Investors' behavior is expressed not only in chart patterns, trend formations, or sideways markets, but also in peaks and valleys. Every peak or valley is an indication of what the majority of investors expect at any moment in time. Intraday peaks or valleys, however, are not as meaningful as those on daily or weekly charts. Our analysis, therefore, focuses on daily data, but it may easily be extended to sets of weekly data.
Whenever traders are looking for a good entry point to buy long or sell short, they want to come as close as possible to important turning points in the market. If they stay close enough to the market action, the stop-loss level is not too far away from the entry point. On the other hand, the profit potential is big enough to participate in longer market trends.
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