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Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader by Al Brooks

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CHAPTER 3

Major Trend Reversal

There are many institutions that invest for the long term and view every strong break below the bull trend line as a buying opportunity, because they know that the bears will constantly try to reverse the trend but will fail 80 percent of the time. They will buy even if the bear spike is huge and strong, and goes far below the trend line and the moving average. They hope that their buying will provide the leadership that other traders need to see before they will also buy. At a minimum, they expect the rally to test the breakout point below the market top. Once there, they will decide if the trend has reversed. If so, they will stop buying and instead will exit their new longs as well as all of the other longs that they bought all the way up. Most of their position was profitable because they bought it long ago, far below their last entry. However, since they are buying as the trend continues up, they bought some of their position at the top of the bull and will take a loss when they exit. Once these long-term investing institutions believe that the market is going lower, the trend will reverse, because they were the traders who previously bought every sharp sell-off, and now there is no one left to buy strong bear spikes. They will wait until they believe that the bear trend has reached a long-term value area, which will always be at a long-term support area, like a monthly trend line. Once there, they will buy aggressively again, and they will ...

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