Let's look specifically at the signals we're using in the current trades. What I want to cover is the differences between the time it would appear these things were not working and the times they were actually not working. How one would trade these in real time and how decisions on being right/wrong on direction would be derived in real time.
161 Top
The most common topping signal in indices history. If you knew of this tendency you'd be strong bias towards shorting the market as it got to around 320. It would proceed to go parabolic against you in the following days.
The slope off
Understanding the 161 topping tendency would have you a bit early but understanding that markets tend to make false breakouts would have you watching for early short signals on momentum failure. You'd pick up at least one big false signal but after the spike out of that you'd be into an easy downtrend for a while.
The two legged bull trap
Applying the false breakout and retest principles you'd be picking up short signals again on the retest of the 161. From here using these principles it'd look like a sure trade into the double bottom and you'd feel a bit pressured into the second spike out.
In the context of the crash to come, this is an absolutely nothing move. It extends to the 161 of the bottoming swing and then it spikes this out by the tiniest of margins.
This is what it looked like on the day the best short was available into this rally.
This is what it looked like after. Very clearly excessive opportunity to the downside but it comes off a strong of losing signals. One would have to be a round trip thinker to have done well in this move.
The crash would then begin. Using the 161 topping swing as the reference point would have picked out an optimal target into the low of the move.
In red are the losing signals/entries.
Here's what this would have looked like at the high when you'd picked up the sell signals forming about 6 months earlier (The internet reliably informs me this would qualify you as being "Wrong forever" at this time).
You take some losses in this period. They would not be even the tiniest amount of the profits you'd just made in the last swing down, but again you'd go through a period of being wrong about the market for quite a while before getting the invalidation signals to tell you to stop trading that direction.
Once the market broke out the hypothesis followed is not working. The expected resistance becomes the expected support. You'd be buying into this move.
Red losses and blue wins. You'd do fine on a round trip.
Here would have been the bet outcomes of these strategies in this move. Red losses and blues wins.
Today
Hypothetically speaking, if this was happening today a bear would feel uncomfortable at this time. While spiking out the 161. A huge winning streak of shorts would have been on the way down. The strategy would have been good for weeks and tough for days (But it's amazing how little it takes for "Wrong forever" to click in. You have to remember from some perspectives you're wrong even when you're 100% right - so technically from that perspective you're always wrong but they're louder about it when the market moves against you).
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