As a trend starts to end it doesn’t always end with an abrupt reversal. As the market approaches the sentiment value of the currency pair then you’ll see a slow down of the trend which often leads to a consolidation (especially seen on the smaller chart scales). Often this forms what people consider to be rounded tops/bottoms, teacup / bowls, and related rounded reversal / continuation patterns. I didn’t previously discuss teacups or bowls (different people call them differently) simply because I don’t see them often enough to consider it a significant pattern (however I do see them often on 1 minute charts when scalping). Because these patterns aren’t that significant for “Sailing” I won’t elaborate upon them here.
Notice how the pitch of the trends changed creating a rounded bowl effect?
What is relevant is to notice that often your trend will slow down as it looses
steam (obviously) and this often results in a trendline break simply because
the market is moving more or less sideways.
Side note: Here I will express a personal wish of mine; maybe one of
you reading this can “invent” this. It would be great if there existed a
parabolic trendline. Being able to manipulate the end points, as with a
normal line, to set the start and end, but also being able to manipulate
a mid point to establish a parabolic curve (kind of like how a vector
graphic program such as Corel Draw allows you to draw such
lines). Then a dotted line continues the extrapolated path, just as with a
regular trendline. If you know how to write a computer program that
can plug into charts to do what I just described then please do so (I’d
call you to discuss this in more detail) as you would certainly be
recognized as a genius, and your tool (which you could name after
yourself) I’m sure would get integrated on many charting software
packages. If a tool such as this already exists and I’m just unaware of
it then please, somebody let me know!
When you see something like this it can mean that the market is just pausing
(a stagnation) and the market may later pick up steam to resume the
trend. Alternately it can end up being a reversal. Either way simply tighten
up your trailing stops to protect much of the profits you have already
captured. You’ll either get stopped out from the reversal, or you might get
lucky staying in as the market resumes moving in that same direction.
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