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What Is Real And What Is Not In Technical Analysis

|Includes: Apple Inc. (AAPL)

When starting to learn about technical analysis you begin by sifting through a maze of tools. Some have what seems to be a magical ability to locate support and resistance. Most of these tools locate these areas by "connecting the right dots" on the chart. However, there are differing opinions as to which are the right dots.

Support and resistance areas are also located by using moving averages. These too can have pinpoint accuracy, but which ones? If you continue on this path you'll eventually settle on some combination of these tools, but I guarantee that you will also be second guessing them forever.

Let's look at an example of what is real and what is not.

In the daily chart of Apple (NASDAQ:AAPL), we see that prices stopped their decline right at the 200-period moving average. The 200-MA is the most widely followed moving average by traders and institutions, so it is the one that often does become a self-fulfilling prophecy. For this reason, I also put the 200-period moving average on my daily charts. However, I also look to the left to see if there is confirming real price support. As we can see, Apple did not has pushed through the 200-MA and is on its way to real support.

Years ago, I realized the only real support that could be relied on with consistency was based on price. However, I didn't come to this realization until I removed all the moving averages, trend lines, Fibonacci lines and even the horizontal lines from my charts. Consistently I saw that while prices stalled at a widely followed moving average, the majority of the time that stall was temporary and prices continued to real support- as Apple did.

Do prices ever stop and reverse from a 200-MA without price support to the left? They do at times because of the self-fulfilling prophecy. The way I suggest you handle this is to at least let the 60-minute timeframe reverse trend before trading against the daily trend that has stalled at the 200-MA. Let's look at that.

The 60-min. chart of AAPL is a clear series of lower highs and lower lows. When the bounce from the daily 200-MA happened, prices stopped right at price resistance, which was an unfilled gap and reversed. With prices having been rejected right where they should have been, the odds of a test of the pivot low that formed at the daily 200-MA was high.

On this chart is an excellent example of how to play a breakdown strategy in the area of prior support or any breakdown for that matter. As we know, there is going to be buyers in an area of support. However, when the trend is down and there's no "price support" to the left (a Pristine Price Void, PPV) in the higher time frame, the lower timeframe support is likely to fail.

What we see happened when AAPL bounced from support on the 60-Min. is that sellers took advantage (green diamond) and pushed prices right back down. This little bounce and failure sets up a shock for the buyers and signals that prices are ready to resume the move lower. That candle marked with the green diamond was a large green candle engulfing the prior before it turned into a Topping Tail (TT).

With that signal in mind, we have a short bias to take into a lower timeframe of choice (I'll use the 5-min.) to look for entry points. That being said, those trading from the 60 min. timeframe can take the signal under the candle marked with the green diamond.

Moving down to the 5-min. timeframe, we are expanding the data to see more detail of the price action that will provide signals not seen on the higher time frame. The green diamond at the left of the chart marks the same point on the 60-min. chart.

While 60-min. traders will be entering after the greater than 100% retracement seen here on the 5-min., 5-min. time frame traders should not enter here unless they have knowledge of Advanced Management Strategies (NYSEMKT:AMS).

Those that have taken Pristine Seminars will recognize the secondary signs of continuation that I have marked with light green diamonds. The first is what we call a 180 reversal or a Green Bar Ignored (GBI). The second is a Money Bar setup that Pristine Trained Traders use after a breakdown has already happened. These setups have shock value and are entered after the candle forms marked by the light green diamond. With a PVV below, you can count on prices moving lower.

I hope you've gained a few insights into to seeing what is real and what is not in technical analysis. Most spend their time studying what is not real when starting out and many never stop. I eventually found the truth and what the Pristine Method® is based on. You can learn more at this week's Free Power Trading Workshops or by e-mailed

All the best,

Pristine Capital Holdings, Inc.

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