Irie o8o's Profile

And when price makes an attempt at a higher high at 1401 and volume isn't there, that again becomes significant because of what has become before and provides the "classic" double-top price-volume divergence setup for the short. Without the context, none of this matters, and volume is little more than traders going about their business. With the context, it becomes a high-probability short trade.

The short takes you all the way to support at 1950, and even though the volume on the test is only slightly lighter than on the "climax", it's not heavier, either. Then afterward, a hinge. The long entry, in order to avoid whipsaws and feints, is on volume just above 1970, five bars past the point of the hinge (one can enter at the apex of the hinge, but this occurred just before the close; of course, this may not trouble some people )

Drawing demand/supply lines in hindsight is difficult unless one reads the chart from left to right. But difficult or not, there isn't a great deal of point to going back any farther than one needs to. One draws demand lines in order to see where demand is entering the market and propelling a continuation. Therefore, they tend to be tight. But if one is using them to make trade decisions, he will likely find it necessary to include other information, such as how price respects the trendline, or whether or not price holds above the last swing low, or how price reacts to the last support level. Breaking a demand line means little in and of itself other than that momentum has hit a pothole of some sort. They are perhaps most useful when price departs from the trendline, serving to provide an early warning of a change in momentum that might break that trendline, but also serving to remind the trader that the world hasn't come to an end just because momentum has taken what might be no more than a temporary pause.

First, locate the trading ranges as well as the important swing points, any or all of which may provide support and resistance in real time. The last important trading range which might affect the activity on this chart was formed the third week of September, from 52 to 76, more or less. The midpoint of this range would be 64 (note how price spends quite a lot of time hovering around this level). The last important swing high that is within the range covered by your chart was at the end of September, at 66 (specifically, 65.75). And if you have any doubts in real time as to whether or not this is really resistance, just watch how price behaves as it moves thru it.

Now back off and divert your attention from specific bars. Look instead at how price is moving. Price makes a higher low after the day's high, then a lower high thereafter. This action should prompt you to think "hinge" in real time and look at what's happening with the volume. If this confirms what you suspect, and it does, then watch what happens as price reaches equilibrium (which, you'll note, is the same midpoint as that of the trading range referred to above). Here there is a test of selling interest accompanied by higher volume. This is usual. But the selling interest isn't there (price doesn't fall). This bodes well for the upside, but not yet. Traders piddle around for half an hour. But eventually price breaks out to the upside (the blue arrow), though few would recognize this as a breakout since it occurs before the more obvious resistance at 66 and since the volume is so low (volume in fact remains low until the more obvious resistance at 66 is penetrated, though even then the volume doesn't come in until after resistance is penetrated). The hinge, therefore, is your springboard. The retracement to 66 after the breakout is what might be called a Last Chance Springboard.