The T-line rule – a very strong statistical probability! When prices/trend close below the T-line, the probabilities are extremely high that investor sentiment has changed, a downtrend is in progress. This was illustrated in both the Dow and the NASDAQ this week, the NASDAQ closing below the T-line after gapping down from indecisive trading formations, a hanging man/Doji. For the past few weeks, the indexes have been demonstrating indecisiveness, multiple Doji’s and indecisive trading days. The Japanese rice traders demonstrated that when you start seeing indecisive trading in overbought condition, start watching for a reversal. Obviously, the reversal has started, with the likelihood of the indexes heading for the next support levels. This makes trading very simple, when the probabilities are the markets are heading lower, closing out long positions that are starting to look weak and adding short positions to the portfolio dramatically improves the probabilities of being in correct trades.
