Fractals

You may have heard me mention that technical analysis is fractal in nature meaning that you can see the same price patterns on 1 day charts, 1 month charts or 1 minute charts. The only difference is the time span. This is because the price patterns we observe in Technical Analysis are in truth, reflections of human emotion, this is why the patterns have not changed in over a century and why we see them on different length charts.

Look at this morning's chart of the QQQQ...

The first yellow arrow to the left is in the middle of a slanting H&S top. The measured move or price implication of such a pattern can be measured from the neckline (slanting red trendline) to the top of the head, in this case it is roughly $.30. The second arrow pointing down shows the break of that neckline, our implied target is $.30 lower from the break, price nearly hit the target exactly. In the large yellow box is a what may be considered a bottoming formation (I say may because depending on how it develops it could also be a consolidation pattern, but I believe it looks more like a bottoming formation based on the spike in volume. It's initial implied move is the distance between the top and bottom of the box once price where to breakout above the top line-approximately $.20 taking the Q's to the $44.20 area. This is not a final target, just an implied move where we may see some consolidation, depending on the sentiment. The point is not to make any proclamations about today's trading action, it is to show you the fractal nature of technical analysis and when we see these patterns, that you understand they are generally created by human emotion. Try to put yourself in the emotional spot of a long or short position with each swing. The more you imagine you have to lose, the clearer each swings emotional make up will be.

Here is a chart of the SPY 1 min. 3C. Thus far today it has been very accurate in calling each swing.