How to spot a trend reversal using my theory

As described before:

"Any price movement in any time frame can and only can be decomposed into one unique combination of trap-zones and money-making zones !"

So, if the trend continues with the momentum, then only two patterns are shown:

1. the same kind of trap-zone will appear after the money-making zone
2. the same kind of money-making zone will appear after the trap-zone

Otherwise, these will be viewed as some WARNING signs for a possible trend reversal.

In order to confirm a trend reversal, two conditions are necessary and are required as well:

• A transition between the trap-zones happens
• A transition between the money-making zones happens

Some other related topics are summarized here.

Some replies to the questions

Below are some answers to the questions from the comments:

Q:"can you talk about more how to apply your theory to trading? can you give us some examples? Your theory sounds good, but I still have difficulties associating it with trading strategy. thanks. "

A: I will talk about how to apply my theory to trading more and more. I will give some examples later. Be patient. You know, I have learned these things over more than 10 years of trading, and is still learning it. Nobody can learn everything in one day! The main principle to apply the theory is to catch the MAJOR and BIG wave in a time frame. At the same time, try to catch every trad able corrections, so that the cost of the positions can be reduced to zero. Then the positions will be zero cost and risk free. That's the way to trade and trade with peace of mind.


Q: "I am interested if you could give some trading examples, mainly to see how this system is applied in real action."

A: Thanks first for enjoying my posts and the theory. Yes. I will talk about how to apply my theory to trading more and more. I will give some examples later. Be patient.

Big picture again

I want to review the NASDAQ daily chart again here. Please refer to the chart below:

• A new trap zone is in the shaping, as marked with the green box
• The lower boundary is ~1929
• The upper boundary is ~2015
• There will be the dynamical motion before the money-making zone is formed

Watch the trap-zone closely, and anticipate a money-making zone will come eventually ! Before that, I think once this UP wave is done, a second DOWN wave is coming. But I don't expect this second DOWN wave can break down the trap-zone, so bulls will win after the trap-zone again !

But, don't guess, just watch Mr. Market's decision and then go with it.

Breakout play - NGD

Today, NGD gets a nice run up after the breakout, here is a short review:

• Initial chart set up


• Follow up 1


• Follow up 2

Other pattern breakout play and charts can be found here.

The difference between Money-making zone and trap-zones

This post is to answer questions of a reader, and also hope to help other readers to understand these two fundamental concepts as well.

Below is copied from the comment:
"but I am still confused on the difference between Money-making zone and trap-zones.

1. Can we have trap-zones inside a Money-making zone?

2. within a money-making zone, can the prices go against the trend temporarily? (eg. in a bull money making zone, there was a day or two the index went down?)

3. can I say that a price move (hight or lower) inside a trap-zone is a money making zone with a shorter time dimension? "

My answers are listed below:

1. No.

2. The money-making zone is a TREND in a time frame, say 30m chart as an example. For bull's money-making zone, the start point should be a bullish pivotal point, and the end point should be the bearish pivotal point. Namely, you can draw a line from the start point to the end point of the bull's money-making zone, and the line is pointing UP. It's a straight line, no zig-zags. Of course, the prices can go against the trend temporarily, but the key is no pivotal points are created. Other wise, the line will become zig-zaged.

3. Yes. The trended moves in one time frame's trap-zone can be viewed as a money-making zone in the scaled down time frames because the trap-zone can be decomposed to a combinations of trap-zones and money-making zones in shorter time scales. The motions are correlated across different time frames.

I suggest to read and try to understand the complete summary on the subject, which can be found here.

More important, applying them to the daily chart reading !

Today's market action - a real example

Today's market action - a real example to demonstrate the power of the trap-zone and how to apply it to trading.

Before moving on, look at yesterday's chart first and spot the trap-zone.

• The zone's lower boundary should be able to be drawn in half hour after the market open
• The zone's upper boundary should be able to be drawn in half hour before the market close

As mentioned before, once the boundary is touched, the market motion will be bounced off from the boundary, especially for the first time touch, unless the trap-zone is broken.

So today, the market is bounced off from both the upper and the lower boundaries. A perfect real time example ! Then complete one of the trap-zone dynamics: expanded in the time dimension.

At the end of the trap-zone, there is a bull's money-making zone, which is already ended today. Now what's the market doing is to form another new bullish trap-zone. Once this is complete. The expected transition from a trap-zone to another trap-zone will be over, and will mark the end of the DOWN wave and the expected UP wave starts. As mentioned before, I expect three waves (DOWN-UP-DOWN) coming in the near future. More details with regard to this outlook, please refer to the old post here.

By the way, I have set up the blog to send the comments automatically to my E-mail account. SO I won't miss them and I will answer those questions sometime later when I got my hands free. Too busy every day and all the time.

What happened after the breakout - VRTU

Let's look back at VRTU and see what happened after the breakout ?

• Initial chart set-up
• One of the follow-ups

Another trap-zone is forming now

Another trap-zone is forming now, in the chart below, which is marked in blue.

The power of the money-making zone has been fully demonstrated yesterday !

Today, a new trap-zone is forming now. This is exactly what I have defined before for the money-making zone and the trap-zone. One after one, again and again. The death of the money-making zone is the birth of the trap-zone. The death of the trap-zone is the birth of the money-making zone.

That's exactly what it means for my unique, perfect, yet powerful stock price development model. Later, I will post my mathematical formulation of this state-of-the-art price movement model. It can cover all kinds of price movements. That's the power and beauty of this theory. It can translate ANY complex and (seems) very random price motions into simple numbers.

