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Technical Analysis Plain and Simple: Charting the Markets in Your Language, Third Edition by Michael N. Kahn - CMT

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23. Sometimes Being Wrong Is Good

Most of the time, the technical trader or investor identifies a chart pattern and then waits for a breakout higher or lower. However, the market often gives advance warning about its intentions within these patterns, allowing the aggressive trader to capture additional profit with an early trade.

Failure That Forewarns

When a market is trading in an identifiable pattern, such as a flag, rectangle, or channel, it moves from the top of the pattern to the bottom repeatedly. The more often prices touch these borders, the stronger the pattern and the more significant the eventual breakout will be. If the market has developed an underlying strength, prices often fail to trade back down to the lower ...

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