies . None of them were practical. It might
be possible that I was not capable enough to apply them in real life. My
enthusiasm didnt die and my research about warfare still went on. Then I
came across two books, titled, The 33 strategies of War, written by Robert
Greene. and The Art Of War, written by a Chinese army general, Sun-Tzu in
400 B.C, translated by Ralph.D.Sawyer. Oh boy, what a gold mine they are!!!
There is no doubt those two books are practical. Those two books have
changed my perception about almost everything. Including the way I ride my
bike. Frankly speaking, applying the concepts learned from those two books
in designing the trading plan around the technical concepts of trading I have

read from the YTC price action trader book has outstandingly improved the
results. If you are a book worm like me, I highly recommend you to have a
copy of those two.
Before moving further,I am going to quote a phrase from the book, The Art
Of War , which is related to the topic of this article.
If your enemy is secure at all points, be prepared for him. If he is in
superior strength, evade him. If your opponent is temperamental,
seek to irritate him. Pretend to be weak, that he may grow arrogant.
If he is taking his ease, give him no rest. If his forces are united,
separate them. Attack him where he is unprepared, appear where
you are not expected.
Sun Tzu.
If you have seen the movie, The Wallstreet (1987), you might have listened
to this.
70% of the war is won if you can correctly read your opponent psychology.
Here, in trading, all the traders except you are your enemies. Their loss is
your win and their weaknesses are your strengths. The brutal way of fighting
the enemies is obsolete now a days and people are winning wars with
minimal resource damage and minimum bloodshed just by changing the
normal mindset to that of a strategist/warrior. You can also do that here in
trading just by a slight change in the perspective.
Our job is to fight against weakness and to fight in the direction of
strength. We never violate this rule.
In the third step, we will find the strength in the trend. We follow the same
procedure I have explained above, ie. by comparison.
So, what shall we compare to form a conclusion on trend strength?
1.
Momentum by comparing the speed.
2.
Projection and Depth by comparing the forces of attackers and
defenders.
The evening session of crude oil futures has started just now and I have to
rush. I will be starting the momentum analysis in the next article and you will
realize that its very easy to find the strength in the trend at a glance.
Until then, read and understand the concepts that I have explained till now.
Have a good day.

STEP 3 :- IDENTIFYING THE

STRENGTH OF THE TREND.

CONTINUED MOMENTUM
ANALYSIS..
Posted onApril 29, 2015AuthorJagadeesh Chandra Kolli1 Comment

Hello readers,
We now know how to identify pivot highs and pivot lows, how to define the
structural framework of support and resistance using our higher
timeframe, how to identify the trend and the trend violation point. We also
know that there is a necessity to know the strength and weakness within the
trend to make a decision to gain the edge in an uncertain environment.
Before going further, let me define a word which I have been using all these
days but I am not sure whether you understand it or not. For the clarity sake,
I will define it here itself.
What is a swing?
I hope that you are comfortable in finding the pivot high and pivot low from a
candlestick chart. If you can do that perfectly, determining the swing is not a
big issue. Swing is the whole price movement between a consecutive
pivot high and a pivot low.

Look at one of our past images I have re-linked above. In that, A,a,2,4 are
pivot highs. 1,3 are pivot lows. A-a, a-1,1-2,2-3,3-4 are the swings. Its as
simple as that. But remember, you need a consecutive pivot high and a
pivot low to call it as a swing. You cannot form a swing with two
pivot highs or two pivot lows.

1-2, 2-3, 3-4 are the swings in the above picture. Read it again and
understand it before proceeding further as the whole concept of strength and
weakness rotates around swings.
Lets start with our momentum analysis.
Momentum Analysis :If you are familiar with physics, momentum is the product of mass and
velocity. As we are concerned with the comparison here, we will only
consider the velocity to analyse the momentum of the price movement.
So, what is the velocity. Velocity is the change of a quantifiable quantity with
respect to time. Here , we are dealing with price, hence, velocity is the rate
of change of price.
If you hate physics like so many people out there, dont worry. Just remember
one thing.
If price is changing fast in comparison to the past, we say that it has
greater momentum.
If price is changing slow in comparison to the past, we say that it
has lesser momentum.
Comparison is the keyword here. We dont want absolute values. We just
need the comparisons.
We here compare the momentum of a swing with the previous swing
to make a conclusion on strength.

Look at the above image. A,B,C,D,E,F and G are the pivot highs and lows
within the trend.When the slope of the swing increases, we say that the
momentum is increased. When the slope of the swing decreases, we say that
the momentum is decreased. Dont look at the length of swing. We are only
concentrating on slope of the swing here.

Look at the above real time example. Look how the bulls got tired as the
trend progressed and finally gave up the battle at the top that resulted in
the trend change. Just the momentum change is not a sure factor to predict

the trend change. But we can say that the present trend is getting weaker as
the momentum is decreasing.

Increased momentum is strength.

Decreased momentum is weakness.

Acceleration and Decceleration
In the above procedure, we compared the speed of price in different swings.
But price can increase or decrease the speed in the same swing itself. The
price can start slow at the start of the swing and it can move fast at the end
of the swing.

Look at the above images. Here we are looking at only one swing.
In the image at the left side, price started slow but moved with speed at the
end, acceleration.
In the image at the right side, price started with speed but slowed down at
the end, deceleration.

