weekend short term lounge: 19th-21st oct, page-21

Hi Pilsner,

If I can get the html right a perfect railway track should look like this:

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Or for the bearish version:

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I'll talk about the bullish version as the bearish is the exact opposite.

It should come after a more steady downward move and be at the bottom of that move. The railway candles should be significantly longer than the average previous candles from the downward slide. And the green candle should reach to the top of the red candle.

Technically a perfect pair of tracks is exactly matching in highs and lows but in reality this is dependent on the timing. If the fall/rise happens in the middle of the candle you'll just see one long tailed candle. If the candles are too long then the subsequent move past the start of the railway pattern might be included in the green track (as in this case).

What's important is a sudden and very fast capitulation followed by an immediate and equally strong price rejection of the new low. Strong enough to completely undo the capitulation.

It's such a strong signal because of the underlying psychology that forms the pattern. The sudden capitulation usually happens at key level (in this case the 61.8 fib) and when it breaks there's a sudden panic (or stops are triggered). If buyers happen to waiting in the wings they snap it up. That signals everyone else there's a buyer and the race is on to get back in, probably including some of the people that just sold. Moving to a longer timeframe it gives the signal that the bottom has been found so longer term sellers start to pull their offers and longer term sellers start looking for a reentry.
If you're watching the screen when it happens and you happen to hold it's usually accompanied by two 'oh s**t' moments in rapid succession.

As it happened I bought at 5.7c a few seconds before it happened today. And I had both of those moments (and vocalized them rather loudly, much to disgust of the cat who was trying to sleep on lap). I was buying the fib bounce and SGQ nearology and the sudden fall caught me by surprise, fortunately before I'd had a chance to set my stop at 5.2c or I'd be a bit cranky right now.