5. What do price patterns indicate?

consolidation will be initiated. In the practical sense one could say "b" is more significant than "a" due to a greater degree of market confidence at "b", and it is almost certainly associated with higher volume. There is however another way of looking at it, which I call the "Concept of Maximum Bearishness/Bullishness".

Maximum Bearishness/Bullishness

If in the first highlighted period of (A) the bulls had been

totally in control, with the bears utterly routed, then the close of

the period would have been at "b", the period high. One can

look at this pullback from the high — the difference between "b"

and "с" — as representing the ability of the bears to fight back.

Similarly in the second oeriod of (A) the orice difference

between "d" and "e" represents the ability of the bulls to fight

back after being mauled. The way to evaluate which is the period of maximum bullish strength in any structure (which is where the bulls had maximum control) is to sweep back these differences (the pullback from the high) through the respective closes and compare the levels obtained. This is the concept of SWEEP and it is the period with the highest sweep level that constitutes maximum bullishness.

The high of this maximum bullish period is a key resistance. I think it can be easily seen that reflecting "b"—"c"

back through "c" gives a much higher level than reflecting "a"—"d" back through "d". Thus it's the first period of (A) and its high "b" that qualifies as the maximum bull point not point "a", despite it being higher. Note the maximum bull period may indeed be the one that includes the actual isolated high (area (D)

is such an example).

Resistance Level Strength

Price action as depicted in (A), being a two period bull

reversal structure, needs to be viewed in light of the above if, or when, the market returns to the same level. There are a couple of tests that can be applied to make a judgement on how potent the resistance level "b" is likely to prove:

1. Reflect the "sweep" movement of the price curve points

"b"-"c" down through "c" and "d"-"t" up through "d". Do

the two levels cross or are they able to "hold hands" as I term it?

If they do not, it's a measure of how many people have been

caught and how badly they've been caught. It is the pain and distress that materialises from a reversal level that directly and strongly influences how potent it will prove at a later time. If the reversal was violent, closing on or near the low of the period and thereby giving the majority in a bad position little or no time to get out, then "b" will return to "haunt" the market if the level is re—attained — pain is remembered even if only subconciosly!

2. Look at the price action following the reversal period,

did it make a fair job of re-tracing before going down again, or did the market just plummet? If it's the former then "b" won't be nearly so key a level than if we get a nose dive. Again it comes back to giving traders an opportunity to get out when wrong without a serious loss. Remember a violent one-way market means somebody somewhere is in distress!