#14 SEPTEMBER 5, 2011 SHALLOW, EXTENDED UPTREND AFTER A DOWNSWING

 

The market witnessed a very low-sloping, narrow, extended uptrend channel (highlighted oval) following a downswing. This very week uptrend seemed vulnerable to another downswing. Overnight, the market collapsed by 1100 points due to a sudden, forceful intervention by the Swiss National Bank. In terms of Return/risk and time duration, this was the most profitable trade I ever made or presumably will ever make. A $400 stop loss point generated an open profit of over $12,000 in less than one day. I lowered the stop by nearly 1000 points the next morning.

Lesson: Following a downswing, the shallower and more extended an uptrend, the more bearish it is. An analogous interpretation would apply to downtrends after an upswing.