Price channels
From Wikipedia, the free encyclopedia
References[edit]
- John J. Murphy, Technical Analysis of the Financial Markets, New York Institute of Finance, 1999, ISBN 0-7352-0066-1
MarketGlory
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Technical Analysis 12
Technical Analysis 12
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]
Technical Analysis 20
Morning star (candlestick pattern)
From Wikipedia, the free encyclopedia
 | This article does not cite any references or sources. (July 2010) |
Contents
[hide]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.
See also[edit]
External links[edit]
- Morning Star at chartscorner.com
Technical Analysis 19
Three Black Crows
From Wikipedia, the free encyclopedia
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]
- ^ "Stock market investing 101 - Simplified utilizing candlestick signals". Retrieved 16 June 2010.
- ^ 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]
Technical Analysis 18
Three white soldiers
From Wikipedia, the free encyclopedia
The three white soldiers help to confirm that a bear market has ended and market sentiment has turned positive. In Candlestick Charting Explained, technical analyst Gregory L. Morris says "This type of price action is very bullish and should never be ignored."[2]
This candlestick pattern has an opposite known as the Three Black Crows, which shares the same attributes in reverse.
Contents
[hide]See also[edit]
Notes[edit]
- Jump up ^ "Japanese Candlesticks". Retrieved 15 June 2010.
- Jump up ^ Morris, Gregory L.; Litchfield, Ryan (2005). Candlestick Charting Explained (3rd ed.). New York, NY: McGraw-Hill. p. 126. ISBN 0-07-146154-X.
References[edit]
- Candlestick Charting Explained by Gregory L. Morris. Published by McGraw-Hill. ISBN 0-07-146154-X
- Japanese Candlestick Charting Techniques by Steve Nison. Published by New York Institute of Finance. ISBN 0-7352-0181-1
External links[edit]
Technical Analysis 17
Gap (chart pattern)
From Wikipedia, the free encyclopedia
In an upward trend, a gap is produced when the highest price of one day is lower than the lowest price of the following day. Thus, in a downward trend, a gap occurs when the lowest price of any one day is higher than the highest price of the next day.
For example, the price of a share reaches a high of $30.00 on Wednesday, and opens at $31.20 on Thursday, falls down to $31.00 in the early hour, moves straight up again to $31.45, and no trading occurs in between $30.00 and $31.00 area. This no-trading zone appears on the chart as a gap.
Gaps can play an important role when spotted before the beginning of a move.
Contents
[hide]Types of gaps[edit]
There are four different types of gaps, excluding the gap that occurs as a result of a stock going ex-dividend. Since each type of gap has its own distinctive implication, it is very important to be able to distinguish between such gaps.- Breakway gap occurs when prices break away from an area of congestion. When the price is breaking away from a triangle (Ascending or Descending) with a gap then it can be implied that change in sentiment is strong and coming move will be powerful. One must keep an eye on the volume. If it is heavy after the gap is formed then there is a good chance that market does not return to fill the gap. When the price is breaking away on a low volume, there is a possibility that the gap will be filled before prices resume their trend.
- Common gap is also known as area gap, pattern gap or temporary gap. They tend to occur when trading is bound between support and resistance level on a short span of time and market price is moving sideways. One can also see them in price congestion area. Usually, the price moves back or goes up in order to fill the gaps in the coming days. If the gap is filled, then they offer little in the way of forecasting significance.
- Exhaustion gap signals end of a move. These gaps are associated with a rapid, straight-line advance or decline. A reversal day can easily help to differentiate between the Measuring gap and the Exhaustion gap. When it is formed at the top with heavy volume, there is significant chance that the market is exhausted and prevailing trend is at halt which is ordinarily followed by some other area pattern development. An Exhaustion gap should not be read as a major reversal.
- Measuring Gap is also known as a runaway gap. A measuring gap is formed usually in the half way of a price move. It is not associated with the congestion area, it is more likely to occur approximately in the middle of rapid advance or decline. It can be used to measure roughly how much further ahead a move will go. Runaway gaps are not normally filled for a considerable period of time.
