{"id":36297,"date":"2021-02-11T17:30:04","date_gmt":"2021-02-11T15:30:04","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=36297"},"modified":"2025-08-29T05:39:36","modified_gmt":"2025-08-29T02:39:36","slug":"when-to-exit-the-market-identifying-the-peak-using-patterns-news-and-livermores-normal-reaction","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/when-to-exit-the-market-identifying-the-peak-using-patterns-news-and-livermores-normal-reaction\/","title":{"rendered":"When to exit the market? Identifying the peak using patterns, news, and Livermore’s normal reaction"},"content":{"rendered":"

In 2021, Bitcoin hit an all-time high of $48 000<\/a>, and Ethereum topped $1700<\/a>. What should you do with long positions: close them or hold for further gains?<\/p>\n

Together with the crypto exchange EXMO <\/a>, we explain how to determine the end of a bullish trend using patterns, the Livermore method and news analysis.<\/p>\n

Reversal patterns<\/h2>\n

Patterns are recurring combinations of bars on an asset’s price chart. Patterns with high probability signal trend continuation, its reversal, or consolidation followed by a breakout.
\nTrading by patterns works like this:<\/p>\n

    \n
  1. The trader looks for the pattern’s start, for example a local trough and peak.<\/li>\n
  2. First he defines the condition for pattern confirmation: a breach of a price level, a bounce or a consolidation.<\/li>\n
  3. Then the trader waits for the pattern to form and be confirmed. For example, reversal patterns are confirmed when a daily candle closes below the support level.<\/li>\n
  4. After pattern confirmation the trader opens a position in the forecasted direction.<\/li>\n<\/ol>\n

    A breach of a support or resistance level is a prerequisite for the pattern to trigger.<\/p>\n

    \n

    “New traders should combine reversal patterns of technical analysis with support and resistance levels. Near meaningful levels there is a tug-of-war among big players. It is especially important for a novice to take this into account to stay in step with the market,” says the EXMO chief operating officer Sergey Zhdanov.<\/p>\n<\/blockquote>\n

    Some of the simplest and most reliable patterns for daily-chart trading are \\”Double Top\\” and \\”Head and Shoulders\\”. They help traders identify a reversal of a bullish trend.<\/p>\n

    The Double Top pattern consists of two highs that close at similar prices.<\/p>\n

    On the chart:<\/strong> two highs with a trough between them.<\/p>\n

    Construction:<\/strong> draw a horizontal support line through the minimum.<\/p>\n

    Confirmation:<\/strong> the daily candle closes below the support line.<\/p>\n

    \\\"When<\/p>\n

    \\”Double Top\\” on the BTC\/USD chart when the 2017 high was reached.<\/p>\n<\/div>\n

    The Head and Shoulders pattern forms from three consecutive peaks.<\/p>\n

    On the chart:<\/strong> three peaks with troughs between them. The middle peak is the highest; the second trough is usually higher than the first.<\/p>\n

    Construction:<\/strong> draw a support line through the troughs.<\/p>\n

    Confirmation:<\/strong> the daily candle closes below the support line.<\/p>\n

    \\\"Head<\/p>\n

    \\”Head and Shoulders\\” on the LTC\/USD chart in August 2020.<\/p>\n<\/div>\n

    Pattern trading works best on daily and weekly charts. Do not search for patterns on hourly or minute charts: market noise reduces forecast accuracy.<\/p>\n

    The Livermore Method<\/h2>\n

    Jesse Livermore\u2014a market speculator who made millions from short selling. Early in his career he developed his own trading system, through which he predicted<\/a> the stock market crash of 1929.<\/p>\n

    In the early years of the Great Depression, Livermore opened short positions on the stocks of the largest companies of the era. From 1929 to 1932 the Dow Jones fell from $380 to $42. At the same time, Livermore earned about $100 million in profits.<\/p>\n

    \\\"When<\/p>\n

    In the early years of the Great Depression, the Dow Jones fell by ninefold, while Livermore’s fortune rose by about 30x.<\/p>\n<\/div>\n

    Livermore described his trading strategy in the book How to Trade in Stocks<\/a>. The strategy calls for analysing price action near base points: historical highs and lows, as well as \\”round\\” price levels of 50 and 100.<\/p>\n

    \n

    \\”We, as the exchange, observe elevated trading volumes near former highs and near \\”pretty\\” levels like $500 or $1000. At such levels a significant volume of limit orders often accumulates,\\” remarks EXMO’s chief operating officer Sergey Zhdanov.<\/p>\n<\/blockquote>\n

    Livermore described two possible outcomes when base points are breached:<\/p>\n