Aversion & Tolerance

Price generates opportunities for us across a wide range of conditions. The two ends of this distribution I am currently referring to as 'Risk Tolerance' and 'Risk Aversion'.

The risk averse tilted patterns tend to range, consolidate and otherwise move sideways without a clear direction. Without a clear direction we should be weary about taking positions, longs or shorts that relies on price moving in some direction. This weariness, this defensiveness is the 'aversion' side of the distribution. However it can be observed that the sideways ranging market does accumulate on the trend lines or horizontal lines of support & resistance. Price might move sideways but signal multiple times of a coming change through volatility, deceleration and acceleration. These signals accumulate, price accumulates and at some border we find our opportunity. An example of this was illustrated in the video.

The risk tolerant patterns tend to move in a direction. There is less of a desire to consolidate or range even for one bounce or one wave. Price would rather keep pushing through, even picking up speed in its direction. These patterns can be generated without any earlier signal. Price at any moment can break out of all its context and begin moving to some new level as news, world events or other external factors update the situation.

Both examples are in some sense extreme cases as they in their ideal form represent the two ends of the distribution. In reality our positions will always be some blend of the two, some combination of the pair of opposites.

Good Trading.