How to Use the Concept of Mean-Time-to-Failure When Trading
By L.A. Little Sep 21, 2012 11:30 am
MTTF can tell you where price might go.
For the MTTF to reset, the trend needs to transition from bullish to sideways. It can only do that by trading and closing under a prior swing point low. The nearest one at this juncture is the August 10 low of 1395.62 as shown below.
That's another 18 or so points from yesterday's close. I expect that is where we are headed now. It also lines up nicely with the anchored support zone created by the conjunction of the tops of the July 27 and August 3 anchor bars. That's the first target area. Assuming price makes it there and volume doesn't swell precipitously, that's likely the place to put additional long exposure back on and reduce or eliminate any short exposure you are riding back down. If volume and price don’t behave at that level, then the next anchor zone would be in play, and I doubt it will be easily cracked. That price point is the 1360 area, and the anchor zone there looks quite strong.
One last note before signing off: On Monday, I began telling my readers to expect a retrace and to position short in preparation for it. It’s not all that often that everything lines up as cleanly as it did this time. MTTF can not only tell you where price might go, but it can also give you a clear heads-up about when you move to safety for the trade coming back the other way. In this case, it aligned with a test of swing point highs on multiple indexes with light volume. That was a high probability trade, and is what you should always be seeking.
No positions in stocks mentioned.