Monday, December 29, 2008

Recognizing Reversal Patterns in the Stock Market

The S&P 500 Index (ES futures contract; top chart) staged a nice turnaround in afternoon trading. An important clue to the turnaround was that we returned to prior days' support and then subsequent selloffs in NYSE TICK (bottom chart, blue arrows) could not generate lower price lows. With sellers unable to push the market lower, we saw a flurry of buying in TICK late in the afternoon, enabling ES to retrace its day's losses. Recognizing these patterns as they emerge is a key element of trading success; turnarounds often occur when buyers/sellers cannot move markets higher/lower, emboldening fresh sellers/buyers to enter the market.


SSK said...

Hello Brett, yes indeed, that is what saved the day for me today. It took a 10.75 pt loss per contract, from being on the wrong side in the AM, to a breakeven day at the close. I missed a couple of signals early to reverse, as the tick was weak, and didnt listen to my own counsel from my introductory video this morning, where I was identified the 852 area as possible support and then front ran that projected support area from 12/22 a few to many times on the way down to it during the morning session! Amazing to hear yourself in the videos speak about these levels, and then not execute! All in all, a rather fustrating day, but at least when we did get down there, I saw the signs for a nice long into the close! Thanks for the review. Best, SSK

Brett Steenbarger, Ph.D. said...


I found that keeping track of patterns that occurred at each major turning point in markets, day after day, really paid off in my own development. Video adds a useful dimension to such review--


Adam said...

Brett ~

It never ceases to amaze me... traders I've never met... traders using analytic methods different from my own... executing different strategies... trading different instruments...

" I missed a couple of signals early to reverse... and didnt listen to my own counsel... Amazing to hear yourself... speak about these levels, and then not execute! All in all, a rather frustrating day... a nice long into the close!"

Was that me speaking to my wife after the close or the very insightful SSK?

Despite one's background, instruments traded, preferred analytic tools, screen appearance, handwritten or on-line diary, market direction and regime...

... again and again and again I hear the most diligent traders making the same remarks about the same aspects of human fallibility and performance in markets.

To paraphrase SSK: "It is amazing to hear yourself speak ~ even through the words of another ~ and even then not listen to your own counsel."

Knowing we're all confronting similar or even the same developmental issues as traders gives me hope for progress in the new year.

Seeing on TraderFeed how others identify and then try to solve the very difficulties I myself confront (once one gets over how uncanny the similarities are), gives me confidence that solutions can and will be found.

This in itself is a most valuable aspect of your marvelous blog, and only enhances the sage counsel and stellar insights you share with us daily.

Thank you, and best wishes for a healthy and prosperous New Year.