1. The market was in a bearish trend.
2. This pullback took four downswings to resume the bearish
trend. The pullback upwards was strong enough to form a bull
trend line. But it was a bull trend line that failed almost
immediately after forming. Recall from the last section that this
was a bearish sign.
3. Soon after resuming the bearish trend, the market lapsed
into another multi-swing pullback. The fourth downswing in the
pullback could not resume the trend. Technically, according to
the rule of thumb I mentioned, it was a struggling trend.
But trading is not about rules of thumb. It is about what is really
happening in the market.
There were good reasons to downplay this supposed struggle of
the bear trend.
First, remember that we just saw a short-lived bull trend line. It
pushed our market bias towards the bearish side, and made us
more sceptical of the bullish price action that followed.
Second, the broken bull trend line has clearly flipped into a
resistance. Look at how price bounced off the bull trend line.
Given such a bearish context, the inability to resume the trend
by the fourth downswing was not a deal-breaker for traders who
were looking to short.
June 25, 2022 1.9K 1
