Original subtitles

Analysis of the Context The following part of the course we are about to begin

addresses the first point of our trading plan, the analysis of the general

context of the market.

To do this, we will look at the concepts and ideas that will help us to

determine the trading bias in the medium and long term as a key element before

proceeding to the analysis of the situation in the short term.

Let's get started.

What we are not looking for

Market trading is not just about buying or selling. Quite often, the most

sensible thing to do is to do nothing, stay on the outside, and not trade.

Before explaining the signals that we want to see in order to evaluate a

opportunity, it is important to be clear about what we do not want to see in

order to discard those ideas that don't offer us enough confidence to risk our

money on.

We tend to overlook this and simply being clear about a few things could

substantially improve our performance.

We are going to look at some real examples of situations that should warn

entering the market.

Identify the current position relative to the last big peak in volume and don't

trade against it.

This is a vital concept that we often don't take into account, but it can help

us to avoid entering at the wrong end of the market.

We all know the importance of volume and what it implicitly tells us about the

chart.

Let's apply a simple rule of interpretation.

If we are below the price action associated with a large volume, we are

assume that most of that volume had bearish intent.

If, on the other hand, we are above it, we are going to assume that control, at

least in the short term, is on the side of the buyers.

This simple idea is too powerful to ignore.

The only doubt is what we consider to be significant volume.

As we know, everything involving volume analysis must necessarily be considered

in relative terms, comparing levels with what has been previously seen.

We shouldn't have to force this issue. This sign should be something very

visual, as we can see in this example.

So, the rule of thumb here is simple. If you want to buy an asset, wait at least

until the price positions itself above the last big peak in volume.

Obviously, this condition is not by itself enough to assess the purchase.

My recommendation would now be to wait for the entry trigger to appear on some

trading level.

But although it may not be a sufficient condition, it is certainly an

indispensable one. The price could go up or not, but in principle, we already

have another very important sign in our favor.

Another circumstance that we must avoid is positioning ourselves against

hypodermic behaviors that travel some distance.

They are easily identifiable due to the V -shape they leave on the chart.

These actions identify a large condition of market excess and therefore reveal

overbought or oversold events that we must avoid, especially if after their

appearance the market continues to develop in the same manner.

As we can see in the example, as well as the peak in volume, which also adds

strength to the bearish context, What is relevant is that the market has reached

levels where most of the participants agree is excessive, after which it has

started to fall without stopping.

The key is that we do not know how far the bearish momentum might continue.

The fundamental valuation of the price may have changed significantly, and this

context may last indefinitely.

Since we cannot know, it is best to stay out of this type of market at least

until we see some price action that goes against this behavior.

which might make us change our view of its current condition.

In other words, at the very least, we should expect to see another V -turn

the same implications or an accumulation structure.

I'm not saying that after we see this, we should enter the market to buy.

Simply that it is the minimum essential condition that we should wait to see

before we look for more signs that provide us with a favorable trading

The following example is about being clear about the roadmap that is most

to develop based on the last crucial trading action.

In this case, if we see that the most recent event is a breakout in the

direction to ours, we should not trade against it. If we want to buy, we should

avoid doing so if we have previously seen an upthrust.

Likewise, if we are looking for an opportunity to sell, we should avoid

if we have just seen a spring.

The why has to do with the roadmap each behavior is likely to follow.

After seeing a potential upthrust, the price will most likely turn downwards

until it visits at least a sufficiently important equilibrium or liquidity zone.

The example on the slide is particularly interesting because we may even be

about to see an accumulation structure.

If we look carefully at the chart, the price has first come from a false

breakout at the lower lows.

and then a significant sign of strength that has sent it all the way to the

previous highs.

But what happens then?

Well, the market reverses violently and falls below the previous highs, re

-entering the range again.

This is the current context.

Control of the market might have changed hands and succumbed to the downward

pressure before developing into a distribution scheme.

We don't know what's going to happen next, but this is a possibility we

keep in mind.

You could even evaluate the possibility of entering the market with a short

position. This is more debatable.

But what you should avoid, at least, is buying after observing the situation.

You may not be able to take advantage of the subsequent market action if the

distribution scheme is then confirmed and the price falls.

But at least you won't take a loss from being on the wrong side of the market.

This is a very valuable concept.

You will have to work on developing a flexible mindset to observe this

information in real time.

demonstrate it here, and make the best decisions.

What would we have to see in this particular situation to reactivate the

scenario? Well, at least we would have to see the price recover the last zone

sideways movement and develop into a potential accumulation structure.

This would be an example of the least we should expect to see from the market.

This would be a really positive situation, aside from the potential

that may be lying in wait.

If an accumulation develops there, An additional sign that would add more

to the scenario would be failure to develop the bearish movement that we

expect, based on the bearish roadmap established by the potential upthrust.

This is crucial and something we should always keep in mind.

Depending on the case and the particular situation, what the market does is just

as important as what it fails to do.

In this context, the fact that the price did not develop the bearish movement

that we expected is a sign that suggests a lot of underlying strength.

an indication that the market continues to be truly skewed toward a bearish

movement and that the false breakout action that we have just seen did not

the effect suggested by the theory.

It may have developed this way because many traders have closed their position

there taking profit, but it has also not generated enough interest from bears to

enter the market aggressively, and therefore, buyers have remained in

the situation.

Some traders could continue to see this situation as too risky.

since we are still below the high of the potential upthrust.

In this case, we could continue to look at possible scenarios and take a

conservative view, where we only assess the possibility of activating the

bullish scenario again in the event that the price effectively positions itself

above the previous high.

This is a much more positive situation for us in terms of confidence, since we

have practically everything in our favor, a large accumulation below, a

structural failure since the bullish false breakout was not sustained,

reaccumulation in favor, and enough bullish intent to take the price above

previous high.

Having so many signals in our favor offers us a trade with less risk. On the

other hand, it also entails a diminished potential profit.

In any case, it is undoubtedly a very attractive situation for us. This other

example illustrates the need to bear in mind a fundamental principle of the

markets and technical analysis.

That is that the price is more likely to continue moving in the same direction

in which it has been moving, so you shouldn't try to anticipate the market

reversal.

If we see a distribution and the development of a bearish trend, in

the most sensible thing to do is to trade in the same direction.

I say in principle because the trend movement may be exhausted, the effect of

the cause has run its course and it is in an interesting position to turn

upwards. But again, we can't be sure of this.

The Wyckoff method is a reactive approach, and we should only act after

certain behaviors.

It may be very tempting to buy because the price seems to have fallen too far,

but there isn't a great deal of logic to this, since the market can continue to

fall for as long as it wants.

Be very careful when making decisions because you think the price has moved

far. Too far or too little are terms that should not be applied when

the behavior of the market.

Too far or too little is relative. In this situation, although the price could

develop a fast pattern and turn upwards, when the imbalance downwards is so

evident, it gives us much more confidence to see the development of a

accumulation structure before deciding whether to buy.