This is an outline for a model for a price pattern that I found back in 1990 while I was the technical analyst for a Wall Street Institutional Brokerage Firm. I simply called it "The Point of Maximum Pessimism" because this progression of price action just seems to create the psychology that is present at a major market bottom. I just stumbled onto this chart and felt like sharing it with you all. I hope you find it useful in some way, shape or form. Some of you will look for an Elliott Wave analysis to explain the psychology present at the yellow circle or perhaps find some something else, but I think it is just a great example of how someone watching a stock chart over time thinks and feels. When the last person has sold their stock, then magically the stock bottoms. If you find others, please feel free to type the symbols in here for us all to see. Cheers. Technical Tim, Jan 20, 2012, 1:16AM EST
Comments
mrd2015
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Tim, I really enjoy studying your charts. This one I find very interesting because, as a new(er) investor (26 yo), I'm just now starting to dive into market psychology. My question is, how strict is this price-pattern whenever you're making the diagnosis of the "Point of Maximum Pessimism?" To my untrained eye, I see the trend breaking around 12-23 with large amounts of supply starting in the $46 dollar area. If you were to trade this pattern, hypothetically, what would your ideal entry and exit points be? Thanks!
timwest
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Thanks for the comments and the questions. I'm glad you are studying the charts I have published. I do look at markets a little different than most others, but what I like to look for is the path of least resistance. As far as the "point of max pessimism" chart, when I am able to identify a trade I will make specific recommendations for stops and targets, then I will. Perhaps you can find a way to take the trade. It is often only seen once it has passed by the point of low-risk entry. Congrats on delving into investing, I believe the most important factor is understanding your own psychology, so I would suggest starting there. I can reply more if you reply back to me. Cheers. Tim
Algokid
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Very interesting Tim , this reminds me of Ed Seykota (famous trend trader) saying he gets some of his information by just reading newspaper headline. One example he gave was in the early 1980s, he pulled a paper and the title said ' Are interest rate going to 20 %) , sure enough , the date on the magazine cover was in almost perfect synchrony with the bottom of the bond market.
Another example he gave was a magazine cover that read " how high can oil price go ?" the article was written during the 1st Iraq war. he guessed that oil had top , and he was right.
timwest
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I do get most of my ideas by reading headlines, front covers of magazines, listening to Bloomberg radio, and then figuring out technically when the chart is set-up for a low-risk entry, usually fading the hype and excitement or fear. I've enjoyed Ed Seykota's insights too. He is profiled in "Market Wizards" which is full of fantastic stories and strategies of successful traders.