Bonus Video 06: 3 Patterns every trader should know Flashcards
What is Price Action?
A map of rational human behavior. Market behavior.
What are three of the most common and important chart patterns?
Breakout
Pullback
Reversal
A strong bull market has what characteristics?
Tight channel
Pullbacks are small and brief
Several bars closing on theirs highs and prior highs
What does a Small Pullback (PB) Bull Trend mean?
Pullbacks are shallow and most only last a few bars. Only buy. Buy clamaxes can last a long time.
This chart is almost exactly inverse of AAPL on 4/14/2022
Pulling back and held above a breakout point. The pullback stayed above that high. There were several gaps on the way up. It has body gaps. Every bull trend is constantly forming Wedge Tops. Buy for any reason. Easiest way to do it is find a bull bar closing at it’s high and buy above it. Buy at the EMA. But the bear bar.
An example of raising stops on a Small Pullback Bull Trend
Raise your stop to the bottom of the most recent breakout. there may be profit taking toward the end as well that will make price breach the 20 EMA.
The market often transitions to the new trend, before the previous one ends.
If you have a Wedge Bottom and get stopped out. There’s a 50% chance the breakout below the wedge will fail and we’ll get a reversal up. or 50% successful and get a swing down.
The first candle in a Bull Channel would be considered where the transition from bearish to bullish began.
Biggest bear bar late in a bear trend means __% chance it will lead to the low (L) or there will be one more brief leg down for a low.
60%
Bull bars closing near their highs is a sign that the _______________
Market is going up
When you have a very tight bull channel with three tops in it, it is a ___________
Parabolic Wedge.
And you get some kind of a pullback.
If the market is in a strong bear trend, it will always be forming Wedges, and you should not be looking for ________________
Reversals up
When Al draws lines, he always prefers them to have an ____________
Overshoot
When you have a sell climax, and a pair of inside bars (ii) (an ii buy signal), that is a pretty reliable set-up.
Theory on Wedges: Similar to double tops. Bears will give bulls three attempts at breaking out, if on the 3rd attempt, they are not able to, then bears start selling
So wedge is a triple top reversal. Failed breakout.
Whenever you get a wedge, and a then a lower high, it’s also a ______________ Top
Head and Shoulders Top (HST)
Then expect a second leg down.
When a wedge has strong 2nd leg up, many computers start the count over again.
If a tight strong bull trend constantly forms wedge top that fail, do not look for tops when in tight bear bull channel
Very often, you will get a test of the top of the wedge.
Parabolic Wedge channel and a buy climax is good exit and/or short
Truncated Wedge Top is also a __________________
Double top.
3 pushes up, but 3rd leg was slightly lower than 2nd. This is still wedge behavior. Bears so eager to sell, that they sold just below top of 2nd leg up.
