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Thursday, December 14, 2006

On the 9th I posted a thread about broadening formations drawn in here to the left. I mentioned that these patterns are very "noisy." What this means is that they are not very accurate % wise, but do create big wins when they are correct.

Here we have a typical scenario with them, the first trade, marked with a small red line, would have been a loss. How did I know not to take this trade?

There are a few reasons. First and foremost, the exact pattern at hand within the broadening pattern was not near accurate enough to make my system for the S&P. Second, the bond market has been very strong. Third, it is unlikely that the insiders pushing this rally are going to let much of it get away before year end bonus time. As traders we have to think about what we are doing at times, and if something flies in the face of several reasons why it should not be done that have a fundamental basis, that trades needs to be passed on.

This market "may" crack at some point, but it is still on firm ground, and anyone's guess as to when this rally will stop. The commercials are short now, so that tells us a pullback is probably coming in January. There has also been a seasonal tendency in recent years for declines in January.

I would suggest studying broadening patterns and coming up with your own ways of using them. This is an ongoing project for me. If I ever crack the code on how to use this well, I can assure you I will keep it to myself!!!!!!!!!!!! For now, it is a discretionary tool.

1 comment:

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