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Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader by Al Brooks

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CHAPTER 24

The Best Trades: Putting It All Together

The market is linear—it can only go up or down. When you plot it on a conventional chart with time on the horizontal axis, you add a second dimension, but the market itself is only price, which means that it has only one dimension. You can make bull and bear bodies have different colors, incorporate volume into the widths of the bodies, or add all kinds of indicators, increasing the number of dimensions, but the market itself is one-dimensional. The recurring theme of these books is that the market is basically simple. It moves up or down because it is constantly searching for the best price, which changes constantly because of unending changes in countless fundamentals. The fundamentals are anything that traders feel are important, and include data on every stock, the overall market, politics, natural and manmade events from earthquakes to wars, and international factors. This results in the market always trying to break out from a trading range (its current area of agreement on the value of the market) into a trend, as it searches for the appropriate instantaneous value for the market. If the breakout is to the upside, the bulls are momentarily successfully asserting their opinion that the market is too cheap. If there is instead a downside breakout, then the bears at least briefly are winning their argument that the market is too expensive. Every breakout attempt is met by traders holding the opposite belief, and they will ...

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