WHY IS THIS A GOOD PATTERN?
My best explanation of why this pattern can be so lucrative comes from general
swing theory. When we study basic technical analysis, we are generally
taught that violating or taking out a prior swing low indicates weakness
and/or a change in trend back to the downside. It would also follow that
violating or taking out a prior swing high indicates strength and/or a
change in trend back to the upside. Let’s keep these basic technical concepts
in mind as we examine the two-step pattern.
Within the zigzag pattern, when you take out point c, you are taking
out either a prior swing high or a prior swing low. As discussed earlier,
this often signals a trend change. For example, if point c was a low and the
market traded below it, traders who follow swing theory might sell to exit
long positions as a result of this violation. They might also sell to enter new
WHY IS THIS A GOOD PATTERN?My best explanation of why this pattern can be so lucrative comes from generalswing theory. When we study basic technical analysis, we are generallytaught that violating or taking out a prior swing low indicates weaknessand/or a change in trend back to the downside. It would also follow thatviolating or taking out a prior swing high indicates strength and/or achange in trend back to the upside. Let’s keep these basic technical conceptsin mind as we examine the two-step pattern.Within the zigzag pattern, when you take out point c, you are takingout either a prior swing high or a prior swing low. As discussed earlier,this often signals a trend change. For example, if point c was a low and themarket traded below it, traders who follow swing theory might sell to exitlong positions as a result of this violation. They might also sell to enter new
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