There's a nice point and figure pattern called the long pole. It all depends on what happens during the 'pregnant pause'. Do more buyers or sellers enter the market to continue the move ? If not, try to fade it. But you'll have to go to market.
0.75, 1 and more point moves within minutes in stocks still happen, for example check out today's chart on bdk, notice the spike at around 11.30, a perfect opportunity to make money fading that move if you trade the stocks in play you'll see more of those moves, unfortunately not as much as before
While we're at it: I am currently reading a scroll about trading, and it says nowadays you don't have to mail your orders in anymore, but you can use a device called a "telephone" to talk directly to your broker and make a trade and get confirmation sometimes as fast as 10 minutes or less. Now my question: Where can I get such a "telephone" and how can I use it with my trading style? (I mainly scalp penny stocks for liquidity rebates.)
I feel you have to learn to fade spikes or parabolic moves up or down from your own personal observation. You have to make sure you have a good idea what you're doing and where you'll exit if the trade goes against you too much. As Mark Douglas talks about in his book "Trading in the Zone" (a great book), if you have a preconceived idea of where the trade is headed and you're attached to "being right" then you'll get stuck in a state of denial (not a river in Egypt) and get killed if the trade goes against you. So whether you're trying to short tops or buy selloffs you need to pay attention to what is actually happening and then act accordingly. If you're trying to fade a large move you obviously need to know where and when to get out if the move continues. There are a lot of things involved. Is the movement on news? Is it moving this way in sync with the rest of the market or on it's own? What time of the day is the move? How has it traded the rest of the day and/or lately? What volume is accompanying this move? Etc. etc. etc. These are things you learn from many hours of personal observation and I'm afraid it cannot just be summed up in one formula presented by someone in their book. But that's not to say they can't point out some of the things to look for as I have here. Look at today's chart for BEAS - a 5 min chart and also MSFT and you'll see some moves up and down that could have been faded successfully. I prefer candlestick charts myself which can also help you in seeing where things turn. Good luck.
Good point. I'm not familiar with this book but these guru's often make the error of using the well-chosen example to illustrate a point, even though statistically it isn't viable. I'll give you one example. The reversal bar or key reversal can often be observed at market peaks. Looks like a sure-fire turning point indicator, but I wasted hours backtesting it in TradeStation and could never get anything out of it. You tend not to notice the reversal bars that fail when you are looking at a chart. I pay attention when I see a reversal bar, but I think it would be hard to make money trading off that pattern. The overall market environment has a lot to do with patterns. During the bubble market a big price spike often indicated a big fund gunning a stock, an incipient short squeeze and a big day for daytraders who jumped in. Now it is more often a chance to unload stock and pile on additional shorts.