Monday, July 07, 2008

Trading Education Tutorial

Pattern Cycles: Reversals

No chart pattern better illustrates this slow evolution from bull market to bear decline than the Descending Triangle. Within this simple structure, the trader examines how life drains slowly from a dynamic uptrend. Variations of this destructive formation precede more breakdowns than any other reversal. And they can be found doing their dirty deeds in all time frames and all markets.

But why does it work with such deadly accuracy? Most traders don't understand how or why patterns predict outcomes. Some even believe these important tools rely on mysticism or convenient curve fitting. The simple truth is more powerful: congestion patterns reflect the impact of crowd psychology on changes in price and momentum.


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