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The Line of Least Resistance is Down


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#1 IYB

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Posted 16 May 2009 - 04:54 PM

As traders, we have one singular goal: The accumulation of wealth from market trading profits. On that just about all of us will agree. One the subject of what is the best way to accomplish this, opinions will differ widely.

As for me, I agree 110% with Jesse Livermore's market trading philosophy, which you will see condensed and paraphrased on my signature line at the bottom. Livermore said:

".... trade along the line of least resistance as soon as you have determined it.."

"He should accumulate his line on the way up {or down}. Let him buy one-fifth of his full line. If that does not show him a profit he must not increase his holdings because he has obviously begun wrong;"

It never was my thinking that made the big money for me. It always was my sitting."

"The big money is made on the big move"

As to the current "line of least resistance", I think my view is well known here. ;) Below are several charts which, I believe, show the current LOLR to be clearly and decidedly down. Accordingly, I'll be adding to current short positions on Monday. Good trading all, D
http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=1&mn=11&dy=0&i=p10199921406&a=149689845&r=4208.png

http://stockcharts.com/c-sc/sc?s=$NAAD&p=D&yr=1&mn=0&dy=3&i=p91222412346&a=156216993&r=8988.png
http://stockcharts.com/c-sc/sc?s=$NASI&p=D&yr=3&mn=6&dy=0&i=p49784088152&a=168190824&r=5518.png
http://stockcharts.com/c-sc/sc?s=$NYAD&p=W&yr=2&mn=0&dy=0&i=p29824934884&a=167179515&r=8003.png
http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=0&mn=6&dy=0&i=p36311085114&a=168194706&r=2114.png
http://stockcharts.com/c-sc/sc?s=$SPX&p=W&yr=2&mn=6&dy=0&i=p17678193141&a=168195010&r=282.png
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#2 snorkels4

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Posted 16 May 2009 - 05:23 PM

how about a gap fill? i guess you dont play this way but we wont go straight down. is it dangerous to play a bounce. really after all of my lurking and sitting i dont know. divergences dont mean that much i guess or do they. thanks for the excellent unselfish analysis :)

it seems that just playing these divies with tight stops over time would pay off huge. but if it was that easy anybody could do thsi stuff and we know that aint true.

http://stockcharts.c...id=p92543083046
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#3 IYB

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Posted 16 May 2009 - 05:34 PM

but if it was that easy anybody could do this stuff and we know that aint true.

Easy? :o Since I'm on the subject of Livermore, I'll paraphrase him one more time: "I've known many who could be right, but those who can both be right AND sit tight are very very rare indeed". Sitting tight with a leveraged trade through a market cycle is one of those things that always, in retrospect, sounds very easy..... but in real time is excrutiatingly difficult. :o ;)
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#4 inamosa

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Posted 16 May 2009 - 06:10 PM

I agree IYB

And the move down this time could be bigger than many anticipate, given some of the complacency I'm seeing and the events unfolding right now

Dollar has bottomed now on a multi-week basis and the 10-year treasury yield is looking bearish on a multi-week basis...everything is coming together nicely so far
Posted Image
This is going to break down out of this ascending triangle, IMHO

Even then, it wouldn't surprise me if we close next week up before we fall further, or if this multi-week down move doesn't last even more than a few weeks...the strength of this move will really depend on how strong the dollar can rebound from its weekly swing low here...which will ultimately depend on a number of factors, not least of which the quantitative easing of the Fed

Many are assuming a new bull or even rather a change in the air, but the idea that things are just carrying on as normal (which would suggest another strong leg down) should not be dismissed entirely...
Posted Image
"Our job is not to predict where the market will go, but to interpret daily price and volume action to ascertain the facts of the current environment and make decisions based on that interpretation."
-Scott O'Neil (son of William O'Neil), Portfolio Manager at O’Neil Data Systems, when asked where the Dow would go in the coming months

#5 cgnx

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Posted 16 May 2009 - 07:02 PM

So, why not buy some puts? 2-3 months out or even longer. Out of the money? I have puts on ptr. This POS has a market cap of over 180 billion dollars. I just can't believe this is the 2nd largest company in the World behind Exxon/Mobil. I think you buy some puts on your more overpriced companies and see if you can score some bonus dollars. Time to take a shot. Pick your own poison.
If it can be cornered, it will.

