(Click on image to enlarge it)
(This is Part 9 of a series. Go back to Part 8.)
Here we see that as the STX was violated (shown as red triangle and “STX Hit” text on price bars), it was generating an NMC Zero Hit. This was immediately followed by an NXC Zero Hit, which as mentioned earlier, adds significance and weigh to an NMC ZH setup. This is a case where the STX generated an exit for us, and other Ocean tools immediately identified the area as one where another support zone and potential buy setup was unfolding.
Although it may seem disconcerting that a stop out and a potential re-entry setup would occur almost simultaneously, it shouldn’t bother us because for all we knew at the time of the STX stop out, the market could have melted down dramatically.
As traders, we learn to recognize that the only things we have real control over are the risk that we assume when making a trade entry, and where we choose to exit the trade. If this market had collapsed, the NMC and NXC would have crossed from above to below zero, never generating the price action entry requirements associated with valid Zero Hits setups that confirm entries.
While getting stopped out of a trade and then having a setup to get right back into the market again requires some discipline, it’s usually the right thing to do. Although not shown in another chart, there were also simultaneous weekly NMC Zero Hits taking place, so in that respect, dual time frame agreement was also present during this setup.
Another rather important point to make here is that while from a long-term perspective, yes, this was a fairly opportune entry point. However, note that the market did not generate much upward movement for several months after the NMC / NXC Zero Hit setup and entry. Why is that? Primarily because BTX was in a declining phase, indicating a diminishment of the trend. Unless BTX is extremely low and/or has an associated SD band pinch (where a breakout from range bound trading is likely to occur), or is in trend mode (rising and above 35), price action is likely to remain muted.
Also, the TX lines were not supportive of an immediate upward move. First, they were on the wrong side of their CMAs (+TX had crossed below its CMA, and –TX had crossed above its CMA). Also, neither of them had generated a pivot formation that might be construed as a bullish “hook” from where the market could turn immediately higher.
In reality, when this 2-week Zero Hit formation developed, you would probably want to go digging down to lower time frames to substantiate whether an immediate entry was warranted. As I said, there were also weekly Zero Hits, but given the constraints imposed by BTX and the TX lines on the 2-week chart, you might have wanted more hard evidence from other time frames to justify an immediate entry.
Now back to the primary 2-week chart example: The generally sideways price action of the next 6 months resulted in BTX falling off quite dramatically, and eventually crossing back below the trend threshold of 35 by mid October, 2004. This was once again a warning that the market was likely to remain range bound and trendless until BTX indicated a new trend.
During the second quarter of 2005, the BTX standard deviation bands begin to pinch down (pt. G), much like what occurred in 2003. Again, the implication is that once a new trend can establish itself, it should be quite powerful, just as the last one from mid 2003 to early 2004 was. In addition, we had noted that this same BTX SD band pinch was occurring on the monthly chart in mid 2005, so we see yet again that there is dual time frame agreement giving us ample opportunity to prepare for the trade setup.
The first warning of the likely fireworks occurs in June 2005 as the +TX and –TX make opposing pivots and begin to pull away from one another (labeled pt. F’). Note that at the time of the TX pivots, both of them were beyond their respective SD extremes. That is, the +TX was below its lower SD band, and the –TX was above its upper SD band. This implies that the positive and negative components of the BTX are positioned at maximum tension and extremes, and a vigorous rally should be anticipated.
This is a powerful BTX / TX combination that deserves special attention. When the BTX is in an SD band pinch and in the low 20s, and the TX lines have converged in such a manner that each of them has exceeded their SD band (+TX < lower SD, and –TX > upper SD), and the dominant TX is still above its trend threshold of 20, this market is paying us to become a bit more curious about what’s happening. As this potential Ocean Plus setup unfolds, we would be wise to consult the basic Ocean tools for more information.
(This is the end of Part 9. Go to Part 10.)
|
