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
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
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
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
"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
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