In the daily chart of PCU (see Chart 4, below) we see a close-up view of the controlling offer line and how it was eventually penetrated and when that occured the buyers regained control.
The offer line is at B and C. Price gapped slightly higher on Monday, 6/26 and closed clearly through the price level where the sellers should have defended their line of offers.
SEPARATION
On Tuesday, 6/27, we saw a nominal price rejection, but the difference threshold was crossed and separation was occurring with the daily bid line (blue stairs & green dots) underneath rising as support presenting an opportunity to add coincident with a key price event (separation) near the close of 6/27.
THE RISK-REWARD TRADE-OFF
Keep in mind that even before final validation of an order flow reversal at price separation, the reversal process is moving along at an irregular (non-linear) pace. Information (in the form of a set of conditional probability statements) is being pieced together coincident with readable price events.
Keen observers assess and act on those provisional probabilities and as they do risk exposure on entry increases along a spectrum of risk-reward trade-offs. In other words, the more you know, the more it costs you (in risk exposure) when you act.
For example, the initial buy in PCU involved small risk exposure relative to the second buy (the added position), but also occured with less validation. The second buy had clear validation, but at a price of larger risk exposure—that’s what we mean by a “trade-off along the risk-reward spectrum”. What made this trade location compelling is the strategic addition of long term trend analysis linked to variant perception—this type of analysis is our forte.
PUTTING IT INTO PRACTICE
By reading this “Getting Started” series, you should now have a better understand ing of various & specific terms used in our analysis; and gain a feel for the logic behind our analysis.
We provide an unusually long free trial period of 60-days because it takes more than a month to really experience the effectiveness of the analysis and the impact it can have on your own thinking process. If you don’t have a trial, get one HERE.
Use this analysis as a supplement to your trade decision-making process: You’ll find yourself learning new market principles & by incorporating a wider range of scenarios your trading experience (results) will show quantum improvements.
Good trading!
Jess Thompson
Chief Market Strategist, Axis Analytics
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