Hacking the 2023 Market Recovery with a Symmetrical Triangle
Here's an easy chart analysis "hack" to help pick price levels to trade during the (hopefully expected) 2023 market recovery ...
.... and ... it's just this, it's a hack - not a prediction and definitely not a trading advice :)
In this hack, we make a couple of (bold) assumptions
--------------------------------------------------------------------
1 - that the market has already reached bottom and (just) started moving back up
2 - that this expected move up (for recovery) may take as long as (if not more than) the time it took the market to drop
3 - that - from a zoomed-out view - the drop and the recovery will roughly make up a wide V shape
goes without saying, these are big assumptions, and also there are many unknowns that can happen anytime to change or affect these assumptions - in both good or negative ways. that's why i'm referring to this as a "very rough hack" :) -- still thought it was useful to share..
So with these assumptions, we can then use a simple Moving Average (I use the 20SMA here on a weekly chart) and couple of TV drawing tools; 2 rectangles and a diagonal line (or a triangle), to plot a very rough "path to recovery" - as explained in the above chart
- the right arm of that inverted symmetrical triangle is the important element we need here - it will represent the "projected recovery path" - of the moving average we selected. for chartists, this is a "golden nugget" ...
How is this "hack" useful ?
---------------------------------------
- we now have a starting point when designing trades - entries and targets - knowing (at least with some little confidence) that the price will mostly remain above the "projected path" between now and the end of recovery - "mostly" here is a key word :) -- because for the SMA to take that path, the price should print these values (more than values below the SMA)
- having that insights can provide a useful edge for technical traders to exploit - beside all the usual analysis, indicators, tools....etc that they use ..
Did this work in prior market drops ?
----------------------------------------------
- this hack won't work with the 2020 COVID drop - that drop was so sudden with even a sharper recovery - this method needs more of "smoother drop moves" to become meaningful.
- I tested this with the 2008 market drop - which was big and steep - with slow recovery - so somehow similar to the one we're going through now (from a very rough perspective)
this is how that test looked like
How to use this chart analysis hack ?
-------------------------------------------------------
- Use it any way you want - and at your own risk - or do not use it at all - it may or may not work. No one can predict future prices in the market (no matter what some people may claim)
- But assuming this can provide some rough guide to the recovery of some of the big names that move consistently with the market (like AAPL, GOOG, MSFT, AMZN, ..etc) - i plan to use the levels provided by this guide to pick best option strikes and expiry to play some long CALLs if this path holds.
- for example, if we want to play the 115 long CALL on GOOG, we should consider taking expiry not earlier than early October (or later than that) - as in the below chart
Again, please keep in mind that this is a hack - it's not a method of price prediction and not even a sanctioned method of chart analysis :)
I'll be super glad if that idea helped inspire some winning trades - let me know in the comments.
.... and ... it's just this, it's a hack - not a prediction and definitely not a trading advice :)
In this hack, we make a couple of (bold) assumptions
--------------------------------------------------------------------
1 - that the market has already reached bottom and (just) started moving back up
2 - that this expected move up (for recovery) may take as long as (if not more than) the time it took the market to drop
3 - that - from a zoomed-out view - the drop and the recovery will roughly make up a wide V shape
goes without saying, these are big assumptions, and also there are many unknowns that can happen anytime to change or affect these assumptions - in both good or negative ways. that's why i'm referring to this as a "very rough hack" :) -- still thought it was useful to share..
So with these assumptions, we can then use a simple Moving Average (I use the 20SMA here on a weekly chart) and couple of TV drawing tools; 2 rectangles and a diagonal line (or a triangle), to plot a very rough "path to recovery" - as explained in the above chart
- the right arm of that inverted symmetrical triangle is the important element we need here - it will represent the "projected recovery path" - of the moving average we selected. for chartists, this is a "golden nugget" ...
How is this "hack" useful ?
---------------------------------------
- we now have a starting point when designing trades - entries and targets - knowing (at least with some little confidence) that the price will mostly remain above the "projected path" between now and the end of recovery - "mostly" here is a key word :) -- because for the SMA to take that path, the price should print these values (more than values below the SMA)
- having that insights can provide a useful edge for technical traders to exploit - beside all the usual analysis, indicators, tools....etc that they use ..
Did this work in prior market drops ?
----------------------------------------------
- this hack won't work with the 2020 COVID drop - that drop was so sudden with even a sharper recovery - this method needs more of "smoother drop moves" to become meaningful.
- I tested this with the 2008 market drop - which was big and steep - with slow recovery - so somehow similar to the one we're going through now (from a very rough perspective)
this is how that test looked like
How to use this chart analysis hack ?
-------------------------------------------------------
- Use it any way you want - and at your own risk - or do not use it at all - it may or may not work. No one can predict future prices in the market (no matter what some people may claim)
- But assuming this can provide some rough guide to the recovery of some of the big names that move consistently with the market (like AAPL, GOOG, MSFT, AMZN, ..etc) - i plan to use the levels provided by this guide to pick best option strikes and expiry to play some long CALLs if this path holds.
- for example, if we want to play the 115 long CALL on GOOG, we should consider taking expiry not earlier than early October (or later than that) - as in the below chart
Again, please keep in mind that this is a hack - it's not a method of price prediction and not even a sanctioned method of chart analysis :)
I'll be super glad if that idea helped inspire some winning trades - let me know in the comments.