It is important to be flexible in your market forecasts, as this walk through some recent trends in various markets indicate.
That repetitive price patterns exist
is one of the foundations of
technical analysis. The reasoning
is that repetitive patterns
occur because traders react to
similar market conditions in a
similar fashion. Unfortunately,
in the real world, the term similar
market conditions is subject
to interpretation, as the marketís price movements do not
unfold in a precise, repetitive fashion. Take a look at ex-amples
of some market movements, including trends and
reversals, to see how much leeway is required when you
watch a technical pattern unfold, and what to do with it.
The 30-year US Treasury yield was in a downtrend (with
rates falling) starting in early 1992. Figure 1 shows that in late
February 1993 to late May 1993, the yield for the Treasury
bond had been trading in a narrowing trading range centered
at 6.9%. I have drawn an upward sloping triangle. In addition,
the momentum as indicated by the nine-day relative strength
index (RSI) had broken down through its own uptrend line.