Tape reading alone can't tell the trader exactly how to
buy or sell. It only identifies when short-term conditions are favorable or unfavorable
for a chosen strategy. The best execution trigger price can only be uncovered using
pattern analysis. Price remembers. Past battles between bulls and bears leave their mark
long after the fight is over.
As stocks pass through old prices, they must continually
navigate the trading debris generated from prior battles between bulls and bears. These
trend powerpoints mark their existence through dramatic support/resistance
zones, sharp volume spikes and runaway gapping thrusts. But rather than add confusion,
this scarred battleground provides technicians with a trading map of incredible value.
Use Trend Mirrors to locate these major
battle zones. Look horizontally at past price action to predict where the current trend
will bounce or fail. The more often price swings off either side of a powerpoint, the more
dependable that price becomes in predicting the current move. Note whether the powerpoints
act as support/resistance or a swing axis for price to shift back and forth. Each type
requires a different trading strategy.
Solving this intricate puzzle of time and price requires
skill. The Trend Mirror landscape will define profitable buy and sell points throughout
the range from old low to new high. But an infinite variety of external forces can
overcome a stock's natural tendency to reverse right at the exact level it did before. So
the trader must use moving averages, deviation bands and retracement tools to filter the
Powerpoints also have a finite shelf life. As time passes,
individual characteristics of prior trends are reinforced or softened through subsequent
price experience. This trend digestion highlights the TA wisdom: the more often support
holds, the stronger support becomes. And equally important: price not holding support
weakens its importance in future trading swings.