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Technical Analysis 12

Technical Analysis 12

Price channels

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Trend channel
A price channel is a pair of parallel trend lines that form a chart pattern for a stock or commodity.[1] Channels may be horizontal, ascending or descending. When prices pass through and stay through a trendline representing support or resistance, the trend is said to be broken and there is a "breakout".[2]

References[edit]

  1. ^ Murphy, pages 80-85
  2. ^ Murphy, pages 400-401
  • John J. Murphy, Technical Analysis of the Financial Markets, New York Institute of Finance, 1999, ISBN 0-7352-0066-1

See also[edit]

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Technical Analysis 20



Morning star (candlestick pattern)

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Illustration of the morningstar pattern
The Morning Star is a pattern seen in a candlestick chart, a type of chart used by stock analysts to describe and predict price movements of a security, derivative, or currency over time.


Description[edit]

The pattern is made up of three candles: normally a long bearish candle, followed by a short bullish or bearish doji, which is then followed by a long bullish candle. In order to have a valid Morning Star formation, most traders will look for the top of the third candle to be at least halfway up the body of the first candle in the pattern. Black candles indicate falling prices, and white candles indicate rising prices.

Interpretation[edit]

When found in a downtrend, this pattern can be an indication that a reversal in the price trend is going to take place. What the pattern represents from a supply and demand point of view is a lot of selling in the period which forms the first black candle; then, a period of lower trading but with a reduced range, which indicates indecision in the market; this forms the second candle. This is followed by a large white candle, representing buyers taking control of the market. As the Morning Star is a three-candle pattern, traders often will not wait for confirmation from a fourth candle before buying the stock. High volumes on the third trading day confirm the pattern. Traders will look at the size of the candles for an indication of the size of the potential reversal. The larger the white and black candle, and the higher the white candle moves in relation to the black candle, the larger the potential reversal.
The chart below illustrates.
The Morning Star pattern is circled. Note the high trading volumes on the third day.
The opposite occurring at the top of an uptrend is called an evening star.

See also[edit]

External links[edit]


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Technical Analysis 19



Three Black Crows

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Three Black Crows.svg
Three black crows is a term used by stock market analysts to describe a market downturn. It appears on a candlestick chart in the financial markets. It unfolds across three trading sessions, and consists of three long candlesticks that trend downward like a staircase. Each candle should open below the previous day's open, ideally in the middle price range of that previous day. Each candlestick should also close progressively downward to establish a new near-term low. The pattern indicates a strong price reversal from a bull market to a bear market.[1]
The three black crows help to confirm that a bull market has ended and market sentiment has turned negative. In Japanese Candlestick Charting Techniques, technical analyst Steve Nison says "The three black crows would likely be useful for longer-term traders."[2]
This candlestick pattern has a counterpart known as the Three white soldiers, whose attributes help identify a bullish reversal or market upswing.

See also[edit]

References[edit]

  1. ^ "Stock market investing 101 - Simplified utilizing candlestick signals". Retrieved 16 June 2010. 
  2. ^ Nison, Steve (2001). Candlestick Charting Explained (2nd ed.). Paramus, New Jersey: New York Institute of Finance. p. 97. ISBN 0-7352-0181-1. 
  • Japanese Candlestick Charting Techniques by Steve Nison. Published by New York Institute of Finance. ISBN 0-7352-0181-1
  • Candlestick Charting Explained by Gregory L. Morris. Published by McGraw-Hill. ISBN 0-07-146154-X

External links[edit]


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