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Common Low Risk Pattern is the most occurring and compelling pattern which provides low risk setup to take position.

 

Here are the steps to identify the pattern:


  • Count the consecutive whole red bars (all LT/MT/LT shows red) for at least 8 - 10 trading days
  • The trend level keep decreasing along with the red bars.


and either or both of this:

  • All ST/MT/LT bars in green.
  • Positive price action right before the market close if the ST trend level is zero (invisible).

 

Here is an example of the low risk pattern:

 

Common Low Risk Setup Pattern Sample Chart

 

As you can see on Oct 23 the first green bar appeared to confirm taking a position for the anticipated rally.


Optional:

Weekly signal showing similar pattern.  And because of the weekly signal is a lagging but more reliable indicator, it usually comes in late.  However at least we need to see this indicator where the rate of trend level decreasing slowing down or flat to be safe to consider to take any positions.  Number of red bars would more likely using golden ratio to compare to the previous whole green bars.


Golden ratios

  These are most used ratios: 0.382, 0.5, 0.618.


For example we saw a continues of 12 green bars (really), we should at least wait for:

12 days * .382 = 4.6 days

12 days * .618 = 7.4 days 

==> 5 to 8 trading days for the correction to end.

 

Timing is important.