Gekko pattern

Discussion in 'Technical Analysis' started by Pekelo, Oct 10, 2010.

  1. Pekelo


    Here is the description of the pattern with a few examples, as I promised.

    I know, what your first question would be, so let's get this out of the way quickly.: Why is it called gekko??

    Just because.

    No, seriously, why is it called gekko?

    Alright, I already have the Dragon pattern and I thought let's keep the names with similar spieces. Happy? Not? Well, if you want to believe that it is named after Gordon Gekko, I am fine with it, as long as we are talking about the same pattern.

    OK, so let's get down to business. The gekko in short is a bullish pattern, when the market bottoms about 1 hour after the open, then a relentless quick rally follows and in the afternoon the market goes sideways, consolidating in a rather narrow range, most often between the Bollinger Bands (BB).

    Currently it happens quite often, I would say 3-4 times a month, (3 times in the last 10 trading days), so if recognized early, one can take advantage of it...

    Phases of the pattern:

    1. The market could open going up a bit or dropping right from the star, nevertheless the general direction eventually is down. The bottom is usually between 10-11:15 am.

    2. From that bottom a rather quick (less than 2 hours) and relentless (not many pullbacks) rally follows with a 8-12 pts gain in the S&P.

    3. Once the rally gets tired, the market drops back a bit and a 4-5 pts wide sideways consolidation finishes the day. In the last hour it could break out of the range either way, but most often by the close it returns into the BB determined range.

    The best example would be last Friday:


    The bottom was at 10:30 from where in one hour the market went up almost 10 pts. After that a 3+ hours 4 pts wide sideways action nicely bouncing between the BBs with a late breakout upward but returning into the BBs by the close.

    The obvious question are:

    1. How to recognize it early?
    2. How to play it?

    1. I usually recognize it once we reach the upper BB in the rally phase and instead of turning back from it, the market goes through it. It is a bit late in the pattern, but the first phase is not so obvious, for example the SDD patern also bottoms around that time but doesn't rally that much.

    2. If one is already long from around 10:30 (when the market likes to change direction) once reaching the upper BB it might pay off to stay long expecting the rally to continue, which is about 40-80% more than the width of the BB in the morning. Wider the morning width, less it goes above the upper BB. (On Friday the morning width was only 5 pts, so it went another 5 pts higher. If the width is 8 pts, I would expect only 4 more pts.) Once that 2nd part of the rally did realize, you can short it for a drop of 4-5 pts. The exit from that short is usually signaled by the Williams %R hitting -100 or hitting the lower BB. From there you just play the BB or W %R hits, the lower BB long, the upper BB short.

    If it breaks out of the BB, you can average in (with crossing your fingers), because it tends to return to the established afternoon range by the close.
  2. Pekelo


    Here are 2 more examples from the last 10 days, this was 9 days ago:


    The start of the day was a little messy, but clear bottom around 10:30 and a decent 8 pts rally in the next 2 hours. 4 pts range in the afternoon with a breakout downward after 3 pm, but nicely returning into the range by the close...

    And 8 days ago:


    10 am bottom, 14 pts rally in 90 minutes and although the original afternoon range was rather narrow, only 2 pts, but started to widen, nevertheless the last 10 minutes the market as lost horses moving back into the range...

    That's about it folks, enjoy and use it for your profitability...
  3. Pekelo


    Today was a nice example of this:

    In the last hour it could break out of the range either way, but most often by the close it returns into the BB determined range.


    Although the breakout from the range happened in the last 2 hours, nevertheless it nicely returned into it, giving a nice short opportunity. The expected range was 1276-79.
  4. Pekelo


    We had back to back gekkos on this Th-Fr combo, let's see them individually.

    Here is what I posted on Thursday around noon, when the pattern was fairly obvious:

    Let's see how it ended. The market broke out of the sideways channel after being there for 2.5 hours, and usually it returns into the channel by the close, even if it doesn't end there. That didn't happen on the same day...

    As you can see the pattern did return to the range eventually, but only expending it into the next day's first 20 minutes....
  5. Pekelo


    And here is Friday:


    It broke out of the range by 1 pt in the last hour returning there twice before finally moving upward...
  6. thanks for the charts. Never noticed this pattern before, and I could have done much better the past 2 days if I'd known about it.

    Appreciate it !
  7. Pekelo


    I made a complicated prediction 3 weeks ago, because I noticed that the daily chart looked like the afternoon part of the gekko pattern. Here is what I predicted:

    And here is how it went down:


    I kept posting in the ES Journal based on this pattern.

    1. My expectation for the top was 1335-40 SPX (posted in advance), it got overshot by 4 pts only.
    2. I thought the range would be around 30 pts max. eventually it ended up being 50 points wide. My bad....
    3. I posted live the bottom call 5 days ago, calling it at 1295-96 ES and affirming it at 1303. It got overshot by 2 points only....

    P.S.: Some smarter people might have noticed, that the last bottom and top of the zig-zag didn't happen during RTH, thus it doesn't match exactly the daily chart's tops and bottoms....