Monday, 28 July 2014

How trends end - part 3

There is little to say about type 3 endings as describe in Eoin Treacy's Crowd Money. They are a compound of the other two types.

In the example below, copper at the end of 2012, the ending begins with the sort of acceleration associated with type 1 but when the market pulls back, instead of falling all the way it finds support. There must be a level where it runs into latent demand. Demand begets demand for the strong upward reaction brings back
traders who were stopped out and now are reluctant to miss the upward action. The market then begins to range between the previous highs where it meets a vacuum of demand and previous lows where buyers are waiting to jump aboard again. The long players find it hard if not impossible to make money because the market does not pull up strongly enough after they find entry points. Short traders, on the other hand, are finding it easier to profit on the downside. Eventually is is all over as the market fails to make an upside break and with no new buyers and holders selling out before they have lost too much the bears win the battle

Not all endings play out the same way but with the tree types to look out for it should be a bit like an elephant: hard to describe but also hard to miss. We are basically looking for three markers

  • sudden acceleration
  • loss of momentum
  • abnormally large pull backs
I'm watching out for these.

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