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One bottoming tail is already a very good bullish reversal signal, what if there were 2? I think this gives an even more powerful bullish reversal signal. Traders can also take advantage of this fact and trade the pattern for a nice swing trade with very low risks.
The chart above is the 60 min chart of SPY. Notice how SPY had a bad sell off. Eventually there appeared two bottoming tails in the 60 min chart. This ended the sell off. If you had look for two bottoming tails in the daily chart you might not find it.
That is why it is very important for us to do multiple time frame analysis so that we can spot important reversal signals.
After the two bottoming tails formed, SPY also broke above a downtrendline. This hinted to a change in trend. From a downtrend to an uptrend. Breaking trend lines can often hint to a change in trend. Which is why one should also be on the lookout for trendlines being violated.
When you combine the fact that the two bottoming tails appeared at the 200 MA in the daily chart, this packs a powerful punch. Combining two time frames and finding reversal patterns at key support areas such as the 200 MA can often give us an edge over other traders.
The SPY actually closed off its lows and you can see how it formed a daily bottoming tail pattern which eventually help the market to move higher for the next few days.
Sometimes you can glean a lot of information from the futures chart as well. The chart above is the 60 min chart of the S&P 500 futures. Notice how the S&P 500 formed two bottoming tail just like SPY and that ended the sell off. The S&P 500 also broke above a 60 min downtrendline and this ended the downtrend.
I think you will find it interesting that the previous panic and bounce up happen after a bottoming tail appeared. The whole pattern itself can also be considered a double bottom. Which is why the S&P 500 started to move higher.
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
Jan 23, 20 07:49 AM
There are 2 ways to make money trading the stock market. You either buy low and sell high or buy high and sell even higher.
Jan 23, 20 06:34 AM
In this page, you will find my analysis on the US stock market for the month of January 2020. I update it almost everyday.
Jan 23, 20 06:32 AM
Here are the analysis that I do on the KLCI for the month of January 2020. I update them almost everyday so do come back and press the refresh button.
Jan 22, 20 06:33 AM
One of the surefire ways to make a profit in the markets is to follow the trend. And one of the surefire ways to lose money fast is to ignore the trend.
Jan 16, 20 06:39 AM
If you ask any successful trader, they will tell you that they have a trading strategy and they follow it very well.