Today I have decided to share with you what I look for in the market and what helps me to predict market movements. In this idea, I have used Nas100 as an example. I am sharing this for educational purposes and also to shed light on the current market structures as well as future movement of Nas100 . Some of you might find this beneficial and others won’t. It doesn’t really matters. Hahahaha.
First of all, we see that Nas100 printed a pattern the past weeks. What exactly is a pattern? According to Wikipedia: “Head and Shoulders formations consist of a left shoulder, a head, and a right shoulder and a line drawn as the neckline. The left shoulder is formed at the end of an extensive move during which is noticeably high. After the peak of the left shoulder is formed, there is a subsequent reaction and prices slide down somewhat, generally occurring on low . The prices rally up to form the head with normal or heavy and subsequent reaction downward is accompanied with lesser . The right shoulder is formed when prices move up again but remain below the central peak called the Head and fall down nearly equal to the first valley between the left shoulder and the head or at least below the peak of the left shoulder. is lesser in the right shoulder formation compared to the left shoulder and the head formation. A neckline can be drawn across the bottoms of the left shoulder, the head and the right shoulder. When prices break through this neckline and keep on falling after forming the right shoulder, it is the ultimate confirmation of the completion of the Top formation. It is quite possible that prices pull back to touch the neckline before continuing their declining trend.” That make sense doesn’t it?
For a head shoulders pattern to be completed, it should have a left peak (shoulder), top peak (head), right peak (shoulder) and a neckline. A neckline needs to be broken (sometimes retested) to validate the pattern and to ensure that the next impulsive move is likely to occur.
Let’s look at the psychological human behavior behind the pattern (in this scenario, I will use the top like the one we currently see on Nas100 ). This will also help us to understand if this is a real or fake one (there can be fake ones that can give wrong signals, hahahaha). This will also help us to understand what really is in the in mind of traders both institutional traders and retail traders.
Please pay attention to my two arrows label X and Y.
X- Price rallied high and it did so strongly (the market moved very rapidly without resting and for sure people that bought during that time had big fat smiles😁). Now that is what we call an Impulsive Wave. Price pushed up, and from the neckline price began to take a break from a long run and it printed the Left Shoulder which can also be said as the higher high. Again, price pushed up and formed the head which can also be said as another higher high, this peak is higher than the previous high. Oops, that is the last time we saw buyers flexing their muscles. Sellers stepped in, pushing price to the neckline and from there buyers weren’t strong enough to push price back to where they were brought from (head), instead sellers kept price at the same level as the left shoulder, which sponsored a strong reaction that violated the neckline and that became bears victory (a break of the neckline).
What is next for us? Since the neckline has been broken, how far should the fall be? Now here is where we get different answers. Some would tell you, first impulsive wave I labelled X is a shadow of what is to come, meaning what we should expect is the same impulsive wave to be printed at point Y, same length as X. It can make sense to some but it won’t be to others. Here is a thing, whatever makes money for you is all what matters. What other people think is basically none of my business (sorry)😁, As long as the money is made. Right?
We do not want to blindly follow what is in the books, what is taught and what is on the internet. We need to develop the mind of understanding and interpreting the current price action in the market. If we can do so on our own, that is maturity. Look at the market like you would look at a friend, you would understand and interpret your friend’s feelings and emotions, when he is sad and when he is happy. The market, this thing called the financial market is dramatic, but if we only sit and try our best to understand and of course interpret the current mood in the market we can reap some measure of success.
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Wishing everyone the best this week.
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