Alphatrends Technical Analysis - Brian Shannon
Brian Shannon explains that technical pattern recognition is fundamentally about analyzing supply and demand dynamics rather than pattern names. He illustrates how repeated tests of a supply level, occurring with increasing frequency, indicate weakening resistance and a higher probability of the supply level failing.
Summary
Brian Shannon emphasizes that the nomenclature used to describe technical patterns is less important than understanding the underlying supply and demand mechanics they represent. He transitions from discussing a pattern of lower highs and lower lows to analyzing a new pattern characterized by higher lows and repeated tests of a supply level around 1,800. Shannon highlights two critical factors that indicate strengthening buying pressure and weakening supply: first, the repeated tests of the same supply area demonstrate persistent buyer interest, and second, the decreasing time interval between these tests shows that buyers are regaining control more quickly with each cycle. He concludes with a fundamental principle of technical analysis: the more frequently a supply level is tested, the greater the likelihood that it will eventually fail to hold and be broken through.
Key Insights
- Pattern names are secondary to understanding the underlying supply and demand dynamics they represent
- A pattern of higher lows combined with repeated tests of the same supply level indicates buyers are regaining control
- The time interval between successive tests of a supply level is decreasing, meaning buyers are returning to test supply more frequently
- Increased frequency of supply level tests, combined with shorter time intervals between tests, weakens the resistance at that level
- The probability that a supply level will fail to hold increases proportionally with the number of times it is tested
Topics
Transcript
[0:01] And the point I always make is it doesn't matter what you call a a pattern. The pattern is to be recognized to say what is the supply and demand? What's happening with supply and demand? Well, over here we had a pattern of lower highs and lower lows. Now we have this pattern where we saw this high and a higher low. We saw this high and a higher low. So what it's telling us is we have more repeated tests of this area of supply and let's just call it 1,800. So they're not only are they more repeated, but the frequency is even [0:34] closing. So the time between the test says it's taking less time…
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