Wednesday, May 22, 2013

DLF: Power of Failed Pattern!!!

By Waves Strategy Advisors, For more information visit or write to
There are various patterns in technical analysis. To name a few - Head & Shoulder, Triangle, Wedge, Flag, Double tops, Double bottoms, etc.
Each of these patterns has their own characteristics and success ratio. Technical analysis is all about probability and statistics shows the probability of success and failure for these patterns. Traders normally bet only on the direction of breakout of these patterns on the assumption that the pattern will work and reach the target as per it. This is a perfect strategy but one should also note betting on a failed pattern has better success ratio than a valid pattern. Also prices travel violently in opposite direction if a pattern gets failed.
A classic example of such failed pattern is DLF. This stock gave a breakout of the triangle yesterday but quickly reversed and re-entered the pattern before reaching the pattern target. The below chart shows DLF movement as of now:
DLF 120 mins chart:

The above chart shows that DLF gave a breakout from the triangle pattern which carries aggressive pattern target of around 275 on upside. In Triangle the post pattern implication is that normally prices travel the widest part of the pattern from the breakout. The conservative target is projected on upside from the start of the up move rather than breakout. In the above chart even the conservative target is not achieved let alone the aggressive target. Prices then quickly re-entered the pattern and started moving violently on downside. This is a classic example of failed pattern and trading failed pattern is much better as the violent move happens in opposite direction of breakout which can be clearly seen above.
We believe that markets are on the path of natural evolution and one has to be dynamic enough to understand and accommodate that evolving nature. Failure to do that can result into serious errors on part of analysts and traders!
Do not get carried away with the overly optimistic views for Indian markets. Think objectively. To know more about the daily research advisory write to us at or call on +91 9920422202 / +91 22 28831358

No comments:

Post a Comment