An NQ Technical Update
New charts, new lines
Important: There is no guarantee that ATS strategies will have the same performance in the future. I use backtests and forward tests to compare historical strategy performance. Backtests are based on historical data, not real-time data so the results shared are hypothetical, not real. Forward tests are based on live data, however, they use a simulated account. Any success I have with live trading is untypical. Trading futures is extremely risky. If you do trade live, be prepared to lose your entire account. There are no guarantees that any performance you see here will continue in the future. The best way to trade is with a simulated account on live data. I recommend using ATS strategies in simulated trading until you/we find the holy grail of trade strategy. This material is for educational purposes only and should not be viewed as investment advice.
I like fundamental analysis, but I’m really a technician. Technicals are the market’s self fulfilling prophecy, while fundamentals can be tampered with, re-calculated and manipulated.
Last week was a crazy week as the NQ market broke through some major technicals so I wanted to take a few minutes to update my charts and share my thoughts with you on where I think we’re going from here.
Here’s a look at what the trend line looked like after the break last week:
Trend lines represent areas of support and resistance. These are high liquidity zones— diagonal waterholes where traders sit on the hunt. They sit and wait for the price to come to them. The higher the time frame, the more traders are there.
The highlighted area is where we broke support. The trend line that was breached started in October of 2022. The break caused a great deal of volatility. It also created the need for technicians to start drawing new lines. Either a new pattern is emerging or this movement is within a higher, more dominant wave of energy.
Drawing trends lines is more art than science. Ninjatrader has an indicator that will help you draw trendlines. The way I know a trend line is “right” is if it holds multiple times on both support and resistance, and sometimes falls outside the bounds of the dominant lines (see blue lines below). If this happens once, it might be due to a horizontal line of support or resistance; if it happens twice, you’ve got a legitimate new trend line.
Going back to the chart above, if you expand trend lines and adjust to a less “steep” slope, a host of trend lines start to emerge. These lines are drawn in blue below.
This chart is busy I know, so what’s the main takeaway: the blue trend lines all share a parallel state; they have the same slope. This slope is noticeably less than the previous line that was broken, which is marked in white. This is definitely a bearish sign.
I like to think of price action as waves of energy. I monitor stochastic indicators at multiple time frames to understand how larger waves interact with smaller waves. A divergence in the wave action of the smaller wave generally leads to a trend in the direction of the larger wave. Large orders have the ability to adjust the slope of the wave in either direction. So another way to interpret what happened last week is to say we broke through the support line of a higher (steeper) wave of energy to a lower one on large orders (read: Buffett's huge Apple sale). Again, this is definitely a bearish sign, but will it hold.
The next level of support is the next line down, which has already been slightly breached. If I redraw the lines based on the outermost blue trend lines (solid white) and the old trend line that was broken last week, it looks like this:
A definitive break and close below the lowest line (highlighted by the yellow box) and I’m officially bearish. Until that happens, I’ll continue to think this is just a technical correction.
Fun times!
I had hoped to get an update on Strategy 40 out earlier, but then last week happened and I felt the need to focus on technicals. Look for an update on Strategy 40 shortly and a quick update on the forward test by end of week.
Meanwhile, trade well and be careful. There are many sharks in the water.
Please let me know if you have any question/comments/suggestions.
Contact: Celan at AutomatedTradingStrategies@protonmail.com