Pattern Recognition

Sometimes it's easy, but then it becomes hard

This chart has been bugging me for the last few days, so I thought I should share:

Seems we are getting the same “Lower High” / “Doubly-Toppy” setup as we did back in July, with some divergences along the way (bottom chart).

These setups are usually pretty good spots to add protection / reduce risk.

The reason is that:

• if NDX goes up, there’s only c.200 points before it gets into Breakout territory (in which you close the shorts / sell the puts and enjoy the ride if that’s your thing)

• If Index goes down, it’s chaos below for maybe even 1,000 points. Then you can go on Twitter and tell everyone how you called the crash (for the 10th failed attempt)

The whole point is that it’s a good spot for “risk-focused” traders, because they would know how much they are risking and what to do if they are wrong.

IF the Index actually breaks out from its “Doubly-Toppy” formation into a “Rocket-Emoji-Breakout” formation, then a “risk-focused” trader would know what to do in order to fight another day.

I’ve included the possible rejection of the “Doubly-Toppy” formation so I instil the fear of God into the future short sellers.

What comes in mind is that famous quote of a lesser known shrub:

- What’s the difference between shorting a Double Top vs shorting a Double Top that turns into a Breakout?

- A Margin Call

- Le Shrub, from “Reminiscences of a Shrub Operator”

Good luck to all. It’s a tough market, so Enjoy the Ride (credit to Tom Basso. Spot on motto)

Disclaimer:

This isn’t financial advice.

This is the trading blog of a shrub.

By now you should know: Don’t be Stupid.

Like, seriously … Don’t be stupid …