Trade Lesson: Knowing When An M-A Bearish Pattern Is Going To Play Out
The key to the M-A pattern is to see the formation and recognize what makes it in play and what negates it. This M-A pattern played out for the prime reason that key rules were never broken. We will unveil this to you all so in the future you may profit off this pattern. The M-A pattern is a classic bearish pattern that signals downside. Knowing this would have told you that the markets were going to fall today. The first key comes in the form of the right side of the M pattern. Note how the left high of the M was at $110.13 on the SPY. Then please take note that the right side of the M pattern was at $110.34. The first rule to an M-A pattern is that the right side of the M should be higher than the left. This clearly is the case and tells any market technician that this could be an M-A pattern in play. Next, please note that as the rally happens and the upswing of the A forms, the high of that A cannot take out the right or left side of the M pattern. In addition, note that the upswing of the A never takes out the big red down candle on the 60 minute candle. Therefore, that entire upswing is considered inside candles do the big red down candle. This means that it is still categorized as an in spirit of bear flag. Because all these keys were in place, this M-A pattern had a high probability of working out. Sure enough, as the master level was hit, the A pattern drop occurred and the market sold hard. Learn these patterns, make the money!
#1. Note the right side of the M is higher than the left.
#2: Note the high of the A does not take out the high of the right or left side of the M.
#3: Note the move up in the A pattern, is all inside the big down candle on the 60 minute.
Intra-day trade lesson: Watch the time of day for intra-day pivotal moves
Often most stocks and indexes will reverse or pivot from their initial move around the pivotal time frame. The first of these major pivotal time frames is the 10:00 am or first half hour of trading. While this phenomenon occurs very often it is not 100% and does not occur every trading day. Therefore, it is always important to put it together with another resistance level or possibly a pattern to increase the odds of a short tern trend change. The next minor pivotal intraday time frames are 10:30 and 11:00 am ET. The time frames after lunch are: minor -1:00 pm, and the major afternoon time frames are 2:30 pm, 3:00 pm, and 3:30 pm. Experiment with the time frames and you see how often these are good turning points throughout the day.
how is this "classic M-A" pattern different to a "classic Head and Shoulders" pattern?
or are you just rebranding something we already know about as your own?
EDIT: before anyone gets the idea this is just a flippant and intrusive post, I am genuinely interested how an M-A pattern is different for H&S, so I can assess ones usefulenss over the other. Especially if it helps avoid the losing H&S, or has better entries, or better exits.
The M-A pattern is very different from the head and shoulder pattern for a few reasons. (fairly well known pattern by technicians, often implemented incorrectly - we never claimed to have discovered this pattern) M-A patterns are much sharper declines in a shorter amount of time. In addition, it is extremely important to understand the Head and Shoulder pattern cannot have a right neckline that is lower than the left while in an M-A pattern that is actually fine. The neckline on a Head and Shoulder pattern should always be flat to inclined to have the target calculation achieved. The target calculations are much different as well. We will try and feature a trade lesson on a Head and Shoulder pattern soon to help show these differences and rules. But the absolute main key to profiting from these patterns is understanding the true details that make one successful over the other, which most people do not recognize. Many people see these patterns few utilize them properly and even more are fooled by failed or fake out patterns. Hope this was helpful.
Trade lesson: Understanding the power of opposites
Often money can be made in the market by simply understanding that what is good for one is bad for another. It is simply called opposite or pairs trading. For instance, if the U.S. Dollar is down then usually gold is higher on the session and vice versa. Another example would be interest rates verses utility stocks. Often utility stocks will be weaker when interest rates are rising. This is due to fact that utility companies borrow money. Practice the opposite trade and you will notice how often these trades take place.
If the dollar pulls back watch this level as gold will pop.
GLD is basically flat for the day. If the dollar pulls back watch the 102.15 level as gold should get a pop. This is not bad action for the GLD today as the dollar is strong and it usually trades inverse to gold.
Trade lesson: Watch the past to understand the future
Often when stocks or indexes fall there will be good support levels for bounces. Therefore, you want to look at multiple time frames and have a chart that goes back several months to find intraday trades and possible 1-2 day swings. In this example on MGM the stock was in virtual free fall and found support in the $8.80- $9.00 gap window area. This was identified by InTheMoneyStocks.com traders by looking back to the September 3rd date and seeing a gap window. It is also important to recognize that MGM has been down quite a bit and well off it's high. Therefore, after an extended move lower it is due for a bounce. Remember nothing declines in a straight line. Always remember to use stops and once the trade is in the money take half the trade off for a profit and move the stop into the money or break even. Then you can look to sell the rest of the position at the next strong resistance level.
Many times traders fall in love with stocks. They feel as if they actually are a part of a club or organization. This is very far from the truth. The traders motto is 'stocks are for trading not loving'. Do any of the CEO's now the small share holder? The answer is simply no. Instead traders want to take advantage of the price action of a stock by using the chart.
For example, look how INTC traded higher on earnings and faded right from the gap higher. This is telling you that traders do not believe INTC should be at that price are are taking profits or selling short. This is a way the market talks to us. Then on 10.22.09 INTC hits the 60 minute 200 moving average and gets a sharp 1 point bounce. Then on 10.30.09 INTC makes a double bottom pattern and has a nice quick bounce. There are endless opportunities when you understand to read the charts. Remember stocks are not for loving just trading. It is critical to always use stops and to move your stop in the money to secure profits.
This morning there was news out in the premarket that Warren Buffet's firm Birkshire Hathaway was going to buy Burlington Northern(BNI) for a $25 dollar premium above the previous day's closing share price. BNI is a leading stock in the railroad and transportation industry. This should cause a rally in the entire transportation sector. Therefore, as a trader you can look for sympathy stocks that are leaders in the transportation sector regardless if they are railroad stocks. Yes, railroad stocks will rally as well, however, they may already be trading higher by the time the public gets the news. Therefore, stocks such as FDX, or UPS, are candidates for a move higher on the back of freight and cargo movers that use air travel. Often less popular names will run as well, however, the higher percentage play is with a leading stock.