The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

(sohrab1953) #1

Market Phase Analysis


■ (^) Rising Wedges occurring in a downtrend
■ (^) Symmetrical Triangles occurring in a downtrend
■ (^) Horizontal Channels occurring in a downtrend
■ (^) Broadening Formations occurring in a downtrend
As a general guide, intrinsic bias and trend sentiment are in disagreement with
each other for reversal patterns. Conversely, intrinsic bias and trend sentiment
should be in agreement with each other for continuation patterns. For intrinsi-
cally neutral formations, their extrinsic bias or sentiment is derived from the trend
sentiment. For example, a symmetrical triangle will adopt an extrinsically bullish
bias in an uptrend and an extrinsically bearish bias in a downtrend. It is important
to note that although broadening, diamond, and island formations are essentially
intrinsically neutral, they are regarded as reversal formations. As such, their ex-
trinsic sentiment or bias will be in disagreement with any prevailing or preexisting
trend sentiment. See Figure 4.5 for a visual summary of the various chart patterns
normally associated with each phase, with reference to their intrinsic and extrinsic
biases or sentiment.
In Figure 4.6 we observe an inverted head and shoulders pattern as accumu-
lation on the EURUSD chart. Though we can state that the inverted pattern is
intrinsically bullish, there is no evidence on the chart to indicate that it is also
extrinsically bullish, as there is no information regarding the historical lower ex-
tremes in price, or its location with respect to the phase of an underlying market
cycle or other overlay barriers. Notice the trend phase kicking in after the upside
breakout.
figure 4.5 Phase‐Based Charts Patterns.

Free download pdf