OK, based on my theory, you should know what will be expected tomorrow, right ?

Here is the hint:

• dynamics of the trap-zone

A reply to a comment
"In the short-term, on NASDAQ if we see a close above 1960 this week, then should we assume we are back on a bullish run? "

My simple answer is no. My theory needs the dynamics and transitions of the trap-zones to confirm money-making zones for both bulls and bears.

My unique, complete, and perfect description of the stock price development

I want to present my unique, complete, and perfect description of the stock price development in this post.

Why is it so important ? Just to name a few key points below:

• To help us understand what the stock and the market is doing now
• To help us know what is expected for the stock price in the near future
• To help us be able to discover the profitable trading opportunities
• To help us catch the big picture of the stock price movement and the market condition

Sounds magic ? Indeed, it is.

The key is to really understand my unique, complete, and perfect description of the stock price development in this post, and be able to apply it to solve real trading problems. I don't think many people can understand it even I share them publicly in the blog. Why ? It's simple ! Learning & understanding something are quite different from applying them to solve real world problems.

For example, everybody can learn Newton's laws on the motions, but only few people can really apply it to solve COMPLEX motion problems such as turbulent flows.

Here is the description:

Any price movement in any time frame can and only can be decomposed into one unique combination of trap-zones and money-making zones !

Please note that:

• It is good for any price movement in the market including futures, commodities, currencies, etc.
• It is good for any time frame such as 5 minutes, 30 minutes, days, monthly, yearly
• combination of trap zones and money-making zones

The conclusions and the description can be easily proved ONLY based on the definition of the trap zones and the money-making zones.

Application of the life line

For example, one target of this market correction is ALWAYS to test the life line's support, namely

• SPX 925.13, at the close of today
• INDU 8722.44 at the close of today
• NASDAQ 1723.30 at the close of today

IF and ONLY IF the 250 MA holds the market well during the correction and continue to head up, this BULL market since March will continue for another year or so. Otherwise, the bears will take over and the bullish run up since March will be only viewed as a BOUNCE in the Bear market.

So, life line is really a life line for both bulls and bears !

Below is quoted from the comments on life line of the stock price development:

It's so important, and i surely hope everyone have read it. Sometimes, some comments and feedback's are very very insightful and helpful ! I really appreciate such beneficial comments ! Don't miss them.

"
I am focusing on more long term trend.

Once 250MA is broken out and heading up, it can not be very easily changed to down. This is the key for us to catch the BIG wave and clearly see the BIG picture. For example:

1. NOW the NASDAQ is up and above 250MA, if during the market correction, 250 MA can hold it well and continue to head up, we will see the BULL wave can run up for at least 1 year. Other wise, the BEAR market continues. SO you can have a BIG picture, regarding the stock market.

2. Look at the stock price development of GROW, it up more than 5000% in 4 years !! This is the way we should trade stocks. Follow the big WAVE.

That's another research topic I am doing now:

How to discover the long-term bull and ride it with a 10-bagger to 100-bagger gain via following the BIG wave correctly.

This is the only way we can make a BIG money in this market: Sit tight and win big while right; lose small when wrong.

Unfortunately, most people win very little when they are right ! But sit very tight and accumulate a BIG loss when they are wrong.

250MA surely gives me a good starting point on this topic ....
"

Life line of the stock price development

I define the life line of the stock price development as the 250 days moving average, namely 250MA.

In my opinion, position equals risk unless the position is making money for you ! it's easy to check if the position is making money for you, right ? In a week, or in a Month, or even in 2 Months, if the position market value is dropping, I think you are holding a wrong position! It's much better to hold cash than such money-losing positions.

Then how to avoid such mistakes and always hold a money-making position ?

My simple tip is:

• Hold the position only when the price is above 250MA

Always remember that any position could be a BOMB, especially for those positions whose price is below the 250 MA ! They could GAP DOWN any time and trap you in a deep HOLE very easily !

If a stock is heading up to 250 MA and has a chance to breakout 250 MA, that's a good sign for a bullish run up!

On the other hand, if a stock is heading down to 250 MA and has a chance to break down 250 MA, that's a good sign for a bearish run down!

Please keep these in mind when you make trading decisions, I bet it will surely help you ! I wish I could know this earlier ! But, actually, I learned this very hard over years of trading and investing.

For other technical analysis tips: please refer to here.

What a wonderful GAP DOWN

What a wonderful GAP DOWN !

It's so COOL ! The red trap-zone will be successfully broken down if NASDAQ 1960 can not be taken over by bulls in a few days.

My last week's prediction has been turned to be true today. Below is quoted from past post

"Another conclusion based on my theory: a money-making zone will be very expected for bears. Namely, breakdown 1960 is almost a certain thing so far. "

I sincerely hope you have read this post and have taken some actions to protect yourself by either hedging or a cash holding state !

The measurable TARGET for this expected DOWN wave is:

• ~ 1880 area

Enjoy the Bear's money-making move !

TJTS pattern completion - successful example: GROW

TJTS pattern completion - successful example: GROW

Other successful chart pattern breakout is here.

TJTS pattern completion - successful example: ADOT

TJTS pattern completion - successful example: ADOT

Other successful chart pattern breakout is here.

TJTS pattern completion - failed example: ETLT

Other failed chart pattern breakout and completion can be found here.