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There are several clues which give a hint of explaining why the market is bearish. One such example is the bearish impulsive move that began on the 18th of April. The current move is a correction and then the trend should continue to the downside.
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Notice on the third top, we have a small divergence. The concept of divergence on its own means nothing. A tool is only good if you focus on the context.
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Another interesting fact should be taken into consideration. Where did the third top find resistance? It bounced off the beginning of the gap move down. This is a strong sign of resistance. It highlights institutions don't want price to go above this level.
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The great master technician Sokyu Honma was a great fan of triple tops. He would name them in Japanese San Zan. He was two centuries ahead of his western counterparts. His skill was so legendary that the Emperor made him a samurai. This was a great achievement since he was an orphan.
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Sokyu Honma emphasized a trader should look at past market moves and think about the time/price relationship. Note this approach was at the heart of Gann's method. Wyckoff himself believed in such an idea when he focused on the concept of effort vs result.
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Impulse leg: 3rd June/11th June
Impulse leg: 28th June/5th July
Judge the time/price ratio. Second impulse leg is shorter than the first impulse leg in roughly the same time. Supply > Demand
Impulse leg: 28th June/5th July
Judge the time/price ratio. Second impulse leg is shorter than the first impulse leg in roughly the same time. Supply > Demand
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The time/price ratio was Sokyu Honma's way of explaining a trader shouldn't be too greedy, don't try to find the exact top and bottom. Look at what price action is telling you and judge the imbalance between supply and demand.
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I have taken a screenshot of the daily chart. I have drawn Andrew's pitchfork method to determine future possible targets.
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Alan Andrew in his book advocated that price will often hover around the Median Lines 80% of the time. So price should test the middle line.
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The black line is a technique I use mentioned by some pitchfork traders as a time element for price reaching a target. Remember this is my opinion, I'm not advising anyone to take a trade.
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Today price continued to move higher although it found resistance at the horizontal line. Notice how price is also finding resistance at the upper median line of the Andrew Pitchfork. This alone is a trading signal used by pitchfork traders. But I would suggest we need more confirmation. Remember this is my opinion.
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In my opinion, this market is still bearish. Price has gone above the horizontal line but this doesn't mean demand > supply.
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Look at the RSI chart reading. Notice how the price is located in the overbought zone. The means nothing has a standalone analysis. However, we must look at things in context.
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I expect a swing failure in the RSI reading. Henceforth, to emphasize this I have drawn a pink horizontal line. The black trendline is to show swing failure.
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Obviously, we can also determine the pitchfork construction was broken. However, Dr. Andrews was known to use a concept called the trigger line. This is represented by the sloping black line connecting to the pitchfork. Price can find resistance at this zone and then move downwards.
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I wouldn't trade off the bounce of the upper trigger line. I would wait for further confirmation. Remember the market is a jigsaw and you are the detective who must piece the evidence together to come to the right conclusion.
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As you can see the price has bounced exactly from that upper trigger line. Pure pitchfork traders would have been in profit by now.
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Remember how I spoke on the expectation of a swing failure in the RSI reading. Well, this occurred given us further confirmation that the market is weakening.
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Price has also breached the horizontal line. Patience is fundamental in trading successfully. The market is speaking to you, learn the language.
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The market is doing as exactly as predicted.
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There are a couple of ways you can enter this trade. Remember, I'm just giving my opinion. 1) Enter once price breaks the patterns (2) Enter once price break the pattern but must do a retest of the trendline sloping upwards 3) Enter trade once price breaks the pattern but then retraces and retests the slider.
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The slider is a trendline drawn when price pokes outside of the pitchfork. This was often used by Dr. Andrews and is a good support & resistance zone.
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Price did exactly as predicted
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Price went past the support zone 9220.36 and it did this with a gap move down.
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Bearish sentiment is strong, as the price did a retest and rejected that zone strongly.
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Remember you have to be patient. The market does not move linearly.
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The market has retraced, but remember a trader should be patient. Notice how price was testing the upper ML
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Price moves like a spring coil. It needs to gather energy before it pushes on with an explosion.
Trade closed: stop reached