Hey 5-Star Trader,
Lately, the market is has been breaking down. With today’s world events in full swing, there is a multitude of reasons why we are seeing this happen. While it may be true that we cannot predict the exact future of the market, we still can utilize historical data to our advantage.
Through chart analysis, I have noticed similarities between today’s deteriorating market, and the Covid-19 crash that happened in 2020.
In the screenshot, posted below, is a picture of that crash from 2020.
As you can see we had a pretty significant pullback. But how did the market pull itself out of its rut and “right” itself again? The answer lies within the candles.
Leading up to the moment before the crash, you can see the candles are green, then all of a sudden there is a huge plummet (as shown by the large, yellow candle). That yellow candle was the first sign that the trend was shifting. Then, the candles turned red to signify we are in a downtrend. It took a total of five weeks for the market to recover. But, within those red candles, we could see a pattern forming. Below is a closer screenshot of the red candles and their pattern.
Do you see how there were three red candles to the downside, but the fourth candle, albeit still red, opened up above the previous red candle? This was the first sign that the market was attempting to make a recovery. Then, shortly after that you can see the candles slowly transition back to yellow, ultimately confirming the positive change in trend.
This candle action is what I call a “follow-through day.” It demonstrates through technical analysis the signs we look for when trying to judge the state of the market.
In a news heavy environment, the last thing you want to do is be on the wrong end of “buy the rumor sell the news.” Instead, look for technical setups and “follow-through” days. It might not be overnight, but the pattern will eventually present itself in one way or another.
For more information on today’s real-time events, catch the replay of my webinar, where I share my thoughts on the current state of the market, as well as give you access to my TOS share grid for free!