I think I've discovered a new chart pattern. I hate thinking of names so I shall call it the Last Breath Pattern for now. I seriously don't even know what the logic behind it is and why it works, but I've seen it so many times to know it is not a fluke. The pattern basically starts off with a compression like up move which then curves down a little and shoots up as if taking its last breath. It finally drops back down rapidly and breaks the origin of the final spike up.
This is going to sound stupid but I don't know how to trade this pattern. You can't short at the top because you don't know whether it'll spike back down or not, and you can't short the support break because you don't know whether it'll be a genuine break or not (yes it does false break and go higher too). This pattern only gives a high probability that the support will break, it doesn't guarantee that the break will follow through. :P
There is one use for the pattern though - Avoid going long when price is returning to the origin of the spike up. You see, I managed to discover this pattern because I fell for it many times by going long at the origin of the spike up and getting stopped out. After some time I can't help but find it familiar. I'm happy to say that in the past two days, I've avoided two losing trades simply because I remembered this pattern. Every other trading rule of mine stated that those trades were valid but I just couldn't pull the trigger as something "didn't look right". Well that discomfort saved me 2R and I am even more convinced that there is something going on behind the scene of this pattern. Maybe I should add this to my trading rules - Do not trade if there is a Last Breath Pattern. :P
Here is an idea of how you can trade the pattern. What do you think about putting a stop order in to go short after it starts to form a flag at the top of the pole?
ReplyDeleteHi Steve, thanks for the suggestion. Hmmm it might work, maybe not just any flag but like a clear bearish engulfing or bearish candlesticks at the top as a sign that bears are coming in. Could also consider watching for the traditional engulf down + retrace or Quasimodo on LTFs. Definitely needs to be tested first. :)
ReplyDeleteHey thanks for posting this. I'll have to start watching this also and see if I can consistently see something here. Trying to think what it means and its direction with probabilities considering order flow.
ReplyDeleteIt's an exhaustion move i.e. a liquidity spike used to encourage amateurs to get long but all the time providing liquidity for Pro money shorts.
ReplyDeleteNormally it will be accompanied with a false breakout of a swing point or SR which is the best way to trade the move
Hi Mark, wow I was surprised when I saw your name (am a great fan of your trading), thanks for dropping by and for your comment! It makes sense that this is an exhaustion move or false breakout, what I can't figure out is the tendency for price to curve/round down before the spike up. My guess is that the distribution has already begun then, price then makes a final spike up to shake out all the early shorts as well as trap breakout bulls before falling.
ReplyDeleteYes, that is exactly right...distribution has started then we get a sharp up move (i.e liquidity spike) to shake out shorts and entice traders to get long, before the 'real' move begins with a sharp reversal (all in order to obtain liquidity).
ReplyDeleteHi Mark, thanks for the verifying it, and looking forward to your next webinar!
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