The Shape – on a Close Up

The Shape is an ABC structure.

Since it is a counter-move, the likelihood for its starting point is in Bear Zone 1 or Bull Zone 1, after a Wave 5.

The shape develops as a result of a “Stong Off The Bottom/Top” move.

///Strong Off The Bottom
RSI[i+1]>RSI[i+4]*3.5 && RSI[i+2]<RSI[i+5]*3.5
///Strong Off The Top
RSI[i+1]<RSI[i+4]*.28 && RSI2[i+2]>RSI[i+5]*.28
///where RSI is an 8-sample HL2
The last cyan tilted line up is a shot over the bow / “full lambda move”. After a move like that, within reasonable time a deep pull back is to join in on (see red R earlier) or a B represents a break out.

The following image shows the ABC structure beneath the shape.

A, B and C waves each end up when they have printed a measuring leg (blue/red) and a divergent leg (yellow) that makes a (near) higher high / with still overbought/oversold RSI2 reading, but with a rather divergent value.

As you can see, the pullbacks are very muted, and throughout the whole structure it is virtually suicidal defying the shape’s direction (during this 5% correction), for the maximum holding time of a short was less than 1h on average.
The long wick on the spike up did not register an overbought RSI, but it did clear orders out of the way making way for the last thrust up.

The last image shows the reaction that occurred from the spark zone, the subsequent trend line that was printed by the pullback and the break that was to happen in this current, trending state.

So, how is this market gonna reverse after all of this?

  1. Measuring leg + divergent leg closes down leg C
  2. You would see a full lambda move down
  3. a) that would provide an entry either upon the break of the low or b) upon a deep pullback (>65)

When the sequence does not play out like this, you may end up getting liquidity breaks followed by more pronounced divergences (higher highs) on new divergent legs.

Full Lambda Break

I’m still trending, ye-ye-ye!