Count Back lines or CBL (Educational)

I really do not know if I can make you understand this without speaking to you in person, but I’m going to attempt it. I figure at worse, if you read all this, when you come to ask a question you will be better armed.

The Count Back Line system works really well buying stocks coming off a downtrend. The other thing that it does really well is giving you a non-emotional stop loss price, so if your entry in a stock fails, you know where to sell in order to keep from losing to much money. It is non-emotional which is very, very  important when dealing with real money. The last thing it does very well is when price is going up and runs for a month or two, it will always give you an updated exit point so you never give back all your profit. Just a little bit of your profit will be sacrificed.

First we are going to need a picture so you can refer to it as you read.

Ok,  we will be breaking the chart down above piece by piece and then we will add trend lines and a moving average so you can see it all work together. See the low point marked on the chart? Ok it is point at an entire price bar and do you remember how to read a price bar? Open, High, Low, and Close. The Count Back Line system starts at the top of that low bar and we are going to count backwards 3 bars worth so we can draw a horizontal line. We are going left off that low bar to the next bar that has a higher top than the bar we start on. Then we move to the top of that bar and move to the next bar to the left that is higher than the bar we are one. The we repeat one more time. When we end up on that last bar, we draw a horizontal line off the top of that bar to extend right forever.

I want to make sure you understand something here that is critical to counting backwards to the left. Remember what I said, move to the next bar to the left as long as it is higher than the top of the bar you are already on. If the next bar is the same height or lower, skip over it and keep moving left until you hit the next higher bar. Very important you understand that.

Assuming you understand this part, what is the purpose? Well price may continue down and if it does, the next day you may have to redraw the CBL. If price goes sideways or up, then it doesn’t change. What we want to see is price start to climb and break through the CBL. The first day that it closes above the CBL is a buy signal. We do not buy that day because we need a closing price above CBL, so that means the next day is confirming day and or buy day. So if price stays above the CBL on the open, technically by the book you should buy the stock. This is supposed to be a low risk entry with a non-emotional buy signal. So you could do all the fundamental research you want and then use this one little guide to help you buy your stock. Now we need a non-emotional exit so we do not take a bath on a new stock if we are wrong. This is another perk of the CBL. We need another picture.

Once we buy the stock or re-enter the market we a protection stop or exit. In the stock market world we call this a Stop Loss order. Look at the entry day, now we move to the bottom of that bar, no matter what we paid for the stock, and start are count backwards to the left. Instead of going up, we slid down the bar one at a time until we get to 3 then draw a initial stop loss line. As price moves up, we move our CBL line up via the same way counting backwards from the last daily bar, back 3 bars. You will not always have to move it up and eventually it will not move up at all and you will have to sell. The highest bar after our entry is the last time on this chart that the CBL will move up. Why? Because after this price falls everyday until it fires a sell signal and we have to take a small loss. This is part of the art of buying and selling stocks, etf, and retirement account management that helps take all the emotion out of the formula so you can make logical decisions.

Now what happens when we start blending all this information on a chart? We need a set of rules for entry and exit that combine everything we now know so we get in at logical points and get out with logical points. I hope at this point of reading everything you are starting to get a clear picture why I do not read news or listen to gossip and that is because I do not need it. I can see everything on the chart that is really important and that is price. Price pay me money and it also takes my money.

So let’s give this a go and if you are truly interested and want to learn to manage your money long term, stocks and retirement, you will practice these simple moves over and over again until they make sense. Also remember Google is a great tool just find a definition or samples of more charts.

Above on the chart and using our pivot point knowledge we have drawn a very distinct downtrend that we want no part of. This is a money losing proposition every single time. But watching and waiting on a reversal is out job. We want to attempt to get in once it appears the downtrend has ended and money is flowing back in. Along with the downtrend the 50 day moving average should also be running to confirm our downtrend line and price movement but lurking as signal for us. The last thing we do is draw a CBL line when price starts to flatten or turn up. Why bother until until it does? Ok, we can see price at the bottom of the chart flattening and we draw our CBL. Price then breaks above the downtrend line. That is your 1st warning that price is reversing but not a buy signal. Later price crosses our CBL, 2 warning and now the stock, ETF, or TSP-Fund should be on your radar getting ready to pounce. As price approaches the last indicator, the 50 day ma, we get a disappointment that price never closes above. Two days in a row it flirts only to be rejected. Then what happens? Failure or return to the downtrend.

Conclusion: This is the way I process stocks, ETF’s, and TSP-funds for exit and entry and it doesn’t always work. But with the example above, we lost no money because we never made a move in. You should also recognize that my method will never get you in at the bottom or get you out at the top.

One last thing and I think I’m done writing for a bit. Below is the current condition of the Small Cap index which is the same as our S-fund. So I know that I’m not wasting my time with all this educational post and post in general for the TSP, I would like at least one person who reads this post go to the Old Dix TSP updates comment section and just tell me in one word, Buy, Sell, or Watch after reading the chart below. I hope that this helped at least one person understand my mission. You can do this!