Accelerating price in a swing is strength.

Decelerating price in a swing is weakness.

This is how they look like in realtime charts.

Note:Too much of acceleration or deceleration is not sustainable. They will result

in complete reversal of the trend. We call them as climatic reversals, which is
a topic for the future articles.
We are approaching the climax of this article. The following are the things
that we are searching for. Keep them in mind.
If the price is in uptrend, upswings must show strength and
downswings (pullbacks in uptrend) must show weakness. If the
reverse happens, there is some weakness in the uptrend.

If the price is in downtrend, downswings must show strength

and upswings(pullbacks in downtrend) must show weakness. If
the reverse happens , there is some weakness in the downtrend.
Now, we know how to identify the momentum change. Now we have to apply
them to our trading time frame chart to make a conclusion on strength and
weakness within the trend. For that, you need to use the above techniques in
three steps

1.

Compare the recent swing momentum with that of the

previous swing which is in the same direction of the present
swing.
2.
Compare the recent swing momentum with that of the
previous swing which is in the opposite direction of the present
swing.

3.

Check whether the price is accelerating or decelerating in the

present swing.

Look at the above image for example. DE is the recent swing in the trend.
1.

First, we compare DE slope with that of BC , which is in the same

direction. Here it is showing weakness in the upward direction.
2.
Next, we compare DE slope with that of CD , which is in the opposite
direction. Here, CD is steeper than DE and hence DE is relatively weaker in
comparing the with the previous downswing. If you notice, slope of CD is
greater than that of AB which means that the bears are getting stronger as
the trend progresses.
3.
Finally, we check whether there is any acceleration or deceleration in
the present swing. Here , there is no evidence of acceleration or
deceleration. So, we leave it like that.
Now, what is your conclusion after this study.
Bears getting stronger and Bulls getting weaker as the trend is progressing.
That means the trend is getting weaker.
Thats it. we have made our conclusion with the momentum analysis.
I will add more realtime examples as the lessons progress. Until then practice
everything taught here.
Practice.. Practice.. Practice.. You might be bored with my repetition of this
word almost in each and every article. But, it is the only way to learn this
stuff.

STEP 3 :- IDENTIFYING THE

STRENGTH OF THE TREND.
CONTINUED PROJECTION AND
DEPTH ANALYSIS
Posted onApril 30, 2015AuthorJagadeesh Chandra Kolli4 Comments

Hello readers,
This is the continuation of the third step.
Projection and Depth analysis is another way of finding the strength and
weakness within a trend. You might wonder why I am explaining another
technique to determine the strength/ weakness if we have Momentum
analysis for that. Let me clear that doubt first.
There is a Chinese proverb. It goes like this,
If you have only a hammer in your hand, everything looks like a
nail.
Remember the above sentence as I am going to repeat it a thousand times in
the future articles.
If you dont have a plan B, you always try to use the only plan you have, i.e.
plan A, even though it is not the right one to follow at that moment. When
something doesnt work, you must have an alternative so that you wont
be stuck in the middle of the process.

Look at the above image. If you compare the slopes of FG with that of DE and
slope of FG with that of EF, there is no evidence of weakness in the trend as
the slopes remained the same. Does that mean the tred is healthy? Or, are
there any other ways to look at it differently?
Lets get back to the strength and weakness of the trend. Just because there
is no change in slope of the swing doesnt mean that there is no change in
strength or weakness. In the momentum analysis, we have compared
the speed of the price to make a conclusion on strength. If you remember
from the introduction of strength and weakness, you can also identify
strength by comparing the Force with which the attackers and the defenders
and fighting.
The force of Bulls and Bears in a trend can be seen with the help of
Projections and Depths.
So, what are they?
Projections
It is the distance that price has moved in the direction of the trend after
breaking the pivot high( in uptrend) or the pivot low (in downtrend). Some
call it as extensions. Not clear?? Have a look at the following figures and
you will understand.

The above figures show the projections in uptrend and downtrend.

In the above figures, after breaking the pivot A, it has moved a distance P1
before forming a new pivot C. After breaking pivot C, it has moved a distance
P2 before forming a new pivot E. So on, so forth. I hope now you understand
what projections are. Then what are depths??
Depths
Depth is the price movement against the trend. Some call it
as retracement. Some call it as Pullbacks.

The above diagrams shows the depths in uptrend and downtrend. I hope you
can form the explanation from the diagrams itself.
So, here is the main point.

So,

Projection is the force in the direction of the trend.

Depth is the force against the direction of the trend.

The trend is showing strength when Projections are increasing

and Depths are decreasing.

The trend is showing weakness when Projections are

decreasing and Depths are increasing.
So now, we have two techniques to define strength and weakness in the
trend, namely,

1.
Momentum Analysis and
2.
Projection and Depth analysis.
Are these only ways to find the strength and weakness. No. There are plenty
of techniques available and if you are already following them in your trading,
feel free to add them in your analysis Taking ideas from different sources and
building your own plan is the key to success in every business.
This concludes the third step, ie. identification of strength and weakness in
the trend. With the help of the information we got from these three steps, we
will predict the high probable future direction which I will start in the next
article. Like I promised earlier, it will be fun.