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[Solved] Is this super BO Normal?
I had this situation and I still don't understand it. From my understanding about BO and the market cycle: you have a BO, then you have trend and then a TR. In this particular case, the chart attached is showing a strong bear trend, we had 3 pushes down, we had a wedge major trend reversal, but the market transitioned to a super strong bull trend without testing the MA or the bottom of the bear trend, there is no TR, but a V shape as seen in the attachment. I don't get it. Am I missing something here? I need some help. Please.
I'm sure more advanced traders could provide more information, but here are my 2 cents:
One important aspects we have to remember about the market is that there is no "have to do X". The best we can get in terms of what comes next is "likelihood". Event X is more likely to happen then event Y. But that doesn't mean that Y cannot happen. Anything can happen, no matter how the chart looks to left.
In the example you provided, a strong bull BO was unlikely, but it happened. I can't see what's to the left, but it seems like the bear trend you mentioned could possibly be a bear swing in a bigger TR instead. If that is the case, traders bought low in the TR, and started to take profits around 50% of the bear swing. This could also be a broad bear channel, and traders trade BC's in a similar way they trade TR, since BC's are tilted TR.
Hope that helps,
I feel the market did give some indications that a reversal might be coming..
I have marked the chart where I feel the market was giving indications of possibility of pending reversal or that bulls are becoming stronger
I think the last Wedge could be considered a TR, market tried BO below it, failed and then had a successful Bull BO of that TR.
Thank you very much Bruno. I see what you are saying and I get it. Like Al said, there is nothing guaranteed in the stock market, there is always 60 or 70 % that the event may happen, just that. Nothing is 100%, so better to protect the trades with reasonable stop loss.
Shubh, Thank you. Now I see it clearer, it makes sense what you just said.
And further to Shubh's comment, if RETA got some important fundamental news, a V-shaped reversal could occur. As you know, the Brooks training would have you flat if known very important news is pending, because sharp moves can follow.
Thank you Graeme.. but I do not believe in news anymore. I used to believe that news were the main catalyst that moved the market, but I was wrong. I believe in what I see in the chart based on the price action, that's how you place an entry and a protective stop loss order. That's it. Tons of times I read excellent news, where the company had the best results ever, great earnings report, you name it, and the price collapsed. Why? because maybe it was already in a bear trend and I ignored it. Also Al talks about news in one of his books, saying that news are part of the TV shows, to sell something or to get tons of viewers. Which is true! When the market goes up, some pundits come to talk why it is up and they say whatever they believe about it, but when the market or the stock crashes they have no idea what to say. Even though the company's fundamentals are excellent. So to ignore the news and to look at the chart is the best way you can trade. Am I right?
Hey David, you are absolutely right.
Just want to raise awareness to one key point about news that you might be aware of, but that could help other readers.
Even though Al strongly discourages trades based on news, he acknowledges that important news often bring high volatility to the market.
That means that, in a defensive approach, you might want to be flat when you know there are important news to be announced. After a few bars, once the price action gives you information on how the market is pricing that news, then you can place your trades with more confidence.
Hope that helps!
You are right 😀.
My comment was that in Brooks training we are encouraged to be flat shortly before and after a known important news (includes earnings announcement) announcement. And that a V shape can occur on major news.
Great!! Thank you for the knowledge! Makes more sense now..
Thank you Graeme! Now I see your point clearer. Thank you ! 😀