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The "OOPS Pattern"

NASDAQ:AMZN   AMAZON COM INC
The “OOPS pattern” was developed by trader and author Larry Williams . It was named, according to Williams, for the all too common experience among traders when a broker would call his clients to report that a position was stopped out and say, “Oops, we lost.” This was due to the market gapping from one trading day to the next due to an overreaction from some sort of news or earnings announcement.

When there is this type of overreaction, there is a reasonable probability of a move back to satisfy the OOPS. The system is programmed to create more profits than losses. When the market opens lower than the previous day’s low, a trader can place a buy-stop order at the previous day’s low price. When the market opens higher than the previous day’s high, a sell-stop order can be placed at the previous day’s high.

Most traders recognize that gaps from one day’s close to the next day’s open occur for any number of reasons: news, rumor, earnings , etc. However, the move often exaggerates the impact of news. You see this all the time with earnings surprises. A big gap in the price (upward for positive surprises, downward for negative) is next offset with a move back to the previous trading level. This reversal is described as “satisfying the OOPS pattern”. Approximately 93% of the time, price will reverse to close the gap and satisfy the OOPS pattern.

For example, the chart for NASDAQ:AMZN demonstrates how earnings surprises can create an OOPS pattern, followed by retracement.

The circled sections reflect price behavior after earnings surprises. In end January, a positive report led to a large price gap moving about 180 points higher. The price also moved from trading at the lower Bollinger Band to moving above the upper Bollinger Band . It continued walking along the Bollinger Band resistance until moving lower and retracing back to satisfy the gap in price, the OOPS pattern.

The second example was just as dramatic, but less obvious. Upon a negative earnings report being published, price fell about 130 points. But it recovered quickly, recovering all of the lost ground in about two weeks.

The OOPS pattern is one form of retracement timing, allowing a swing trader to exploit market behavior. This also points to the maximum timing for leverage through opening of options trades. At such moments, single long calls or puts are likely to perform better than elsewhere on the chart. Short options may also be used as long as the price move is dramatic enough, and confirmed by other signals, to raise confidence as high as possible. To hedge risks, traders may also exploit the OOPS pattern with vertical spreads, synthetic stock positions, or collars.
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Comments

I was a bit thrown when first looking at this- it's the first chart I've ever seen that shows down bars in green and up bars in red. What is the thinking behind that?
+2 Reply
@Rooster100, Thank you for bringing this to my attention! This was not intentional. I was changing chart settings and thought I had put everything back together correctly. It appears I did not. It will be corrected for all future posts.
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Rooster100 NewCycleTrading
@NewCycleTrading, Cool, thanks for the gracious response - wasn't sure how to raise the issue if I'd stumbled across some weird trading cult LOL!
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@Rooster100, LOL! No cult, just human error.
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"oops! i did it again. i'm breaking your heart"

-Britney S.
+1 Reply
OOPS
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Tesla's chart is full of gaps unfilled, I don't really get the idea...lot of gaps get filled, lot of gaps remain unfilled that's like a gamble
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NewCycleTrading DeviousEndeavor
@DeviousEndeavor, The OOPS pattern is not just visual gaps, it is anytime the market opens lower than the previous day’s low or the market opens higher than the previous day’s high. Using TSLA daily chart as an example, 2/28/2020 is an OOPS pattern. It's not as easy to visually recognize as the examples used above, but it is still an OOPS pattern because 2/28 opened lower than 2/27's low. Your entry would then be at the previous day's (2/27) low price (669). Once TSLA hits 669, which happens on 2/28, that is your entry. The entry is not the OOPS pattern itself but the break of the previous day's low or the previous day's high depending on the direction of the OOPS. So while there are gaps on TSLA that haven't been filled, the entry for those gaps haven't been triggered either. I hope this helps.
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My Chart pattern - the scythe - a bullish reversal pattern
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Bixley Bixley
@Bixley, LBCUSD is forming a scythe .
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