Saturday, May 21, 2011

The most bearish pattern - a bullish declining diagonal

Characteristically, people look at falling diagonals (often referred to as wedges) as highly reliable bullish price patterns. That is true in general if you are in an uptrend. However, at trend chenges...people become very used to the trusty pattern for their profits. So, they attempt to continue to use the pattern to no avail...just as many bears did on the rally out of the 2009 lows.

The irony is that the traders trapped in these patterns tend to be very well trapped and so a failed pattern produces a very powerfull move in the opposite direction. For a bullish falling wedge...expect big downside if the pattern fails...for a bearish rising wedge...expect big upside when the pattern fails.

The banks, from this participants perspective, are not looking likely to hit the positive targets for this pattern.

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