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Hello, this is Nowon Ge. Today, I am going to analyze the SOX chart to provide some help to those of you trading US stocks using the "Range Trading UN" strategy. As those who watch my YouTube videos know, when I analyze charts, I mainly focus on box range trading utilizing one-to-one waves, support, and resistance.
Therefore, regarding this analysis, I noticed that in the "Range Trading UN" group chat, many people are struggling because the trend is rising too much in one direction; many have closed all their long positions and are only holding short positions. So, I would like to discuss the perspective of adjusting position sizing when trading futures, options, or ETFs.
First, looking at the monthly chart overall, it rose steadily in May, June, and July of 2023, forming a high point. Then, it dropped significantly with three bearish candles in August, September, and October, returning to its original position. Therefore, we can establish support and resistance based on these highs and lows.
While we can refer to such large cycles in synthetic trading, it takes half a year, so the monthly chart... You need to have a general understanding of the positions. You have likely heard the terms "Three White Soldiers" and "Three Black Soldiers." These refer to candlestick patterns where three consecutive bullish candles appear, and three consecutive bearish candles appear.
They are commonly used in wave theory when counting waves. So, we have looked at the monthly chart simply like this. Next, looking at the weekly chart, which is what I refer to most when trading, we will skip over the supply zones at the front. When looking at the box range on this weekly chart, I will mark the two points where highs were formed earlier.
You might ask what use such a distant period as August 2022 and May 2022 is, or whether a position from a year ago holds any significance. However, if we look at just these two points, when the price moved back and forth within this box range from May to June and July 2023, the first resistance point was strong.
When looking at it, it broke through strongly in May, and then continued to act as support when coming down and resistance when going up. It bumps, briefly breaks through, and then goes down. It finds support right here. It goes up again, then comes down; it acts as resistance when going down and then up, and strongly breaks through when going up, but finds support again when coming down.
That is how it breaks through again. That is why, although I marked this spot on the weekly chart, it can also be seen as a position that acted as a high point in February 2020. This price is 21.6 trillion, and above this, 25.9 dollars is acting as significant support and resistance on the weekly chart.
Even in November 2020, it went up, hit resistance, and then broke through. The fact that this candle has a lower wick indicates that it went up, came down, and then found support. Therefore, if support and resistance have been established like this on the weekly chart, it can be seen as a meaningful position.
Now, the recent high was 28.75. Please mark 28.75 here on the weekly chart. Returning to the daily chart, 21.65 and 25.9... well, 21.65 and 25.9, and above that... There is 288.5, right? Regarding what we did recently, if we create it like this because of 28.5, looking at it on the daily chart allows you to see the chart in a bit more detail.
It goes up and then finds support. If you feel disappointed that it was precisely supported at 26.5, I would be even more disappointed. It roughly finds support here, goes up again, then drops to resistance, finds support, goes up again, finds resistance, finds support, goes up continuously, forms the 28.5 high I mentioned earlier, and then goes down.
The first point it hit as resistance acts as support at 25.9, and it goes up again. It goes up, comes down, goes up again, hits resistance, and comes down continuously. The important point is that it moves within this range of support when coming down, going up, and coming down. That is why, based on your standard, you sell and buy based on the 2% mark, right?
So, if you understand these reference points, you can trade more flexibly and respond better without worrying too much about the 2%. When newcomers come in, there are sometimes people who ask where to trade or where to make their first entry. If you trade at the midpoint of this support and resistance level, or at a position like this, you can re-enter when the price goes up and then comes back down.
If you re-enter when it goes down and then comes back up, profits may materialize faster because the price fluctuates around this central value. If you make a good initial entry, not only can you make a profit quickly, but future trading will also be easier because the price fluctuations will occur based on this reference point.
So, in February, it rose again, broke through, found support when coming back down, went up steadily, and then came down based on the previous high of 28.5 before rising again. Therefore, if you clearly mark these areas forming previous highs on the weekly chart—the box ranges where support and resistance are established—it is very advantageous when you are rebalancing or adjusting your position size, even when the trend is rising.
As for how I devised my strategy, on the weekly chart, it went up like this. When it went up and then came down, it showed a correction. Since I really like this N-Cha wave pattern, I thought, "Ah, here..." Thinking that if it breaks through and holds support here, the previous wave would likely rise in a 1:1 ratio, I added an additional 50% weight to my long position.
If I had traded 50 million won and 50 million won out of a total investment of 100 million won, applying this 1:1 wave strategy on the weekly chart with a 60 million won and 40 million won weighting would result in a 1.5:1 ratio, so I bet a little more on the long position by adding 50%. Of course, since this wave theory is based on probability, it cannot be assumed that it will definitely go up.
However, it rose slightly more favorably from the previous point, found support here, and went up a little further, though it did not quite complete the 1:1 ratio. Nevertheless, because I had a 1.5% weighting, I was able to make a little more profit when it rose like this, and when it returned to this level, I would be able to match the 1:1 ratio since I realized my profits.
Therefore, by trading with this 1:1 wave strategy, I was able to maximize profits from November to December, and of course, since the trend went up, the losses on the short position were a bit... It has grown, but since I filled my position weight to a certain extent during the rise, I was able to minimize losses and maximize profits through rebalancing.
Therefore, since the price tends to break through the previous high once the 1:1 wave is completed, I was preparing to rebalance here when the 1:1 wave is finished and a correction occurs. Looking at the daily chart, it went up steadily, broke through the previous high, and came down. There was a sharp drop at that time, and looking at the minute chart, it fell significantly like this.
It has fallen about 88% in total here. In my case, since the 1:1 wave appears and the target price is reached, I proceeded with rebalancing here under the assumption that if a decline occurs, it will be supported based on the previous high. And right now, I have two scenarios in mind for the future: one where it forms a double top here and comes straight down again, or one where it forms another 1:1 wave here and goes up again, as I mentioned.
If this happens, it could be a difficult month for those who have filled their short positions with a significant weight. Looking at the weekly chart here... Since it has corrected via a single candlestick, it could rise like this. Looking at the monthly chart, there are currently one or two red candlesticks.
As I mentioned earlier, three red candlesticks and three bearish candlesticks form a set. When these three are formed perfectly like this, it can even create a major wave. So today, while contemplating how synthetic traders can respond more flexibly within a box range using wave theory and support and resistance, I explained my perspective on where to rebalance and adjust position sizing using basic, very simple support and resistance, even though I use trend channels drawn when trading futures, options, or ETFs.
I introduced this method as a reference for those who wish to increase their capital or maximize profits, provided they have clearly grasped the process currently taking place in the group chat regarding additional trend trading. The New Year of 2024 has dawned, and I hope everyone achieves their goals. I sincerely wish for your success. Thank you.
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