Up until that moment, I had been searching for a magic bullet, or a magic formula that would signal entries and exits to my trades.
But, as Lefevre’s impersonation of Jesse Livermore so clearly explains: there are tests at every support and resistance level, which may lead to a breakout or failure. We learn about the direction of prices after the test, never earlier —that’s the crucial fact.
Now, let’s stop here for a moment and take this in slowly.
Although I’ve belittled magic bullets (formulas, indicators, system outputs), they have their place in triggering our expectations – like a well trained English Setter, we should stand on alert, the ducks are about to take off.
Testing is always going on, we should follow these tests – they give us clues about the strength of the underlying.
Was the last low breached deeper than the previous hook? Or, was the length of the last leg shorter?
Did falling prices bounce away with a healthy bounce not piercing the advancing moving average; or, was the MA pierced before a poor bounce could take place?
Testing is further extended to indicators, where we should always be checking for divergence.
One final comment, testing takes time, do not rush the trade, let the test tell you the direction prices will follow!
Gotta run, happy trading!