This is the third email in our series, "What the Signals Mean."
If you missed the previous two emails you can view them here:
When the market successfully tests support at the lower pivot and moves back up, my DecisionBar Trading Software issues a Long Failure signal. The theory being, "What can't go down, should go up."
When the market successfully tests resistance at the upper pivot and moves back down, my DecisionBar Trading Software issues a Short Failure signal. The theory being, "What can't go up, should go down."
Failures, like other signals, are "decision points," not absolute calls to action.
Not all Failure signals work out as well as the signals show on the chart above.
The first thing you must understand is that, in reality, support and resistance are not brick walls. They are more like rubber bands that can be stretched from market pressure and sometimes break.
The more pressure on them, and the more times they are tested, the weaker they become.
DecisionBar only issues one Long Failure or Short Failure during any sequence so the chart does not become too cluttered.
Once you are alerted to a Failure, it is your job to analyze the forces working on the market and decide whether or not to take the trade, wait for a breakout, stand aside, etc.
Following the first Short Failure signal on this daily chart of CL (Light Crude Oil), the market continues to retest resistance for about two weeks until it finally overcomes resistance and shows a Breakout.
The obvious question is "How do we know when to trade a signal and when to pass?" The answer, of course, is we don't "know," but we can make logical decisions. More importantly, we must accept that we will have losing trades.
In the sequence above, had we entered short at the first Short Failure signal, we would see that, instead of moving down, the market continued to retest resistance on almost a daily basis.
As I explained earlier, the more times resistance is tested, the weaker it become. Exiting this trade and waiting for a Breakout becomes almost a no-brainer. Especially, since we had so many opportunities to get out with a small loss or at break-even.
In this sequence, the Breakout also fails and another Short Failure signal is given (because the market dropped below the same resistance level it broke out from).
The market then breaks-out again, this time successfully.
DecisionBar also has a tool called Trader's Pivots that were designed to help you trade Breakouts and Breakdowns.
We'll discuss Trader's Pivots and Secondary DecisionBars (reversal warnings) in the next email.
As you can see, trading is just a series of decisions, and DecisionBar software was designed as a decision support tool to help you make the best decisions possible. Decisionbar Trading is real trading...no gimmicks.
If you are ready to become a successful DecisionBar trader, there will never be a better time than right now to get my DecisionBar trading software.
For details and to sign-up, please visit our website at:
Les Schwartz and the Staff at DecisionBar Trading Software.