A significant market break may be made, and we might be now into the sequence of events that will bring about a full market crash. In the following we’ll cover the high value areas to bet on this, target areas and invalidation/contingency plans for if the primary plans fail.
Broad Overview Plan
Broad overview swings would forecast a high somewhere in the 3900 - 4000 area, our first dead-cat bounce around 3200 - 3600 and then the crash section of the move taking us to 3100 and then down 2500. Possible overshoots into the high 1900s. The broad level to trigger the crash setup is 3925 - which has broken.
Detailed entry plans:
In broad swings the crash forecast would first expect to see a low somewhere around 3800 and then a rally to somewhere over 3900. We’d be looking at a max downside somewhere around 3780 and a high somewhere before 4000 but probably over 3950. We’ve had swings similar to this so far, but not quite filling the criteria.
Our current swings have a low of 3830 and a high of 3920. We’d have our expected low not being above 3820 and the high not being below 3950. Our current swings are really close to this so it should be considered we might just be a bit off with the levels, but it also makes me suspect we’re not yet setting up the real drop.
I think before the real drop we might have a couple tricky swings. The original forecast swings were pretty tricky at it was, but we might also be a in a spoof of this move meaning we still have a double spike out below and above the current established trading range.
Brutal whipsaws would be fitting for a big drop. Chop before the drop and pride before the fall. Basic game theory would suggest we should expect things to happen to catch people on the wrong side of the move before the move. So, while we have “Close” swings, it’d maybe be an error to class them as, “Close enough”.
Our ideal swings would see us first down to 3800 - 3780 area and then up to somewhere around 3950. If we swing down, we should be sceptical of false breakouts and if we then run up to spike out the current highs this is probably when we have the max value/probability when it comes to betting on a crash.
Important things to define:
At this point we have a few important things to define.
1 - Max value area to bet on the crash. This is pretty simple, as things stand this is around 3950 - 3980.
2 - Runaway level. A level at which we have to decide the rally was not coming and the break was made, and we enter shorts earlier. A break under 3750 would probably trigger this.
3 - Invalidation point. The point where the crash pattern has failed. At this point this is 4070 (And this is wide, we should not see much over 4000, if over 4000 at all).
This gives us a broad plan of, “Be patient waiting for full crash entries until over 3950. Avoid chasing breaks above 3780 but we might have to revert to chasing breaks if under 3750”. At this point swing traders can limit order short 3950 with stop loss 4070.
Complex betting patterns for a crash:
You can find detailed plans for different types of trading plans we can use in the description of this post.
This analysis is based upon models of previous crashes. A detailed breakdown of the working behind this analysis, as well as more detailed contingency plans, will be sent out to paid subscribers.