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Square Roots

Years ago, I sought to make sense of the (seemingly) several billion price patterns identified for charts. In this process, I found six topping and bottoming structures which presented themselves on a routine basis. This is one of those patterns, one of the six (and only 6) you’ll find around any reversal / continuation point.

As I feel I always need to say, price patterns are lately structural and mostly useful in terms of navigation, less strategy. I wrote about this in much more depth here.

Like all basic patterns, square roots are simple. In a nutshell, they’re nothing more than the market making a new high or low, followed by a double top or bottom. The resulting pattern (if sketching lines around it) resemble a square root.

In the case of highs, a new high is made, followed by a lower high. That high then becomes resistance for a second (or more) push.

In the case of lows, a new low is made, followed by a higher low. That low then becomes support for a second (or more) push.

Like all patterns, they may be measured for approximation of failure. Moreover, it can be confirmed in a similar manner: high volumes, delta, etc., running away from the structure itself.

Square roots are common due to the same market behavior exhibited on others. The market trades high or lower on volume, and that volume then wanes. On pullbacks, price remains close to those high volumes and never pulls down to the previously made high or low area.

In market profile, these are usually characterized as a form of a poor high or low, with V reversals.

Some examples below: