O yasumi nasai
It's the Pattern, Stupid!
- Thread starter schizo
- Start date
I was thinking about your question a little more. Here is an another interpretation of the topping corkscrew pattern:-
As you said, you could think of the corkscrew as two patterns. On the left (rising flag), there are these consecutive HHs and HLs, price in clear uptrend, and a degree of regularity. The herd is long. The desire to be right means that the only game in town for the masses is playing the uptrend.
But then the sudden drop from highs, which takes out the three prior lows, changes everything. Momentarily at least, buying vanished. What happened there? The regularity is no longer there and confusion reigns. So we get this chaotic type behavior with the formation of an ascending triangle. The market is grappling for new direction, but without conviction. So you get these false breaks in both directions, and an increase in volatility. The up trend has finished but the market is still in a transition phase.
However, the rising volatility eventually puts the herd under enough pressure so that they start to throw in the towel. The prior state was regularity and an uptrend. The new state is irregularity and a transition towards a downtrend. When the price fails to reach the extreme highs and the rally fizzles out, the transition has completed and a more regular downtrend will start to emerge.
Tactic 1) Once D occurs, you can place a limit sell order at B. This is an anticipatory entry method, meaning you anticipate that previous support (B) in the uptrend channel will become resistance after the lower trend line breaks with some conviction.
Tactic 2) Once D occurs, you wait for a retrace to B and if price doesn't run much further, you beginning trailing a sell stop 1 tick below the low of each upward moving price bar to initiate a short position when price turns back downward. If the retrace to B keeps running up through level B with conviction, you wait for clarity.
Tactic 3) Once D occurs, and price pulls back to B, if price turns back in the direction of the trend line break without running much further, you place a sell stop just below D.
With the first method, you use a tight stop.
With the other two methods, you place the stop above the swing high off the price turn back downward.
One of my all-time faves
Hi,
In your following post you mention the break of the trend line.Excuse me, I could be wrong but are you seeing the whole price movement as Vic's 1-2-3 reversal pattern for which a trend line break is required? True, in the example there could be a trend line. However for a Dow Theory Reversal Pattern a trend line break is not a requirement. Both are similar and easily confused. Vic's 1-2-3 does work quite well too, and the tactics you gave benwm should be of great value to him.
In fact
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The swing high you are referring to above is E?
If that is so, isn't C a safer stop?
Thanks.
The main difference between TV123 and DTRP, as far as I can tell, is that the former exhibits a higher low and the latter has a lower low in the second half of the pattern (eg. the second leg of the W pattern). Personally, I would not buy patterns that show lower low. But that's just my preference.
The example is a sell, not a buy.