Longs get lulled into a false sense of confidence as rally momentum fades and a topping pattern forms. Seeking to protect profits, they start dumping the stock. Price fails and selling spirals downward through wave after wave. Common pattern features appear in most price declines. Several false bottoms print and fail.
Volume surges repeatedly, as losers unload their positions onto the waiting value crowd.
Price carries well past downside target after target. Then just as hope collapses, the stock makes a final, multiple bottom. Pattern analysis offers a superb way for the short-term trader to understand and capitalize upon this repeating market behavior. Look no further than R. N. Elliott's work in the 1930s and you'll find the Five Wave Decline . This structure for price correction is as powerful today as it was 60 years ago.