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amdudus, Fri Mar 16, 2018 9:45 pm

This graphic illustrates the following:
8/8: Hardest line to rise above (overbought)
7/8: Fast reverse line (weak)
6/8: Pivot reverse line
5/8: Upper trading range
4/8: Major reversal line
3/8: Lower trading range
2/8: Pivot reverse line
1/8: Fast reverse line (weak)
0/8: Hardest line to fall below (oversold)
Price is between 3/8 and 5/8 MML's about 43% of the time.
Here is another graphic illustrating the buy/sell options:
As you start observing the interaction between price and MML's, you'll start to notice some patterns.
What this is showing us is that many times, if price is above the 5/8 line and falling, it will generally stop and consolidate around 5/8 first before heading lower. The same is true in the opposite direction: if price is below the 3/8 line and rising, it will generally stop and consolidate around the 3/8 line before heading higher.
On top of that, if price is between the 5/8 line and 6/8 line and heading higher, the tendency is to bounce off/reverse off the 6/8 line and retest 5/8 before heading higher. The same is true for shorts, if price is between the 3/8 line and 2/8 line and heading lower, it tends to bounce off the 2/8 line and retest 3/8 before heading lower.
Why does price do this? Remember, price is between the 3/8 and 5/8 line about 43% of the time. So before it jumps outside of its comfort zone, it needs to be sure (hence the retest).
Now let's take a quick look at what happens when price moves above 8/8 or below 0/8. This does not occur too often, but when it does it's important to know what to expect.
The above illustration tells us the following: If price moves above 8/8, 75% of the time the price will reverse off the +1/8 line and retest 8/8 before moving higher to +2/8. Similarly, if price falls below 0/8, 75% of the time the price will reverse off the -1/8 line and retest 0/8 before moving lower to -2/8.
Now, if price moves beyond the +1/8 or -1/8 lines, then 95% of the time it will reverse when it hits +2/8 or -2/8. Remember, the market was already in overbought (8/8) or oversold (0/8) mode, so once we push that to the extreme (+2/8 or -2/8) it is extremely unlikely (95% chance) to reverse.
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