10s Chapter 4 - SPREAD MODELS

 

There's only one inch left until dark.

Technical analysts are looking for signals on the charts that would indicate

Changes in the psychology of traders, and therefore the change of the market

trend. These signals are reversal patterns.

which in western technical analysis include, for example,

double tops and bases, island tops and bases, days

U-turn, head and shoulders model.

The term "reversal models" is not exactly accurate, because hearing it

One might think that the old trend is ending abruptly and

Immediately the opposite of it is new. But that's the picture

Not always observed: usually the trend reversal is slow,

Gradually, as the psychology of the bidders changes. Signal

the reversal indicates that the old trend is likely to stop, but

It doesn't have to be replaced by the opposite, which is very important

understand. Imagine a car that's driving at 30

mph. The brake red lights come on and it stops.

The red light is a kind of turn indicator that tells you that

that the previous trend (moving the car forward) will end soon.

However, now that the car has got up, will the driver want to go in reverse

Whether it stays in place, or maybe goes again

forward? Without additional signals to answer these questions we do not

we can.

In Figures 4.1-4.3, you will find examples of market behavior after

A turn signal appears on the top. Prices may take a while

move sideways and only then go down as on

Figure 4.1, and in another situation, growth may resume instead

(see Figure 4.2), although it sometimes happens that there is an uptrend

is immediately downgraded (see figure 4.3).

It would be logical to call reversal models change models

trends, and I was tempted to do so in this book. I'm not

I have done so in order to avoid any discrepancies with other

Technical analysis, but once again I draw your attention to that "model

A U-turn does not always herald a U-turn.

The ability to recognize such patterns on graphs is valuable

Skill, because it is always important for a trader to understand what trend is emerging

on the market. Turn indicators are kind of road signs,

who warn, "Watch out: the trend is changing." They mean,

that the trade strategy needs to be adjusted in accordance with the

New realities: maybe close the old positions, or maybe open up

new ones — we'll discuss that in later chapters.

One of the key rules is that open new

The position on the turn signal should be only when it corresponds to

the direction of the main trend. Assume that the spread model is

The top is formed in the bull market, i.e. in the period of long growth

quotes.

Do not open short positions only on the basis of

A bearish reversal signal, but long positions are best

close. However, the same signal appears during the downward period

A big trend, would be enough reason to open

"shorts".

When I started talking about reversal patterns, it was no accident that I immediately

Went into detail: most of the indicators of the candle analysis are

They're just U-turns. Let's turn to the first two of them — the candles

"hammer" and "hanged."