#6 nimblebear

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Posted 16 May 2009 - 07:04 PM

WIth ya all the way IYB. Its more difficult to hold a short position here from a mental standpoint with all the bullishness sentiment, and esepcially the PPT in such a mega printing mode trying to prop the market with any and all means. Also its pretty evident they are funneling money to the big players to keep buying for them.
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#7 pdx5

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Posted 16 May 2009 - 11:21 PM

Fact: Line of least resistance (LOLR) was up for the previous 7 weeks ending May 8th. Fact: LOLR was down for the week just ended. Conjecture: LOLR for the next 7 weeks will be down. Only time will tell... :D
"Money cannot consistently be made trading every day or every week during the year." ~ Jesse Livermore Trading Rule

#8 IYB

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Posted 16 May 2009 - 11:56 PM

Fact: Line of least resistance (LOLR) was up for the previous 7 weeks ending May 8th.

Fact: LOLR was down for the week just ended.

Conjecture: LOLR for the next 7 weeks will be down.

Only time will tell... :D

I take your meaning to be that the line of least resistance is unknowable. If so then everything Livermore wrote was fantasy, and markets cannot be timed....he was just lucky. <_< And, of course, the Seven Sentinels would have to also be an illusion- some sort of parlor trick, I guess. ;) Let me respectfully agree to disagree, but peacefully. :) Regards, D

Edited by IYB, 17 May 2009 - 12:06 AM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#9 tradermama

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Posted 17 May 2009 - 06:34 AM

but if it was that easy anybody could do this stuff and we know that aint true.

Easy? :o Since I'm on the subject of Livermore, I'll paraphrase him one more time: "I've known many who could be right, but those who can both be right AND sit tight are very very rare indeed". Sitting tight with a leveraged trade through a market cycle is one of those things that always, in retrospect, sounds very easy..... but in real time is excrutiatingly difficult. :o ;)


Thank you and love the philosopy. It takes a while to learn it. I know because I have been doing just that. Patience is never more a virtue than it is when it comes to trading. I have a 30% return this year in my trading cash and without one loss...just by trading slv and playing the gaps..waiting for it to come to me. I mainly been managing our retirement fund for the past 12 years by switching when between ovesold and overbought conditions..which isn't easy due to some of the restriction rules they keep adding..I have an annual averaged 20% with last year being my worst. I use to daytrade in the late 90s when I didn't know anything about TA. After severe losses, I stopped trading and thought I would never want to do it again because of the fear of losing again. However, over that period, I have learned so much (including using astrology) and to this day even though I feel that I have an excellent grasp of how to trade and understanding the economy's direction, I never stop learning. One reason is I don't stick with a mindset. I left my ego at the door a long time ago. This I would like to add to the philosophy.

Between managing one's risk and not having a mindset is very important with trading. WE will always be a constant student and teacher throughout our lives.

There are many varieties of TA and since I have followed your 7 signals, I have noticed it always coincides with Point and Figure's big indicator NYSEBP which has now gone to O which means supply is back over demand. It warrants caution and means a red alert to manage that risk.

People seem to think they always have to be in the market. I have learned by accumulating "big pop" percentages starting when the market is very oversold, works best for me because I can do it in a relaxed way and I never sweat it...you never lose when you take profits. I'm more out of the market than in the market and it works well.

Thanks for your insights!

Irene

#10 Rogerdodger

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Posted 17 May 2009 - 10:23 AM

Nice stuff Don.
Your trades are not influenced by the news. (Or waves, abc's, fibs, planets, etc.) ;)

In fact, if I remember correctly, back in March when you bought, it didn't feel right because of the news.
It is similar to Tuffy88's trading using the Investors Business Daily system.

You may go through prolonged periods of chop, but losses are contained as you wait for that long winning streak.

One of my favorite sayings: "There are lot's of ways to do lots of things."

Ke aloha nô me ka mahalo kâua!

Roger