Weekly Patterns: Key Insights to Improve Your Short-Term Trading

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By analyzing 150 weeks of OHLC data from the QQQ, two important patterns emerge for traders operating in shorter timeframes (15 minutes, 1 hour, 4 hours). The behavior of the previous week's candle provides valuable insights that can help traders better align their strategies with the broader market direction, avoiding premature trades and capitalizing on the prevailing trend.

Key Insights:
After a Negative Weekly Candle (Close < Open):
There is a 70.31% chance that the next week's low will be lower than the previous week's low.
The chance that the next week's high will be higher than the previous week's high is only 39.06%.

After a Positive Weekly Candle (Close > Open):
There is a 77.65% chance that the next week's high will be higher than the previous week's high.
The chance that the next week's low will be lower than the previous week's low is only 27.06%.

What Does This Mean for Traders in Shorter Timeframes?
1. After a Negative Weekly Candle:
This pattern suggests that while the low of the previous week has not been broken, traders should be cautious with long trades. There is a strong statistical expectation that the low will eventually be broken during the week when the previous weekly candle was negative. Traders should be more conservative with bullish setups, as there is a higher likelihood of a downside move.

2. After a Positive Weekly Candle:
Similarly, when the previous week's candle is positive, while the high of the previous week has not been broken, traders should be cautious with short trades. There is a strong statistical expectation that the high will eventually be broken, given the 77.65% chance of the next week's high being higher. This means traders should be more conservative with bearish setups, as there is a higher likelihood of an upside move.

When Do These Scenarios Have Lower Expectations?
An additional pattern observed from the data is the occurrence of outside bars, where both the high and the low of the previous candle are broken in the same week. In the last 150 weeks (approximately 3 years), this occurred in only 22 weeks (14.67%). This means that after one extreme of the candle is broken, it becomes less likely that the other extreme will also be broken within the same week.

For example, imagine that the previous weekly candle is negative and, during the current week, the price breaks above the previous week's high. In this situation, the probability of the low also being broken, as initially expected, becomes much lower once the high has been breached.

This insight helps traders adjust their expectations during the week. Once an extreme (either high or low) is broken, it signals that the probability of the price reversing and breaking the other extreme has diminished. Therefore, traders should reconsider their positions and strategies based on this shift in probabilities.

Practical Application:
Scenario 1: After a Negative Weekly Candle
Imagine the week has just started, and the price is trading above the previous week's low. Even if your system generates buy signals in smaller timeframes, this 70.31% chance of a lower low suggests you should be cautious about entering long positions too early. The market is more likely to break the previous low, so it's advisable to avoid aggressive buying until that expectation is fulfilled. However, if the high is broken first, the expectation of the low being broken decreases significantly.

Scenario 2: After a Positive Weekly Candle
In the case of a positive weekly candle, if the price is trading below the previous week's high, this 77.65% chance of a higher high suggests you should be cautious about entering short positions too early. The market is more likely to break the previous high, so it's advisable to avoid aggressive selling until the high is broken. Similarly, if the low is broken first, the expectation of a higher high diminishes.

Summary:
- After a negative weekly candle, focus on downside setups and be cautious with buying until the low is broken. If the high is broken first, the probability of the low breaking decreases.
- After a positive weekly candle, focus on upside setups and be cautious with selling until the high is broken. If the low is broken first, the probability of the high breaking decreases.

By aligning your trades with these weekly expectations, and adjusting when one extreme is broken, you can better anticipate market movements and improve your decision-making process in shorter timeframes.


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Disclaimer:
The information provided in this analysis is for educational and informational purposes only. While the insights shared are based on historical data and patterns, it is essential for traders to conduct their own research and due diligence before making any trading decisions. The market is unpredictable, and past performance does not guarantee future results. Use this information as part of a broader strategy and consider your own risk tolerance before entering any trade.