TipsforTraders|9/18/2008
DoYouRecycleYourOldLinesorThrowThemAway?
SometimesIfindmyselfworkingwithachartwithtwomedianlinesetsthathavebothbeentested,andbothhavedoneagoodjobshowingmewherepriceshouldrunoutofenergy.LetmeshowyouanexampleofwhatImean:
Youcanseeonthischart,boththeblueup-slopingmedianlinesetandthereddown-slopingmedianlinesetshowedmeexactlywherepriceshouldrunoutofenergy-andindeed,pricedidrunoutofenergyatthoseareas.Andpricewasattractedrighttothetwoenergypointswherethetwolinesofopposingforcemet,andpriceturnedonadimeatthoseareas.
Butlikeallgoodthingsinlife,bothoftheselineswon''tworktogetherforever.Eventually,pricewillbreakoutofoneofthesemedianlinesets.Whenthathappens,isittimetobreakouttheeraserandjustworkwiththemedianlinesetthatstillhasn''tbeenviolated?
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Priceclearlymadeanewlowandnotonlybrokebelowtheup-slopingbluelowermedianlineparallel,butitcontinuestomakelowerlowsanditisshowingnosignofclimbingbackabovethebluelowermedianlineparallel.Clearly,thereddown-slopingmedianlinesetisshowingtheprobablepathofprice.
Nowthatthebluemedianlinesethasbeenviolated,shouldIdiscardit?
LookwhatIwouldhavemissedifIhadsimplytakenouttheeraserandremovedtheviolatedblueup-slopingmedianlineset!Eventhoughthereddown-slopingmedianlinesetwasshowingmetheprobablepathofprice,thebluemedianlinesetstillhadavitalroletoplay.Whathadbeensignificantsupportbecamesignificantresistance!
Ifyouhad"recycled"the"broken"blueup-slopinglowermedianlineparallelandpaidattentionaspriceapproacheditfrombelow,youwouldhaveknownexactlywherepricewasgoingtorunoutofupsidedirectionalenergy.
Don''tbetooeagertodiscardlinesthathaveworkedandworkedforyouinthepast.Theyjustmayhaveaplayortwoleftinthemifyoukeepthemonyourchartsandkeepanopenmind.
ByTimothyMorge
tmorge@sbcglobal.netemail
TimothyMorge
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