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“V” formation

some examples

A "V" is literally a visual V from the alphabet where prices decline at first but the price retracement is between 80 to 100 percent shortly after

Market consensus has sharply changed

while originally there was a strong bearish consensus now just a brief while after the bulls are in control

The most important rule about a "V" is to never short it

(it feels intuitive that one would want to try a short but simply refrain from doing so)

one way to exploit it as a setup is that most often after a "V" there is a pause which can be extended in time

than a small retracement which timed with other filters is an ideal low risk entry point for a continuation to the long side and a much more low risk entry point than a breakout strategy at new highs

here an example of the S&P500 futures index market

we are selling off at the open and retrace all the way back by 11:50 eastern to previous highs of the day

trade sideways for 90 min

followed by a small retracement and the green arrow marks the spot for a low risk entry point for a continuation long entry

(Charts courtesy of TradeStation)

This is the same chart just on a 15 min chart to visualize the "V" even more clearly

Another example:

similar scenario of ES trading lower on the open but prices finding themselves near the highs of the day by 11:00 eastern time

Followed by a tight range sideways trading for more than an hour

a small retracement

and the green arrow markets the spot again for a low risk continuation entry to the long side

This again is the same day just represented in a timeframe higher (15 min) to illustrate where the "V" pattern has its name from

Same rules count for the "inverse V" when this pattern is being traded from the short side

and again the most important rule about this formation

is to not fade it

( often in trading to know what "not to do" is more important than "what to do")


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