“Price gaps, wave relationships and Fibonacci retracements act as support or resistance for countertrend price moves. When combined, these characteristics help identify high-probability reversal zones.”
-Jeffrey Kennedy
Technical analysis offers several ways to spot pullbacks that indicate a reversal of the larger trend. When you use the Elliott Wave Principle, it can be very useful to “gain a consensus” from more than one indicator to spot a high-confidence trading opportunity.
The following lesson is adapted from Jeffrey Kennedy’s December 11 Elliott Wave Junctures educational subscription service:
Identifying high-probability reversal zones is simple, IF you know what to look for.
In the daily chart for Akami Tech Inc. (AKAM), you can identify all 3 characteristics:
Using this information, you can see the very tight zone in which you may locate a probable reversal in this market (within the red circle).
Rather than focus on a single indicator, Jeffrey encourages you to combine them together to better identify high-confidence reversal zones in your price charts.
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This article was syndicated by Elliott Wave International and was originally published under the headline Chart Example – How to Identify High Confidence Reversal Zones. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.