Either it is human nature or a grand plan put in place by Aliens/Masters of the Universe, markets end up repeating the same price action. If you can see it repeating, master it, then wealth and success that comes with it will open it’s doors to you. HSI prints a price pattern that has all elements of a trade signal. I talk about the pattern & trading psychology essential to take advantage of such setup.
Elements of a very good signal showing in HSI
This is a weekly chart of Hang Seng Index showing a price reaction to previous high (2013 level) in the form of a triple top. The triple top on the day chart is a bearish reversal pattern if it is confirmed by breaking it’s own neckline. The fact that it converges with a confluence of down trend line in the weekly chart as well as former 52-week high of 2013 gives it more significance.
HSI weekly chart with daily chart inset
In 2 very old posts made in 2009 here and here, I discussed various elements of a trade signal and how to converge to offer strong clues of impending move. HSI has these elements in place:
- Horizontal level providing resistance.
- Chart pattern verifying effectiveness of that resistance.
- Chart pattern giving a clue of potential subsequent movement.
- Candlesticks that provide trigger.
- Breaking a trend line or level that confirms the final movement.
Here we have
- Previous 52-week high in place as horizontal resistance.
- Bearish triple top on daily chart with price action confirming resistance of that horizontal.
- The triple top hints at subsequent down move.
- On the weekly chart, the price candle for this week is a huge bearish engulfing block of solid black candle that eats up the skinny dojis in the last 5 weeks.
- We are now pending a close that confirms break of neckline to confirm the triple top completion.
Have the winning psychology?
To make money, I think that traders must have faith in what they are doing, the knowledge of what to look out for and the boldness to commit a move. All too often I encounter individuals who don’t know what they are doing (can’t see an obvious price pattern), seeing a high probability pattern but lacking in faith to jump and therefore always being late to the game (wanting to jump only late to a trade only after seeing other people make money) or eventually always not doing anything. In this segment I want to share a ‘disbelief, then forget’ behaviour that I recognise in many people.
I wrote this story late last year that pointed out potential levels that HSI could retrace to. It’s here ‘How high can HSI go? Past Hang Seng Index crises in 2 charts‘. My own good friend called me up to express his disbelief. I told him the ball is round, that anything could repeat and the fact is we see history repeating all the time. To succeed, it’s time to dump that ‘disbelief, then forget’ psychological block that is now standing between you and a wealth of money.
Anyhow I posted this chart and made the following observations. We are now at Red 2. My friend doesn’t even recall our conversation anymore.
Hang Seng Index optimum retracement from weekly chart | Posted on 08 October 2015
HSI how about retrace 50% to 5-year high?
1. There is a key feature in HSI chart. This is a prominent 5-year high.
2. This was major resistance prior to prior to breakout brought by excitement over Shanghai Hong Kong Connect (a false break).
3. Another prominent feature is a 4-year channel (light blue).
4. Considering that HSI may be oversold and ripe for correction, how high to retrace?
5. Previous lows offer usual support-turn resistance levels such as points 1 and 2 (red bubble).
6. But point 3 offers optimum pullback to meet confluence of 5-year high and 4-year channel.
7. This is also a 50% recovery of losses which is a number that showed up strongly when we looked at the history of another Asian stock market index – the Straits Times Index.
So much retracement! Is this possible?
Possible and probable. Unless this time is really different, a look at the performance of the Hang Seng Index during the last 3 major crises shows similar patterns – big drop, very bearish sentiment, kaboom! strong rally probably fuelled by short squeeze follows.
There is quite a bit more so I encourage you to take a look http://www.terraseeds.com/blog/2015/10/how-high-hsi-go-past-hang-seng-index-crises-2-charts/ but here we are. Coming back to the topic of ‘disbelief, then forget’ this is a behaviour that I find curious in many traders. My personal belief is I will follow anything that will give me additional chance of winning even if it is a tiny 1% in my favour. If I collect enough of these 1 percents, eventually I might have a 100% chance of success. Too often though I encounter many traders who are stuck with a mental block/bias/disbelief whatever you call it. Even if that disbelief is not very strong, the information that might provide an edge is very quickly forgotten/swept aside.
Now this is my own belief but don’t laugh. Whether this is the nature of human beings (internal hurdles that keep repeating the same behaviour that may be good or bad) or this is a grand design that was put in place by Aliens (click here to visit Binni’s OFM ‘The Alien Room‘) or some Masters of the Universe, you can visibly see the outcome of that system. You can see the principles that it operates (like technical analysis) and you can see it repeat (e.g. chart patterns). If you can believe it, keep it in mind, remove your own biases and operate accordingly, then sooner or later, that mastery together with the wealth that comes with it will open it’s doors to you.
If I told you that outside the window, 500 metres to the left under that tall tree, you will meet the God of Fortune if you stand there at 1159h in a week’s time and you will get a windfall if you have the chance to talk to him – you might believe that I am bullshitting you but if you are hungry enough, you will remember to do it at the appointed time if you got nothing to lose am I right?
This HSI setup looks high probability. High probability is NOT 100%. The necessary chart elements are all there however. It is waiting for the final confirmation/trigger. I can’t shout that and won’t shout that because each of must understand there is a consequence of risk but I am not responsible for that risk and consequence of loss. But if you are very keen, you will remember to look even if you don’t believe right?
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."