QQQ: A lesson in probabilities of possibilities.

In my recent premium member weekly major market digest I reviewed why when a high odds pattern develops I always chose the side of the higher odds. Why? It’s like say any race, tournament, or game. Betting the highest ranked team or player will win is always the most prudent, but it doesn’t mean the underdog can’t win. And hence why one should/could hedge the bet. Let me explain:

Namely, up to early September the Bearish symmetrical triangle continuation pattern was my preferred POV. It works ~75% of the time (see here). Below are recent real-world examples of two ETFs: the FFTY (Innovator IBD 50 fund) and QQQ (Investor Trust Nasdaq).

FFTY Daily Chart
QQQ Daily Chart

As you can see both had an identical symmetrical triangle patterns in August. But what happened? Well, the FFTY performed as expected aka textbook follow through: bearish continuation as the Mid-July to early-August down move into the triangle was obviously Bearish. But the triangle on the QQQ resolved Bullishly… Here we already see with two examples odds are 50-50. I am sure if we add say three or four more charts we can get that ~75% probability.

I wanted to show these two examples as to -again- underscore why there are no 100% guarantees in the market, and all we can do is pick the highest odds patterns as our preferred POV. In this case its 75% odds, and when I see a triangle pattern as we had in August, I will thus pick the bearish resolution as it has simple the greatest odds of being right. And vice versa for Bullish continuation patterns of course.

Now I was wrong, but that’s OK. Nobody gets it right in the markets all the time. If you get it right 75-80% of the time you are doing really well. So, don’t worry if you or somebody else gets it wrong every now and then, and be sure to always place your bet on the highest odds. That doesn’t guarantee winning trades all the time, but that’s why we have stop losses 🙂

In tomorrow’s update I will review the bigger picture options the markets have right now, which are shifting towards a Bullish resolution later this year after some Bearish price action first.

Trade safe!

Arnout, Ph.D.

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