The underlying logic of the N-shaped structure's grasp of the trend lies in the definition of the trend by Dow Theory. As long as the trend destroys the definition of the trend, it will form an important observation point, and all trends ("waves" in waves) The structure is distributed in an N-shape, so the N-shaped structure becomes an important observation point for observing trend changes.
Keenly observing the changes in the trend and entering the market as soon as the trend starts will play a very important role in improving the profit-loss ratio. Note that the trend I am talking about here does not involve multiple time frames, but refers to the current time frame. For example, if you trade on the 1-hour chart, what I am referring to is a trend on the 1-hour chart. "Trend" or "band", try to follow Occam's razor principle in trading, and do subtraction as much as possible. The dialectical relationship between "trend" and "band" will be explained in detail when multiple time frames are involved.
We usually use the head-and-shoulders top, head-shoulders bottom, W-bottom, M-head, etc. in the textbook to observe the reversal patterns, but when using these patterns, we find that mistakes often occur, and enter the market according to these patterns to do long or When you are short, you find something is wrong as soon as you enter the market, and the trend continues to go in the original direction. The root cause of this error is that you do not really use the logic of the Dow Theory to observe the market trend, but mechanically use the textbook If we use the logic of Dow Theory to carefully observe the market, we will find that the original M head W bottom, head shoulder top head shoulder bottom and other shapes can be simplified into N shape, here we still do subtraction . Moreover, these forms often conform to the definition of market structure by wave theory, so compared with mechanical use, these forms can greatly increase the success rate and increase the profit-loss ratio.
I have summed up 5 kinds of reversal patterns with N-shaped structure, which can explain most of the reversal market, and grasp the market trend at the first time. Of course, like all forms, it is impossible to guarantee 100% success, but these forms have been confirmed by review statistics and actual trading, and it is possible to build a positive expected value trading system.
N word structure reversal form 1
As shown below
This is the most basic form. There is a key point here, which is the point at the red arrow. I call it point D, which is the last rebound high point in the downtrend (in the uptrend, the reverse: in the uptrend The last callback low point of ), the first stroke of N (a in the wave) breaks through point D directly, and the follow-up trend is very clear. It can be seen that this actually includes the head and shoulders pattern, but I will only pay attention to the N word.
N word structure reversal form 2
As shown below
The third stroke of the letter N (wave c) breaks through point D, and the follow-up trend is very standard. Here you can also draw a head-and-shoulders pattern, but I want to interpret it from the perspective of the letter N and Dow Theory. Its high point No longer elevated, its callback low breaks through point D, and the Dow Theory's definition of a trend is broken.
N word structure reversal form 3
As shown below
There is no point D here, the observation should be backward, and resistance will be formed at the second stroke of N (wave b), and the subsequent market will start to reverse after encountering resistance.
N word structure reversal form 4
As shown below
The second stroke of the N word (wave b) did not break through the previous high point, and the third stroke broke through the D point. Note that it is similar to the second shape, and the logic is the same. It is listed separately because it is actually an M head.
N word structure reversal form 5
As shown below
This is a special structure, it is not an N in the wave, it is a reverse N, its logic in the Dow Theory is that the low point does not make a new low and the previous low point becomes a support, so it is formed from the large structure An obvious W bottom.
These 5 N-word structures are the basic reversal patterns. As long as we observe these 5 structures and 3 continuation patterns, the evolution of the market on different time frames will have a clear logic that can be traced back, and it will not be in the market. Confused, where the market goes, where the list goes.
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