FAST MOVES FROM FALSE MOVES

There is a saying on Wall Street that goes something like this:  “fast moves come from false moves.”  Or you can flip the coin and look at it this way: False moves create fast moves.”  Either way the point is a contrarian one and a valid one.  Let me explain.

When a very noticeable and well regarded stock pattern sets up, especially one that makes its presence known on CNBC and multiple websites and blogs, there is the emotional tendency to assume that this pattern is going to work.  How can it not we reason? Even THE MAN Bob Pisani jumps a board, and Mark and David and Erin, and Becky and Billy Bob and throw in Bobbi Sue too.  Everyone sees it so… let’s all make some money!  This is so obvious.  Everyone is going to trade this set-up! Time to load up!  Giddy up! Boo-yah! Woo-yah! Ahhhhhhhhh! 

Well with apparently everyone on board the pump is primed.  Yet, instead of money gushing out of the well there is a bucket of tears overflowing from the same well as the “gotta work” pattern chews up and spits out all the “has to bes” who are trading it.  Been there done that huh?  Me too.  But do we miss the fast move?  We shouldn’t. 

My understanding about high probability patterns:

1.  Anything can happen in the market…and often does.

2.  There is ALWAYS someone on the other side of the trade…ALWAYS.

3.  Stock market rules are made to be broken…because there are none.  Only yours… that you never break-for buying or for selling.

4.  There may be more than one pattern at work at the same time-both diametrically opposed to one another. 

5.  If on the wrong side jump to the other.  The market is no place for marriage or inflated egos.

6.  Never listen to the herd.  Instead, follow your own analysis and the charts you use as the basis of this analysis.  This is just one of the many reasons I do not watch CNBC before, during, or after hours.

Let’s take a look at a fast move from a false move (false head and shoulders pattern) in 2009 and then one that may be setting up today:

The DOW 2009:

AAPL 2010:

Keep your eye on this one: it could be a fast move and a false one.  I will leave it to you to figure out.

The fastest move (i.e. the best money making one) can most oftentimes be the one least expected.  We call this a surprise!  It can take your breath away…and your money too unless, of course, you are not at all surprised!