Here is a picture perfect "parallels" pattern (left side) as described in Cahen's book, "Analyse Technique et Volatilite". Because the moving averages in the second panel haven't begun to contract toward one another, this set of parallels may continue during the evening session tonight. Parallels are the most profitable pattern that Cahen teaches in his book. However, they are also the most difficult to trade, because they tend to move in a lengthy, sustained trend rather than a short burst, as the bubbles do. They tend to have more erratic up and down movements within the higher trend. Note that only about 10 of the 42 candles in this chart move upward in a forceful way. Interestingly, however, we also notice how well they remain contained between the Exponential Moving Average and the Bollinger Bands. Exiting a set of parallels is also more complicated than a bubble pattern. Cahen recommends exiting the pattern based upon the two moving averages in the second panel. If it appears that the two moving averages will cross within the next three candles, he suggests liquidating 50% of one's position. He says to exit the remaining positions once prices close below the Bollinger Moving Average. Often, a set of parallels on one time frame will be composed of a set of bubbles or smaller sets of parallels on the next lower time frame (see the right side of this chart). I prefer to trade the bubbles on the lower time frame, entering and exiting various times.Wednesday, April 2, 2008
Soybeans: Picture Perfect Cahen Parallels
Here is a picture perfect "parallels" pattern (left side) as described in Cahen's book, "Analyse Technique et Volatilite". Because the moving averages in the second panel haven't begun to contract toward one another, this set of parallels may continue during the evening session tonight. Parallels are the most profitable pattern that Cahen teaches in his book. However, they are also the most difficult to trade, because they tend to move in a lengthy, sustained trend rather than a short burst, as the bubbles do. They tend to have more erratic up and down movements within the higher trend. Note that only about 10 of the 42 candles in this chart move upward in a forceful way. Interestingly, however, we also notice how well they remain contained between the Exponential Moving Average and the Bollinger Bands. Exiting a set of parallels is also more complicated than a bubble pattern. Cahen recommends exiting the pattern based upon the two moving averages in the second panel. If it appears that the two moving averages will cross within the next three candles, he suggests liquidating 50% of one's position. He says to exit the remaining positions once prices close below the Bollinger Moving Average. Often, a set of parallels on one time frame will be composed of a set of bubbles or smaller sets of parallels on the next lower time frame (see the right side of this chart). I prefer to trade the bubbles on the lower time frame, entering and exiting various times.
