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Picking bottoms is like..well..


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Attempting to pick the low in a falling market is often a futile game. From a trading psychology perspective the danger is the trader gets it right and is rewarded for this bad behaviour by a profitable positon. The next attempt may be the one that does not turn around and simply runs the position and trading account into the red. 

 

Evidence based decision making is the road to travel in this trading endevour.

 

One of the long standing observations in price analysis is the number 3. Technical analysis books are full of examples that show pictures of triple tops, triple bottoms, the head and shoulder pattern required 3 events, left shoulder, head and right shoulder. The basis of elliot wave is the 1,2,3 wave pattern and the a,b,c retracement. Descending and ascending patterns require 3 lows and or 3 highs within the pattern to be valid. Japanese candle methodology hold the rising and falling 3 pattern in great esteem along with many other price patterns based around 3 price events.

Two nice examples of the number 3 have appeared this week in Copper and WTI Oil. Both commodities making 3 spike lows in the daily and intraday time frame.

 

Copper shows a 5 wave down movement with 3 spike lows, the final movemnt to catch my attention is the breakout move over the recent high.

 

copper.PNG

 

The WTI oil contract in the 4 hour chart has posted a 3 spike low, the Bollinger overlay highlights the relative volatility has exceed 2 standard deviations in the development of the lower shadow of each candle,the final breakout over the last high at $48.40 is the bullish signal. Stop losses are always employed.

 

 

 

Oil 4.PNG

 

 

So does this mean the lows are in?  The correct answer is don't know. The statistical outcome of a low is over 50%.

The pattern is invalid if the last low is broken so the stop loss is known..
From here depending on the traders risk profile entry strategies can be employed to take advantage of a potential new trend.

 

 

 

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