A REAL-LIFE EXAMPLE

Figure 3, which shows the sterling/Deutschemark cross-rate, contains several excellent examples. You can see how

many times prices either approached or penetrated real-body support and resistance points but were unable to sustain

those levels. Time after time, an attentive trader could have entered positions counter to the prevailing market action

and would have done well. There are two noticeable exceptions, however.The first came in late December 1994, when the market finally broke down out of its range. Two things should have

been noted that might have kept you out of a trade. One is the double top, or tweezers pattern in the candlestick

vernacular, which took place about 10 days prior to the breakdown. That would have been your first indication that

the trend was probably toward lower prices. The second indication came two days before the breakdown in the form

of a shooting-star pattern, followed by a large negative real-body candlestick. This was another signal of lower

prices.

The second exception was in January 1995, when the market again broke down after a consolidation. This, too,

probably could have been avoided. All indications were signaling a bearish trend. That should have kept the careful

trader from trading the doji day just prior to the breakdown. The doji, however, might have caused some confusion.

In addition, look at how taking those positions against the prevailing action is a great way to enter a new longer-term

position. One glaring example of this took place early in January 1995, just before the second breakdown. After

rallying for three days, the market approached, but never broke, real-body resistance. Prices did not stop falling until

they were about 600 points lower, less than a week later.