Levels – The moving average way of seeing it!
Levels are one of the most important concepts in the method, which once you start seeing properly it makes everything simple and easy. There are a lot of ways to see levels. In this article I will discuss the moving average way of seeing levels.
Consolidation crossovers VS Real Crossovers
As we are going to talk a lot about crossovers in this article this is a concept you “Need” to understand. If price consolidates after a huge move what would be the behavior of the moving averages? are the going to consolidate or are they going to keep moving?
They are going to keep moving while price is consolidating and at a point they will crossover as well, all while price is consolidating. This crossover was not a real crossover that formed due to price moving but a crossover that formed due to price stalling.
So when the 50/200 crossovers, make sure it is a real crossover that is formed by the level 1 move.
Consolidations vs Retracements
Consolidations are a contract collection period, same objective is performed by retracements. Understand that the concept of every level must have their own consolidation can also come as a retracement. When a retracement occurs understand that the water and mayo are very high potential zones for them to stop.
This is not something very possible for someone to pulloff because of the variations we see all the time, but this is a general idea of what to expect when you see levels in a moving average perspective.
The counter trade moves go till the water or mayo, and after the price reach the mayo you look for a M/W off the mayo or water. So generally you are always in a trade. – Don’t try this at home – practice with a demo
Peak formation – Seeing it coming
Whenever there is a huge acceleration of the trend and the moving averages are far apart, expect the peak formation. This is called as fanning behavior. Never trade into a fanned moving average. It’s a trap.
Peak formation – Comfirming
There are two ways in general to confirm a peak formation. Which is the 50/200 crossover, or a 1xADR. When looking at things from a moving average perspective, we have to consider the 50/200 crossover.
Intraday 5050 Bounce – ID50
ID50 is a purely moving average based signature trade. This is a lower version of the original signature called The5050Bounce. Basically you wait for the 13 and 50 moving averages to do a “Real” crossover and then look for a bounce off of water. Hopefully the details can be found in the Openhouse DMR done by Kar on 2017. Where does this signature appear? Right after the peak formation – in the level 1 move
Do Not Counter
We just disccussed about being always in – so you might wonder what this means! But this is a very important rule by steve. Do not counter trend trade for a retracement after level 1. This is mainly because a straightaway trade is expected on the coming level and it is very dangerous to counter that.
The 5050 Bounce
The Original 5050 Bounce is the first hit to the 50 after a 50 200 cross. This can be a hit to the Mayo as well. The water, mayo and blueberry are to be considered as zones to form a formation on them. The 5050 Bounce was also disscussed by kar in the openhouse DMR.
The 200/800 Crossover
The mayo and blueberry crossover is the first sign of level 3 reversal. It simply means that the reversal is coming, soon. But you can expect one level of move first. Possibly a M/W off the mayo after this. Same mechanics of the 5050 bounce applies in this bounce as well
When the move from mayo has been done the 200 and 800 would be far apart, because they crossed over right? even the 50 200 has crossed over 1 day before so now they are fanned and this goes back to the expecting a peak formation part which was disccused in the start of the article – and the cycle repeats itself over and over again.
The biggest drawback for moving average based levels are resets and extended trend runs. The averages do not behave as described above for resets and after resets. But after a bearish cycle when a bullish cycle is to appear the moving averages will work perfectly. But do not forget the most important rule. Variations of the theme!
That concludes this article and I hope some of the huge concepts that i have summarized in this small article made sense to you. If you have any questions make sure you leave a comment or ask me in person via telegram.