The next week, I and Bob went to Master Wong's house to meet him.
We were at his study admiring the painting on the wall.
"Did you watch any James Bond movies lately?"
We swung around.
It was Master Wong.
Bob:Yes, I have seen many Bond movies. Why?
Master Wong: Usually, in the end, there is a fight unto death between the hero and the villain. Of course, in the end, Bond always wins.
Today, I will show you patterns which show the fight to death between bulls and bears.Only one of them will emerge victorious.
You will be able to see and profit from this pattern easily.
What you have to do is to wait patiently till the battle ends and then go with the winner. Usually these are high probability trades.
Normally, when a stock is in an uptrend, it will have a higher high and higher low,
But if the bears become powerful, they will prevent the bulls from having a higher high.
However, if the bulls are not willing to surrender, you will see higher highs, as the bulls are fighting from below to push the stock up while the bears are fighting from above to push the stock down.
This will result in a triangular pattern.
In the end, only one of then will win.
If the bull wins, the stock will break out on the upside. Then you should buy the stock and place stop loss on the other side of the triangle.
If the bear wins, then you should see a breakout on the down side. You should short the stock and place a stop loss buy order on the other side of the triangle.
[Fig1]
[Fig2]
Sometimes this takes the form of a rectangular channel.
In this case also, both the bears and bulls are equal in strength, so the market just chops along in a rectangular channel.
It will make equal highs and equal lows.
What you have to do is to wait for a breakout and trade that. If the breakout is on the upper side, you buy and place stop loss at the other end of channel.
If the stock breaks on the downside of the channel, you short and place the stoploss on the other side of the channel.
See the examples.
[Fig3]
[Fig4]
By the way, did you notice that the 20 days moving average has risen above the 50 days moving average for the Dow Jones Index. It means that the market has just turned bullish.
Next time, I will show you some other patterns to profit from.
Here is an assignment for you. Go through your stock lists in DreamTai and try to identify stocks which are forming triangle or channel formations.
