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The Traders Wheel
3/1/99 by Alan Farley

Trend Mirrors

Tape reading alone can't tell the trader exactly how to buy or sell. It only identifies when short-term conditions are favorable or unfavorable for a chosen strategy. The best execution trigger price can only be uncovered using pattern analysis. Price remembers. Past battles between bulls and bears leave their mark long after the fight is over.

As stocks pass through old prices, they must continually navigate the trading debris generated from prior battles between bulls and bears. These trend powerpoints mark their existence through dramatic support/resistance zones, sharp volume spikes and runaway gapping thrusts. But rather than add confusion, this scarred battleground provides technicians with a trading map of incredible value.

Use Trend Mirrors to locate these major battle zones. Look horizontally at past price action to predict where the current trend will bounce or fail. The more often price swings off either side of a powerpoint, the more dependable that price becomes in predicting the current move. Note whether the powerpoints act as support/resistance or a swing axis for price to shift back and forth. Each type requires a different trading strategy.

Solving this intricate puzzle of time and price requires skill. The Trend Mirror landscape will define profitable buy and sell points throughout the range from old low to new high. But an infinite variety of external forces can overcome a stock's natural tendency to reverse right at the exact level it did before. So the trader must use moving averages, deviation bands and retracement tools to filter the Mirror’s message.

Powerpoints also have a finite shelf life. As time passes, individual characteristics of prior trends are reinforced or softened through subsequent price experience. This trend digestion highlights the TA wisdom: the more often support holds, the stronger support becomes. And equally important: price not holding support weakens its importance in future trading swings.

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Over this 4-year period, SEG exhibited memory when it returned to prices where major reversals and other volatile trading took place. Trend Mirrors often yield results that don’t permit easy current decisionmaking. Look for those times when a Mirror level stands out dramatically and current price appears to be headed there.

 

Article contributed by The HARD Right Edge, which presents highly original tutorials, strategies and resources on multi-trend technical analysis and and short term trading. Article reprinted here with permission, which presents highly original tutorials, strategies and resources on multi-trend technical analysis and and short term trading. Article reprinted here with permission.
 
 

 

 
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Last modified: April 02, 2001

Published By Tulips and Bears LLC