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Wednesday, August 15, 2012

Trading Candlesticks Triangles Numberology

I'm up early this morning doing some candle stick analysis - coffee is still brewing. Broken sleep has become the norm, but you gotta "make hay while the sun shines", as they say.

There are some obvious forces guiding this market including OPEX (options expiration), 3rd quarter window dressing, and typically low summer volume, but I want to focus on some less obvious technical indicators. 

As an Elliottician I don't normally follow candle stick patterns, but if I find something that can help give me an edge over this market - like doji reversals - I'll add it to my bag of tricks.  

Astrological events, and biblical numerology, sometimes come into play, because many of the biggest players on wall street consult astrologers and spiritualists for advise. Due to my upbringing I have some experience with the occult, but to be clear I don't practice black arts; I'm only a trained observer.

Picking exact tops is obviously more difficult, and more frustrating than picking bottoms, but not impossible. My twitter followers may remember last year when I called the end of a powerful market rally to the exact day, by marking the 50th candle in the uptrend. 50 is a number which represents power and celebration, and capitulation is always a good place to sell. After the pullback the market did continue to rally... trading right into a devastating topping formation.


Regarding yesterdays (8/14/2012) trade: After trading flat for 7 days, only to see a reversal where many were expecting a breakout, is bearish and the Evening Doji Star confirms it. 7 is the number for divine perfection and often completes a trend.This adds weight to the prediction in my mind, as I tweeted -

I don't claim to be an expert when it comes to candlestick patterns, but thankfully I have an advantage when doing internet research - after paying my dues working for the answer service - and so it doesn't take me very long to find what I'm looking for - in this case a valid candlestick pattern for the current trade.

What I found is a well known candlestick formation called the "scoop pattern". The scoop pattern occurs after a period of flat consolidation is followed by a dip, which sets up for a double top, or a break out, as seen in the chart below. 

There's more than one way to skin a cat, and from an Elliott Wave standpoint the same thing may be achieved:

1. By rallying out of the scoop into a near double top in wave 2.

2. By continuing to consolidate in a rare triangle which ends with waves F & G. Although I don't believe I've ever seen one of these, I do remember seeing it documented somewhere.

To rap things up here. Trading into a topping formation, on summer volume takes a lot of patience.
The '07 - '08 top took nearly a year to complete, before we saw much in the way of volatility, and then most traders were shaken out in a brief rally which immediately preceded the crash of '08. Unless you can stick to your guns, and trust the charts, you don't have a chance in hell catching the big moves. 

Proof in point the gold trade revealed in my latest video:

The doji reversal confirmed the reversal into wave "E": 

I suppose this is where I'm supposed to tell folks to join, for the best charts on the internet, but you're probably better off waiting until September when trading picks up.

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