I. The “Friends” Beyond the LCD Screen

Autumn 2019.

Months have passed since the excruciating pain of melting away my summer bonus and the day I vowed before my son at Saizeriya. Realizing the limits of self-study, I began gathering with trader friends I met on online investment boards and social media in the night using the dialogue tool “Discord.”

People of all ages and from all walks of life—salespeople, IT engineers, self-employed individuals, housewives—gathered. They shared their MT4 charts on screen and immersed themselves in discussions about backtests, using screen-sharing.

“Komegi-san, yesterday’s USD/JPY pullback was a beautiful Dow Theory reversal pattern.” “Yes, but it was crushed by a horizontal line on the 15-minute chart. Whoever managed to go short from there is quite the expert.”

Unlike the daytime, when we were worn down by numeric quotas in company cars, the night voice chats felt like a “intellectual laboratory.”

“The market isn’t just wandering up and down. If you systematically learn the ‘common language of technical analysis’ that large institutional traders and AI algorithms around the world are aware of, you can surely predict future waves.”

We began dissecting every imaginable technical analysis from basics for beginners to the orthodox theories used by professionals—from scratch.

II. Absolute Order Called Dow Theory and the Traps of Horizontal Lines

The first thing we drilled into as a textbook was the ‘Dow Theory,’ proposed over a century ago and still considered the bible by all traders today.

Dow Theory contains six core principles, such as “ averages reflect all events” and “there are three kinds of trends,” but the most pivotal factor in the market is the principle that “an uptrend continues until a clear reversal signal appears.”

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[Mechanism for discerning the eye-line according to Dow Theory]

1. Definition of an Uptrend (buyers in control):

• Higher highs and higher lows than the previous period.

• Formula: [ Low1 < Low2 < Low3 ] and [ High1 < High2 < High3 ]

• As long as this wave does not break, the perspective remains fixed on buying (going long), no matter how temporary the dips may be.

2. Definition of a Downtrend (sellers in control):

• Lower highs and lower lows than the previous period.

• Formula: [ Low1 > Low2 > Low3 ] and [ High1 > High2 > High3 ]

• In this state, any interim rallies are merely “pullbacks (temporary rebounds),” and the eye-line is set on selling (going short).

3. The Last Stronghold for a Change of Eye-line (Pullback Low / Last Pullback):

• In an uptrend, refers to the most recent low that acted as the starting point for setting new highs.

• Even if prices plunge, as long as this pullback low is not broken below by the body of the candle,

the market sentiment continues to be judged worldwide as “still a buying opportunity.”

• The moment this pullback low is fully broken, the buyers’ defensive line collapses for the first time,

and a possibility emerges of “uptrend ending → range-bound or shift to a selling perspective.”

• If it then proceeds to rise again and breaks further below that low, a downtrend is confirmed.

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“This is it… If I understand this, I will never hesitate about whether now is a buy or a sell!”

We then overlaid the mechanics of “levels” where large global traders concentrate their orders—the horizontal lines (resistance and support) and the concept of “roll reversal.”

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【The Psychology of Horizontal Lines and Roll Reversal (Resist-Support Reversal)】

• Support Line (Support / Floor):

• A price range that has repeatedly bounced the price down in the past.

• Because there is a common belief that “if it falls this far, buyers will gather,” a strong buying support comes in.

• Resistance Line (Resist / Ceiling):

• A price range that has repeatedly blocked upward moves in the past.

• Because “if it rises this high, sellers will be ready,” prices are pushed down.

• Roll Reversal (Role Reversal):

• When price breaks above a ceiling that has repeatedly held it down,

the confidence of breaking above and the short covering (buying back) by traders who previously sold collide,

and now that same line becomes a sturdy “floor (support)” in the market psychology.

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“Price fell to a powerful horizontal line that has rebounded three times in the past and coincided with Dow Theory’s pullback low. It also serves as the floor for roll reversal…!”

The triple, quadruple confluence at this point gave me an all-encompassing sense of certainty that unlocked the hidden order behind the market.

III. The Mirage Painted by Chart Patterns

In addition to line analysis, we became bloodied by dissecting the “chart patterns” created by the mental warfare of investors worldwide. Chart patterns are the “footprints” that appear at the moment the battle between buyers and sellers is decided.

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【The three major chart patterns that govern markets】

1. Head and Shoulders (Triple Top / Head-and-Shoulders):

• Shape: The center peak (head) is the highest, with two lower peaks (shoulders) on the sides.

• Psychology: After reaching the high, the next rise fails to surpass the high, proving buyers’ energy is exhausted.

• Entry: The neckline formed by connecting the two troughs is clearly broken by the body of a candle, and sellers flood in.

2. Double Bottom / Double Top (W and M formations):

• Shape: Two lows (or highs) at the same price level that fail to break through twice.

• Psychology: Confirms strong buying pressure that “cannot go lower.”

• Entry: After the second rebound, buy when the center peak (neckline) is surpassed.

3. Continuation Pattern (Ascending Triangle / Pennant):

• Shape: A rising lower boundary with a horizontal ceiling, forming a triangle of consolidation.

• Psychology: Buyers push the lower prices up, continuing to pressure the sellers’ defense line at the ceiling.

• Entry: The moment price breaks above the horizontal line, accumulated energy explodes like a rocket.

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“Look at the five-minute pound/yen! The right shoulder of the head-and-shoulders is complete, and it cleanly breaks below the neck line by the body of the candle! Moreover, the area that served as support has turned into resistance (roll reversal)!”

Holding breath in front of the screen. Dow Theory eye-line shift, resistance-to-support shift of the horizontal line, and the textbook-perfect head-and-shoulders. The conditions written as “rock-solid” in every investment book and online course lined up in front of me like a miracle.

“This is it… I can recover the 300,000 yen loss. Real trading starts here!”

I clenched the mouse and forcefully pressed the “Sell” button with the market order.

But—. The position I had pressed with such confidence would, a few minutes later, plunge me back into the abyss. At that moment, I did not know that textbook-perfect patterns were the traps laid by the big players lurking in the market.