Six Rules To Identify A Valid Reversal
August 12th 2008 06:12
The Traders Blog, the blog of INO.com today concerns the reversal or key reversal. What is it and how do you recognize a reversal?
See GLD Chart
In the post are "Six Rules to identify a "valid" reversal" using the most recent StockCharts of the gold ETF, (GLD):
First, the market must make a new high for the last six to eight weeks. - on July 15th in the fifth week from the last low, gold broke out and scored a new high, the best since March.
Second, the market must close lower than the previous day’s (or week’s) close. - GLD dropped about on July 16th $2 from the previous close.
Third, the market must reverse the previous day’s (or week’s) action. To clarify rule three, the day or week preceding the reversal must have posted a positive close. GLD closed up on the 15th
Fourth, the market must post follow through action the next day (or week). - Again, to clarify, the market must close lower on the day (or week) following the reversal. - The market has collapsed!
Fifth, the reversal must be accompanied by moderate to high volume. - Volume was the heaviest on July 15th; highest since March.
And, finally, the reversal must occur in a terminal (critical) area. - The reversal took place after breaking out of a sideways congestion and just below the last major high (in March).
Why did I single out Gold, because I didn't think Gold would break support at $844. Having seen the reversal, and this lesson earlier, I would have been less complacent.
See GLD Chart
In the post are "Six Rules to identify a "valid" reversal" using the most recent StockCharts of the gold ETF, (GLD):
First, the market must make a new high for the last six to eight weeks. - on July 15th in the fifth week from the last low, gold broke out and scored a new high, the best since March.
Second, the market must close lower than the previous day’s (or week’s) close. - GLD dropped about on July 16th $2 from the previous close.
Third, the market must reverse the previous day’s (or week’s) action. To clarify rule three, the day or week preceding the reversal must have posted a positive close. GLD closed up on the 15th
Fourth, the market must post follow through action the next day (or week). - Again, to clarify, the market must close lower on the day (or week) following the reversal. - The market has collapsed!
Fifth, the reversal must be accompanied by moderate to high volume. - Volume was the heaviest on July 15th; highest since March.
And, finally, the reversal must occur in a terminal (critical) area. - The reversal took place after breaking out of a sideways congestion and just below the last major high (in March).
Why did I single out Gold, because I didn't think Gold would break support at $844. Having seen the reversal, and this lesson earlier, I would have been less complacent.
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