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Bond Charts Have Become the Junkyard of Chart Patterns

Bonds, and especially TLT, the popular ETF, have become a junkyard of classical chart patterns, a place where wrecking of such dubious formations is frequent and unforgiving.

After two recent failures, a double bottom followed by a head and shoulders, and several other failures in recent years, there is now a double top formed in TLT:

TLT_20140310

The recent failed formations are shown on the above TLT chart. Will the last double top fail too? Given that there is already a streak of wrecked chart patterns, maybe it’s about time for a random winner. On the other hand, given how obvious this pattern is and in association with the unfortunate fact that these random formations are still followed by many uninformed retail traders who fall victims of the usual bad advice to read some technical analysis book that contains concepts developed during a time that people still communicated via a telegraph machine, I wouldn’t be surprised by another failure.

I do not have a view on bonds, primarily because I avoid to hold views about the direction of markets and, especially in this case, the moves since August of last year are random and the patterns you see formed are also random, a result of Brownian price motion. Only the probability of very short-moves, in the order of a few days, can be estimated via the analysis of precise micro-patterns, but that is not enough in certain cases of high randomness to provide a profitable method in itself and several other measures and tests must be used to minimize failure rate.

Disclosure: no relevant positions.
Charting program: Amibroker
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