spike and ledge pattern...thoughts?

C

cyborgSHK

Hey all,

So one chart pattern that I've been particularly interested in intranight is the spike and ledge pattern. I've seen it work very well as support and also as a reversal pattern.

I'm just curious if people use this pattern and any thoughts you might have on it. Do you only use it for reversals? How much penetration do you typically like to see? Do you use, say, a 60 min or daily settle (or whatever time period you use)? What about projections for it? Any indicators you use to confirm?

Here are my thoughts, from experience, though this is not tested:

1. I like it as both support and resistance.

2. I like it as a reversal spot once through, and have found this to work even better once it has held at least once previously (i.e. the move through is more drastic)

3. I have no real measuring implications for it.


Interested to hear thoughts.
 
Quote from cyborgSHK:

Hey all,

So one chart pattern that I've been particularly interested in intranight is the spike and ledge pattern. I've seen it work very well as support and also as a reversal pattern.

I'm just curious if people use this pattern and any thoughts you might have on it. Do you only use it for reversals? How much penetration do you typically like to see? Do you use, say, a 60 min or daily settle (or whatever time period you use)? What about projections for it? Any indicators you use to confirm?

Here are my thoughts, from experience, though this is not tested:

1. I like it as both support and resistance.

2. I like it as a reversal spot once through, and have found this to work even better once it has held at least once previously (i.e. the move through is more drastic)

3. I have no real measuring implications for it.

Interested to hear thoughts.
More...

Can you show some chart examples???

Mark
 
Are you referring to the blue line "support" thingy? If so, it's more commonly known as a "bull flag" or "a-b-c correction". "b" is the magnitude of the congestion range, i.e. "the flag" and "a" is the rally that preceded it, i.e. the "flag pole". In a perfect world, a=c and b=(1/2)a. If you're expecting the upside breakout, you should be willing to have a long-position BEFORE the upside breakout, "c", you're expecting and have a decent idea of how far it will go based upon the rally that preceded the congestion range.
 
Nazzdack,

Appreciate your views on the below matter. Just say that its a bull flag (with a downward sloping flag channel). Are you saying that we should get in when the upper channel of the downward sloping flag is pierced? That's rather risky IMHO. Thks.


Quote from nazzdack:

Are you referring to the blue line "support" thingy? If so, it's more commonly known as a "bull flag" or "a-b-c correction". "b" is the magnitude of the congestion range, i.e. "the flag" and "a" is the rally that preceded it, i.e. the "flag pole". In a perfect world, a=c and b=(1/2)a. If you're expecting the upside breakout, you should be willing to have a long-position BEFORE the upside breakout, "c", you're expecting and have a decent idea of how far it will go based upon the rally that preceded the congestion range.
More...
 
The blue line is what I'm referring to, but not as the flag, but rather as the much simpler pattern where it forms a support area after the quick spike higher, regardless of whether it makes the same multiple tops. In this situation it does form a flag, but i was speaking generally, as it does not always have the parallel line up top to make the flag.

Here's another example from the german bund, without the flag this time. It rallies on 9/19 and forms a base. Comes back down to test it on 9/21 and then rallies.

For reference, Linda Raschke discusses it in her book "Street Smarts", but doesn't really go into details, which is why I'm trying to get others' experience/insights/thoughts.
 

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Well thats a big difference, just on a visual nazzdack said it very well i think.
The first doesnt form an abc until long after the blue line congestion, id normally look at reversals after it was complete, the second is a bog standard abc add on .
 
Looking at your BUND chart, it rallied from ~116.85 to ~117.62, the "a" leg. It declined from ~117.62 to ~117.28, the "b" leg. It rallied from ~117.28 to ~118.02, the "c" leg. The geometry holds up pretty well, a~=c and b~=(1/2)a. When the decline stopped on 9/21, volume should be lighter than normal for those following days. The five days after 9/21 traded within 9/21's range, a good "compression" set-up. It's all very clear in hindsight. Again, when you believe you see the "a" & "b" legs completed, you have to be willing to trade the expected "c" leg aggressively.
 
I do understand what you're saying about the a-b-c. However, what I'm talking about is if you narrow your focus to the rally from 117.05 to 117.35 and then the bar immediately following. Regardless of the then-rally from 35 to 65 making the "b" leg measure out, I would consider the 117.28 level to be support no
matter what.

Like I said, I see what you're saying, but I think that within the waves is another very simple but useful pattern. Perhaps I'm wrong, and this does only exist in the a-b-c pattern, but i've seen people reference this pattern before, but never with any specifics.

Btw, thanks for the input thus far.
 
I never heard of a spike and ledge pattern either ... although who knows maybe someone coined it recently (been out of the trading loop for 8 months).

Like someone posted previously; usually a consolidation after a sharp incline is called a flag.

These flags can be pointed downward (strong inclination that a continuation will follow.

Upward - suggestion that we may reverse now
The first arrow of your Euro Bund chart implicates this

Or sideways (which is quite common) - usually it still means it will continue upward but this isnt always the case so I usually look for other things such as trendlines etc and look for a push through that to confirm.

But in all honesty that term spike/ledge seems to be a good one since many things follow this pattern. A strong up-push (or down push) followed by 'indecision' or a break and then its the stronger one that determines where it will go next.

Of course we know that downtrends a lot of the time happen quicker then uptrends so many times the spike down and ledge (the ledge portion can much smaller).

I used to trade stocks that displayed this 'formation'.

http://www.chartpatterns.com/flagsandpennants.htm

alot of times I would hop in for the next move up.
 
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