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By Daryl Guppy

These patterns develop when there is an unexpected downward spike in prices. Price dips dramatically lower, but then very quickly rises to the level of the previous trend. This is often an indication of inside trading or informed trading. They provide a good leading indication of the target lows for the subsequent collapse of the existing uptrend. At may takes days or weeks before the information that caused the price dip becomes known to the market. Then the market will retest the low points established by the price dip.

This can also occur on a  market wide basis with an index. It is an early warning sign of developing uptrend weakness. These dips provide indicative downside targets. They do not provide indicative support areas for any market downtrend. These patterns are used in this way:

  • Provides early warning of trend weakness. In the following weeks traders can adjust their risk management and use defensive trading
  • The low of the price dip is a guide to subsequent lows in the new downtrend. This is nota  support level. These are often minimum low points, not the maximum low of the new downtrend.
  • If the price dip low matches an existing strong support level, then there is an increased probability this will become the rebound level in then new downtrend.
  • If the price dip low falls within  an existing strong consolidation  level, then there is an increased probability that the lower level of this consolidation and will become a rebound point for the new downtrend.




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