Wednesday, June 13, 2007

1-2-3 Reversal

Victor Sperandeo in "Trader Vic" describes a 1-2-3 reversal. 1. The reaction breaking a trend line. 2. A test of the lows (or highs) and then 3. The confirmation that the trend has changed when the index closes above the reaction. Occasionally the market will form a 2b reversal. This just means that the market dropped below the previous low but then reversed to close higher. Sperandeo points out that when a 2b reversal forms it many times marks the exact bottom of a trend change. BTW we got confirmation of the trend change back to up today when the SPX closed above the reaction high from last Friday. Of course nothing is written in stone but it is a positive sign.