| Dear Loyal Reader,  | In 2021, traders saw stocks soar to unbelievable heights.
In 2022, those market leaders became the biggest losers.
Tesla and Meta shed hundreds of billions in value. Plenty of their ilk in the tech sector are down 50%, 70%, even 90%.
What will 2023 bring?
We don’t know.
But it’s likely to hold both winners and losers. And traders need the right tools to figure out which is which.
One tool I’ve been watching recently is a simple chart pattern.
Sometimes an M forms, indicating a potential top.
Other times, astute traders can spot a W, signifying a bottom.
These M and W patterns have been studied for decades.
In 1971, a researcher named Robert Levy identified 32 variations of them.
Then, in the early 1980s, another researcher, named Art Merrill, tested all of the different patterns.
He found just 2 of the 16 M patterns were consistently profitable. Only one W variant delivered consistent gains.
Then in 2002, John Bollinger wrote a book explaining how the pattern helps him trade with Bollinger Bands. This was a complete trading strategy that built on all the previous research.
After that, there wasn’t much original work on the pattern. I understand why.
It’s difficult to program, and challenging to test because the signals are determined by the price action and precise rules need to be written defining when to enter and exit trades and when to ignore potential patterns.
Our friends at Monument Traders Alliance rose to that challenge.
They developed an automated tool that finds potential winning Ms and Ws in real time. That’s quite a programming feat. But it gets better.
Their tool, Profit Sight, tracks stocks you want to follow. It identifies the signals and pushes notifications to you.
With it, you can trade throughout the day without having to stay glued to the screen looking for patterns that may or may not be useful.
I was impressed by the tool, but also skeptical. I wanted to see more than pretty lines drawn on a chart.
They had more. They back tested their rules with real market data. The win rate — about 62% — was consistent with the tests published in the 1980s.
That’s impressive to me. They used modern tools to unlock the power of a pattern that’s been known for decades and made it simple to trade.
I think it’s worth looking at this. You can learn more here… Kind regards,
Michael Carr, CMT, CFTe
Editor, The Banyan Edge
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