One should not trade on the first turn (the first line that indicates a reversal in direction), but should wait for the second line. If the second line is the same color as the first turning line, then one should buy or sell the market respectively. This technique is very important to understand in order to maximize the effectiveness of entry and exit positions. "Black Shoes" and "Red Necks" after a change in price direction, are an indication that the current price trend is likely to continue. As Mr. Seiki Shimizu discloses, buying or selling the market typically occurs when "Black Shoes" or a "Red Neck" appears. (Remember Rule # 2) A red or black "Sweater and Pants" occurs when the turning line breaks above or below the previous four (4) new price lines. The "Sweater and Pants" formation can also occur when a series of consecutive large range lines appear within a defined trend.
A "Red Hat" or "Chip Hat" occurs at the ceiling of a market and can be identified by its small size after a sizeable bullish price advance and a black line that follows the "Red Hat". The "Red Hat" is symbolizing the decreased ability of the buyers to advance the current price. This decreasing strength might sometimes warn of a possible reversal. "False Movement" occurs when a single turning line is drawn and no follow-through of the trend is seen. No second or third line of the same color following the first turning line would indicate this lack of follow-through. A recovery of the initial trend normally occurs after a "False Movement" line. One should not rely on just the chart alone, but look at the fundamental and news-related information that may have caused a new line to be drawn. |
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