Go or no-go checklist at repeated resistance

What the process can test

The trading-systems-decision-process is the end-to-end procedure that turns observed market state into an entry, exit, or abstention. Unforeseen macro, political, and shock events sit outside that process. The testable question is whether price can hold above or fail at a previously tested upper boundary.

As of 30 April 2012, a broad-market equity fund had twice failed to close above 160 and, after a multi-year run from the 80 area, was again approaching that same ceiling. The eight-year span between the recurring 80-area floor and the 160 ceiling is treated as evidence of resistance, so a third visit is studied through the days before prior peaks rather than assumed to break.

The 80 area is support, a previously tested lower price area where declines have repeatedly stalled. The 160 area is resistance, a previously tested upper price boundary that the market has failed to hold above.

Inventory the days before prior peaks

Daily price swings and trading volume are the primary rule inputs used to judge whether a bearish regime is forming at that boundary.

In the 200 sessions before the 24 March 2000 close of 153.56, clustered mid-1999 down days were followed by a 3.91 percent loss on 4 January 2000, after which a multi-year bear market developed.

In the 200 sessions after the 9 October 2007 close of 156.48, repeated 2 percent-plus down days accompanied a slide toward 128, and rebound attempts rarely recaptured the most recent peak. After the 10 March 2008 print near 128, daily corrections thinned during a 15.05 advance lasting 50 sessions before a later break carried price to 120.99 on 15 July 2008.

Confirm acceptance with volume and price

Volume-price-analysis is reading daily price swings together with trading activity to judge whether a boundary is being accepted or rejected.

Volume-price correlation was 0.504 over the 140 sessions into the 16 July 2007 high near 154.83, then flipped to -0.601 over the next 160 sessions as activity rose when price later fell. That flip is volume-price-divergence, a stretch in which price and activity move in opposite directions, used as an early-warning checklist item.

In the late-2011 to early-2012 window, a 10-day volume average stayed sluggish while price rose, with an inverse correlation of -0.733. Clustered down days alone do not confirm a bear, because they can be bull-market dips that punish premature exits and later freeze selling when a real break begins.

Editorial: a print through the ceiling is not treated as a real break until volume-price-analysis shows the boundary being accepted rather than rejected.

Keep crash-day memory off the rules

Large one-day losses can leave implicit emotional scars that later bias participants toward more aggressive selling, so a psychology rule must keep that memory from becoming the entry or exit signal. The trading-psychology-process is a rule that keeps implicit memory of prior losses from dictating size, timing, or refusal to act.

The checklist-process is a pre-trade sequence that makes entry, exit, and sit-out rules testable as one procedure. Editorial: at this third visit the written go or no-go is complete only when prior failed ceilings have been inventoried, volume-price-analysis has judged acceptance or rejection, and crash-day memory has not replaced those rules.