Markets have more twists and turns to them than a climb up the Cooke City Highway in my native state of Montana. Just like that highway, each twist and turn is a little different than the last one.

Yet, there are similarities in roads as well as markets. There are some reliable patterns that I discovered over the years that can be of great value. The purpose of these patterns is to alert us as when to buy or stock or commodity…when to get in…and sell signals when to take profits or sell short. Buy and sell signals ideally would call tops and bottoms in the markets.

Trading Signal Pattern: How to Call Short-Term Explosive Moves in Stocks and Commodities

Let me introduce to you my "False Break Buy and Sell Pattern."

The idea of the pattern is pretty simple; it works because it is emotional!

When setting up a buy signal you want to look for a day that closes below the prior day's low. These days (also known as naked close days) look very bearish on a chart. They typically act as a continuation of a market decline. These are the most negative days you can have, not just a close lower than the prior close but also below the lowest point prices traded at yesterday.

It is very unusual when this condition is reversed the very next day if price trades above the high of that down close day. This market pattern often leads to great market follow through to the upside…just what we are looking for; a mechanical buy signal.

Just how good you ask?

I did a simple market research test on this pattern in the S&P 500 Stock Index I will share with you. The buy pattern has occurred 288 times in the S&P 500 Stock Index futures since 1982 with over 80% them producing an immediate short term gain. That's impressive.

The exact opposite of this creates a sell signal. This happens when a market closes greater than the prior day's high, then the very next day trades below the low of the up close day. I have taught this to many traders at seminars and written about it in my books for several years.

A New Dimension to the False Break Buy and Sell Trading Signal Pattern

I am surprised investors have not yet noticed this little twist that I am about to show you. It is simply this -- On the day following the naked down close we have a naked close in the opposite direction, we typically have established a reversal point in the market. That's our buy signal and entry point.

In other words, we have a down close below the prior day's low. Then the very next day we have an up close that is above the high of the down close day. This is extremely unusual action and tends to be quite bullish.

The opposite of course will be a bearish situation. This happens when a market closes greater than the prior day's high and then the very next day it closes below that same day's low.

Let me next show you how to make this even better because it is even better to wait for confirmation.

3 Trade Signals That Confirm You Should Be Buying Stocks and Commodities

1) Market closes below prior low 2) Market then closes above the high of the low close day 3) Market then rallies above the high of the up close day

This can be used to help you spot points to get back into a market in phase with a longer-term trend. With this condition we get some pretty good short-term moves in the marketplace. This condition has occurred 152 times in the S&P 500 Stock Index futures since 1982 with over 86% them producing an immediate short term gain.

Granted nothing is perfect not even this pattern. But as you can see it occurs frequently with explosive moves. There are numerous things you can do to filter out some of the trades such as trend, using accumulation distribution, seasonal patterns, moving averages or the Commitment of Trader report. You might also use this trading pattern in combination with other indicators such as my Williams %R, Stochastics, MACD, or Bollinger Bands.

How to Best Use This Trading Signal Pattern

It is best to use this pattern as an entry to a condition that you think exists, whether it is bullish or bearish. In other words the strength of the pattern is the underlying condition or outlook as you see it. While the pattern alone good; it's even better to use on in conjunction with fundamentals or market trend.

I think you'll find this is a nice addition to your trading patterns. It is easy to follow. So, I think you'll be happy that you added it to your repertoire of trading signal patterns

World-known short-term futures trader Larry Williams has taught thousands how to make money trading stock futures and commodities, whether the market is up or down. Now learn how to trade the markets from the only futures trader in the world to repeatedly trade $1 million of his own money live at seminars. Get this article with explanatory charts and other free trading articles at: http://www.ireallytrade.com/tradingsignalsnew.html

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