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I would like to submit for your evaluation the following blueprint for pinpointing the beginning of a downtrend:
A) A downtrend has not started until the uptrend has ended
B) An uptrend has not ended until a pull-back within the uptrend has been violated. A "pull-back" can be either a pull-back in price (single point) or pull-back in time (range)
C) The pull-back violation is frequently tested
D) The downtrend begins with the first major close after that test
@jackbravo I think we are on teh same page.
Here is a Gold chart unirenko style showing 3 decent shorting opportunities from today:
Pullbacks frequently violate our 'rules' so looking at them in isolation is not enough in my view. But when you see a topping pattern at a location where it makes sense for it to be, then the break and rejection of that level (highlighted as A on my chart) is a great place to consider trading from.
@Grantx
Alright, glad you agree about Question #1. So have you come across examples that violate that paradigm? Of course there are fake breaks, but I think those resume the uptrend rather than close below the pullback test. I have to look through the charts and see
"It does not matter how slowly you go, as long as you do not stop." Confucius
Im sure there are violations of this I cant see anything that stands out right now, but something to keep in mind is the size of the swings in which this behaviour occurs. If you take another look at that gold chart you can see that there was decent buying leading into the topping patterns. On a Monday I would be pretty confident with the mean reversion type idea (price returning to opening level) and going with shorts where I had marked. If price had formed this kind of pattern coming out of ranging price I would hesitate.
Reversals in Uptrends tend to have a large thrust at their peaks in my opinion. Also notice they try to get that head and shoulders look more often. If you don't get a good thrust, you have to question if its really a top.
On bottoms, the market likes to test the low and create a fakeout. Many times you will see a 3 drives pattern.
Allot of these depend on timeframe your looking at as well. Major tops and bottoms have allot of what I described. On a lower timeframe, you may see a slow and chaotic turn. Larger pivots require time to form as there happening on a larger scale.
Interesting discussion! Will throw my hat into the ring...
1. What is a trend?
2. Newton’s law does exist in the markets, not gravity but momentum.
3. If a move in a direction is to end or reverse what has to happen. Hits a wall? Runs out of steam? Or the balance of the table is altered and it rolls in the other direction.
4. Same principles apply but there will be variations depending on the landscape and drivers of a market.
5. This is more to do with underlying orderflow than fractal nature of timeframes. Is price moving in a direction due to initiative trade or lack of trade on one side?
