V.1:7 (154-159): WHAT TEXTBOOKS NEVER TELL YOU by Jesse H. Thompson

V.1:7 (154-159): WHAT TEXTBOOKS NEVER TELL YOU by Jesse H. Thompson
Item# \V01\C07\WHAT.PDF
Availability: In Stock

Product Description


Post Pattern Activity

Most texts on market form or activity describe certain price patterns that occur with great frequency; these texts also define the implications of these price patterns and their potential movement. Studying "market habits" as Jesse Livermore called them can be of great value to the analyst or trader who has the capacity to interpret them. Many of these market habits are widely known and commonly referred to, yet used in isolation they can prove deficient. A rule of thumb is: To validate the implications of any such price pattern, ensuing price activity must conform to the implications of the pattern.

If a trade is based on a particular pattern and its assumed potential, a study of "post-pattern" activity may help reduce risk. After all, this constant attempt at risk reduction lies at the heart of longevity as a player on the investment field. Always seek these warning signals and heed their implications.

Head and Shoulders Formation

To illustrate this point, let's examine some examples of price pattern or behavior and the implications of "post-pattern" activity. First, we'll examine the widely known "head and shoulders" formation. Figure 1, is a normal example of a head and shoulder top pattern. Inherent, in the wide swings within a roughly established price range is a struggle for balance and dominance by the forces of supply and demand. All head and shoulders top patterns begin as in figure 2, with a primary ongoing upthrust followed by a reaction. Then as figure 3 illustrates, another upward thrust to new highs follows. Notice also in figure 3 that the next reaction almost completely retraces the last move up to new highs (between lines b. and c.). Next we see that a potential double bottom is forming, perhaps preparing for another swing up.

*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.

Take Control of Your Trading.
Professional Traders' Starter Kit
All these items shown below only $299.99!
  • 5-year subscription to Technical Analysis of STOCKS & COMMODITIES, The Traders' magazine. (Shipping outside the US is extra. Washington state addresses require sales tax based on your locale.)
  • 5 year access to S&C Archive
  • 5 year access to S&C Digital Edition
  • 5-year subscription to Traders.com Advantage.
  • 5-year subscription to Working Money.
  • Free book selection.
  • Click Here to Order