#9 August 18, 2011 ROUNDING PATTERN, FALSE BREAKOUT & DECLINE WITHOUT NEWS
I was long on weekly contrarian signal. Initially started working, but then after red circle ignored following negative indicators:
- Rounding top
- False breakout (red circle)
- No news—When market sold off late in day and into night session, checked for news item, but there was nothing. Market moves (especially, off hours) that occur in absence of news signal likely continuation of move.
The market collapsed right after this combined pattern—the sharp downswing in above chart occurred in one-half day.
Lesson: Although, I had reason for trade, I should have lightened up because of the above subsequent trifecta of negative signals. Each of the above items should not be dismissed lightly. Be particularly cautions when there is a combination of indicators as above.