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.e.the move that is opposite the original thrust.Let's take a look at the monthly gold Chart 6-14, as an example of our buy and sell points.CHART 6-14 92 DiNapoli LevelsBefore you have a coronary over the prospect of that $200 stop, let me point out that thisis a theoretical example.It could be made practical, however, if we used the monthlyDirection for weekly-based mutual fund switching or even daily based Fib entry.Context!Context! Context! Plan your trades as you would any other important financial endeavor.I'd give you more examples, but we haven't covered how to arrive at the Fibonacci entryand stop levels yet, so the exercise would have limited relevance.Before we leave this topic, however, let's look at our friend Microsoft, Chart 6-15.Thistime we'll view it in a monthly Time Frame.There's no inconsistency in being a seller on a weekly Double RePo, as discussed earlier,closing the trade at the Logical Profit Objective shown in Chart 6-6, and then being abuyer based on a monthly Bread and Butter signal.If this seems inconsistent to you, youdon't fully understand price vs.time charts or Time Frames.A review of the Trenddiscussion in CHAPTER 2 may help.CHART 6-15 Chapter 6 Directional Indicators, 9 Power Patterns 93CHART 6-16Notice how the monthly MACD Confirmed the ongoing monthly up trend, while theStochastic gave us a great buying opportunity, once the profit objective shown in Chart 6-6 was reached.Note the consistency between the Bread and Butter monthly buy and the MACD shownabove.What is not shown is a daily Double RePo Look-alike on the buy side thatoccurred at the same time! This is what high probability trading is all about! 94 DiNapoli LevelsPATTERN FAILURES:The idea behind these directional signals is not to follow everyone else, but rather to fadethose pattern players when you are sure they are wrong.Typically, newer traders arelooking at the standard Robert Edwards and Magee trading patterns1 for trading signals.They make an excellent group to feed off, if you can determine what they are doing andwhen they are likely to panic.These signals work best when these traders have the time toget in the trade the wrong way.That's why I look at daily, weekly, and monthly patternFailures.While the higher Time Frames hold the more secure probabilities, some prettydramatic results can be achieved from certain intraday pattern Failures.THE "HEAD AND SHOULDER FAILURE":CHART 6-17The above idealized example illustrates a clear H&S with a break of the neck line, a bit ofconsolidation below it, then a close back above it.The subsequent action is expected tobe strongly up because the short selling pattern players are caught wrong, and must1Robert Edwards and John Magee, Technical Analysis of Stock Trends Chapter 6 Directional Indicaors, 9 Power Patterns 95unwind their positions.The lower portion of the consolidation after the break of the neckline may be supported by a significant Fibonacci level.If it is, you will have some advancewarning that a Failure is coming and you can enter according to the Fibonacci tacticstaught in CHAPTER 13.It isn't necessary however, that such support causes thesubsequent Failure.What's necessary is that (he Failure occurs.Anticipate this patternat your risk.If you anticipate this signal before it crosses the neck line, you will be tradingagainst a classic pattern and you would also likely be against the prevailing trend.Remember, you are not taking the classic sell signal, rather the Failure (buy), if it happens.CHART 6-18The bond weekly Chart 6-18 shows a picture perfect example of this phenomenon.Wehave strong Fib support below the neck line.Time for players to "get wrong" (two tothree weeks) followed by a subsequent sharp move up, trapping those pattern players.This weekly action would be the set up for the trade.You would enter on the daily TimeFrame. 96 DiNapoli LevelsCHART 6-19The daily chart illustrates how powerful and rewarding this signal can be.The idea is todrop your Time Frame to enter the trade, once the setup is apparent.If you are observing the pattern Failure on a weekly chart, you can enter on the daily.Ifyou are observing the phenomenon on the daily, enter on the hourly.The specific entrytechniques you would use will be covered later in this book.If you hesitate, you caneasily get left behind!NOTE: These types of pattern plays are particularly rewarding if they are widelypromoted in a specific market, particularly on TV programs, or in a widely-followednewsletter, or fax service. Directional Indicators, 9 Power Patterns 97Chapter 6THE "TRIANGLE BREAKOUT FAILURE" OR "OOPS":FAILUREFIBNODESUPPORTCHART 6-20The Triangle Breakout Failure or OOPS can take a variety of forms.The key is thattraders have recognized that the triangle pattern exists and they have had time to act on it,thereby getting in the wrong way.It can't be too subtle.All the same reasoning appliesas with the Head & Shoulders Failure. 98 DiNapoli Levels"FADING POPULARITY" OR "THE VULTURES DELIGHT":In the early 90s, when Candlestick charting was new in the U.S.and aggressivelypromoted, I had a studious client call me whenever the strongest of the Candlestick signalsoccurred.I never took any of the signals.I simply asked him, as a dedicated devotee ofCandlestick patterns, when his Directional signal would indicate that he was wrong.Thatwas my Directional signal.Soon he understood what I had been trying to teach him abouthow powerful Failures can be.THE "RAILROAD TRACK":This is a top notch Directional signal that can occur in any Time Frame.Its wideapplicability is likely responsible for the glowing comments from my clients.It's as easyas it gets to apply and profit from, with a minimum of effort.For those of you who havestudied Steidlmayer's work 2, the Market Profile®, and understand "rejection of price,"the underlying concept of why this works will be apparent.To those of you who areunfamiliar with these concepts, just imagine a half a dozen ocean-front homes in SantaBarbara, California suddenly going up for sale at $100,000 each.Boom, they're gone.Professional investors and Realtors snap them up and the price is back to the more normalrange, perhaps higher since overhanging supply is now absent.The idealized Chart 6-21 depicts a typical Railroad Track.With the extensions down asshown, we would expect a strong up move.Notice how the extended two bars are out ofclose proximity with the others bars.We call this "Railroad Tracks in the country", i.e.nice, scenic, and pleasant.Railroad tracks in the city are congested, unhappy events,potentially dangerous to cross, smoggy, and unsightly.As futures traders, what we wantis space around the Railroad Tracks we select to trade.For rejection of price, we needprice that is not common.The Railroad Track (RRT) can take place in any Time Frame, from five minute to yearly.It is one of two directional signals which allows you to adjust the Time Frame to anydesired amount
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