February 24, 2012

   
Two Patterns to Catch New Trends Early
by Dave Landry

The trend is your friend is one of the few true market adages. Critics will argue that a trend is your friend until it ends. And, admittedly, this is true. Trends do not last forever. Eventually they exhaust themselves but quite often, a new trend in the opposite direction emerges. However, established trends can often last much longer and go much further than most anticipate. Trying to buy a stock (or other market) because it is low or sell short a stock because it is high is a loser's game. The good news is that the stock will leave clues that a trend is turning and will usually have a minor correction before resuming its new trend. Looking to enter after that minor correction and only if the new trend shows signs of resuming is the goal of my transitional patterns and is illustrated below.

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When you catch a new trend early, the payoff can be huge. Unfortunately, since you are fighting what could turn out to be only be a correction in a longer-term trend, you have to realize that there will be a higher failure rate than trading pullbacks in established trends. Like the pioneers, when trading transitions you are either going to get the gold or the arrows. 

Let's look at two of my favorite transitional patterns, First Thrusts and Bowties.

First Thrusts

Markets in major trend transitions often begin with a bang. They make a sharp thrust in the new direction. This tends to catch participants off guard. Trapped on the wrong side of the market, they find themselves waiting for the market to reverse so they can get off the hook. Bottom pickers and top pickers who missed the top or bottom and do not want to pay up are also waiting for some sort of meaningful correction. Unfortunately for these traders, the meaningful correction may never come. Often, markets making a sharp thrust in a new Read More..

 

 

About STAP

The Pakistan Society of Technical Analysts was formed in 2011 in response to a need for a local association promoting technical analysis skills and techniques for investment professionals working in the capital markets of the country. The founding members of the society were professionals employed in the local equity brokerage industry and applied technical analysis in their investment decision making in their capacity as equity traders and technical analysts. With a mutual interest to promote best practices in the field of Technical Analysis, STAP is now a member society of IFTA STAP is a developing society of
International Federation of Technical Analyst 

 

 

 

 

 

 

 

 

Disclamier:

Society of Technical Analysts Pakistan (STAP) has prepared this newsletter. and is provided for information purposes only. Reasonable care has been taken to ensure that the information contained in this report is not untrue or misleading at the time of its publication, STAP makes no representation as to its accuracy or completeness and it should not be relied upon as such. Views expressed in this report are of the authors of the article and STAP has no responsibility of the views expressed. This newsletter is provided only for the information of professional advisers who are expected to make their own investment decisions without undue reliance on this report and STAP accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. This report may not be reproduced, distributed or published by any recipient for any purpose.