The Chart Pattern Trader

Ron Walker Has Had Over 200 FollowersHas Been a Top Public ChartList for Over 1 MonthPrevious "Hall of Fame" ChartList Author Rank: 8 Followers: 255 Votes: 341 Years Member: 10 Last Update: 29 August 2016, 15:19 Categories: Trend Analysis
Chart Patterns
Swing Trading

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Alert: THE S&P 500'S BROADENING TOP IS NOW COMPLETED

8/29 The bearish shooting star on last week's daily chart at the gap fill @ 2193 failed to break above major resistance and the weekly charts confirmed last weeks bearish doji candlesticks. I think we drop to test the June low at 1991, then bounce back up to 2110, then eventually tank below 1991 to allow the broadening formation to play out. Falling all the way to the low 1400, the target of 1427 for the Broadening Formation.. Then a big rebound and more selling. I just don't know if we take out 1810 before or after the election. Nevertheless, I think there is a good chance 1810 is taken out before the end of the year.

8/28 The weekly charts of the Dow and the NYSE have confirmed last weeks bearish Doji Candlesticks. The S&P 500 came within half a point of confirming it's Doji on the weekly chart. The Inverted Hammer on the VIX weekly chart was just a fraction off confirmation. So we need to see a follow-through next week to this week's selloff.

Broadening formations continue to form. The Dow, Nasdaq 100, and S&P 500 all got a reation at the 2015 trendlines of rising resistance.

The summer rally is likely done and we should see volatility pick up as we are now already in the worst 3 months of the year, August, September and October.

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The Extreme Point Rule

The directional movement indicator is a powerful tool for spotting shifts in market momentum. A buy signal is given when the positive directional indicator ( DI) crosses above the negative directional indicator (-DI), and conversely, when negative directional indicator crosses above the positive directional indicator a sell signal is generated. When the market is trendless the DI lines crisscross back and forth, which can generate false signals.

Solely following the DI and -DI cross signals by themselves can lead to whipsaws and overtrading. Steven Achelis offers a solution to this problem using the 'extreme point rule' in his marvelous book, Technical Analysis From A To Z. Achelis points to the creator of the directional movement system J. Welles Wilder, and his simple trading rule, to help prevent whipsaws and reduce the number of signals that a trader acts upon.


The extreme point rule requires a trader to mark the extreme price point the day in which the DI and -DI cross. According to Achelis, the extreme point is highest of point of a session when DI crosses above -DI and is the lowest point of the session when -DI crosses above DI. Buy or sell signals are triggered when prices move beyond the extreme point.

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