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Hard Right Edge

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@azircon
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Hard Right Edge

I was talking to someone today about the Hard Right Edge, and thought may be I right a short post so that I can refer to it at a future time if someone else asks for it. This is a concept quite simple but not widely popular. Perhaps for a simple reason, that its discussion is not a pleasant one for most Technical Analysts. Let me explain with a simple chart:

This is a simple price chart for the the most popular stock market index in the world. The S&P 500, or SPX for short. Above is a daily chart and I tried to make it as clean as I can. I am not a fan of lot of indicators myself, and I like my charts clean. Why? Simply because indicators are a derivative of price and/or volume, and therefore by definition they are slow. They typically clutter the most important element, Price and Volume.

SPX closed at 3037 on Friday, with the smallish doji like candle with both upper and lower wick. That green candle is the last candle on this chart. It is the rightmost candle (right-hand side of the chart), and defines the right edge of the chart. There are no more price after that. We do want to know the price Monday.... Tuesday... and so on; but we don't. So we as a trader are left with the hard task of speculating. So the right edge of the chart is always very difficult very hard for us. Therefore, the Hard Right Edge.

Why is it hard?

Well people don't like it because this is where shit hits the fan :) It is easy to be an expert and live in the middle of the chart. Draw funny lines and 10 different patterns with 15 indicators and show that things work! Work Great! The moment I ask where the SPX will open on Monday, experts starts to get nervous. Then when I ask where SPX will close on Monday, well they typically look the other way. Where SPX will be on Tuesday... end of the week.. perhaps gets slightly easier, and experts and commoners will all take a shot, but chances are the cumulative results of the prediction will be close to 50-50 if my sample size is big enough.

So what I am saying? Random Walk Theory? No, not really. There can be an edge with TA. But it is a game of probability. From 50-50, if I can swing the odds in my favor to 60-40, and manage my position size (well that's a whole another topic, just a hint, diversification guarantees mediocre results), I will come out on top compared to many professionals.