Caution[edit]
It is quite possible that confusion between measuring gap and exhaustion gap can cause an investor to position himself incorrectly and to miss significant gains during the last half of a major uptrend. Keeping an eye on the volume can help to find the clue between measuring gap and exhaustion gap. Normally, noticeable heavy volume accompanies the arrival of exhaustion gap.Trading gaps for profit[edit]
Some market speculators "Fade" the gap on the opening of a market. This means for example that if the S&P 500 closed the day before at 1150 (16:15 EST) and opens today at 1160 (09:30 EST), they will short the market expecting this "upgap" to close. A "downgap" would mean today opens at for example 1140, and the speculator buys the market at the open expecting the "downgap to close". The probability of this happening on any given day is around 70%, depending on which market you look at. Once the probability of "gap fill" on any given day or technical position is established, then the best setups for this trade can be identified. Some days have such a low probability of the gap filling that speculators will trade in the direction of the gap.Examples[edit]
|
References[edit]
External links[edit]
- Gap Video; all referenced sources
- Analyzing Chart Patterns: Gaps at investopedia.com
- Playing The Gap at investopedia.com
- Windows (Gaps) at onlinetradingconcepts.com
Technical Analysis 16
Island reversal
From Wikipedia, the free encyclopedia
 | This article provides insufficient context for those unfamiliar with the subject. (July 2011) |
Formation[edit]
| This section does not cite any references or sources. (July 2011) |
For example, assume that the price in a rising trend closes at its high of $84.00 and opens at $86.00 the following day and then does not fall below its opening. Near the end of the day, it moves up further and touches $88.00 but closes at $87.60 however. Observation thus shows a gap of $2.00 which is not filled. On the following day market price open at $87.40, touches high of $88.90 and closes at $87.00. A few days later or the very next day, market price opens at $84.00 and closes at $82.90, keeping itself below the area of $86.00 and $84.00. All the trading above $86.00 will appear on the technical analysis chart to be isolated and is known as, an island reversal.
Characteristics[edit]
| This section does not cite any references or sources. (July 2011) |
- The occurrence of an island reversal is rather rare.[citation needed]
- It consists of a minor move.
- It is not, in itself of major significance.
- It can occur at the top as well as at the bottom.
- The gaps at either end occur at almost the same price level.
- It has a compact trading activity that is separated from the subsequent move which is in the opposite direction.
- It is an extremely good indicator of a reversal of primary or intermediate trend.
- As soon as it appears, it indicates that an extreme change in the sentiment has occurred.
- High volume is expected in that compact trading area.
- The trading activity may last for only a single day or a couple of days. When this arrangement occurs for only a single day, it is known as "one day reversal".
Technical Analysis 15
Flag and pennant patterns
From Wikipedia, the free encyclopedia
The flag and pennant patterns are commonly found patterns in the price charts of financially traded assets (stocks, bonds, futures, etc.). The patterns are characterized by a clear direction of the price trend, followed by a consolidation and rangebound movement, which is then followed by a resumption of the trend.
Flag pattern[edit]
The flag pattern is encompassed by two parallel lines. These lines can be either flat or pointed in the opposite direction of the primary market trend. The pole is then formed by a line which represents the primary trend in the market. The pattern is seen as the market potentially just taking a “breather” after a big move before continuing its primary trend. The chart below illustrates.
Pennant pattern[edit]
The pennant pattern is identical to the flag pattern in its setup and implications; the only difference is that the consolidation phase of a pennant pattern is characterized by converging trendlines rather than parallel trendlines. The image below illustrates.
External links[edit]
Technical Analysis 14
Technical Analysis 14
Triangles are a commonly found in the price charts of financially traded assets (stocks, bonds, futures, etc.). The pattern derives its name from the fact that it is characterized by a contraction in price range and converging trendlines, thus giving it a triangular shape.
Triangle Patterns can be broken down into three categories: the ascending triangle, the descending triangle, and the symmetrical triangle. While the shape of the triangle is significant, of more importance is the direction that the market moves when it breaks out of the triangle. Lastly, while triangles can sometimes be reversal patterns—meaning a reversal of the prior trend—they are normally seen as continuation patterns (meaning a continuation of the prior trend).
The chart below offers an example of an descending triangle.
The image below illustrates.
The image below illustrates.
Triangle (chart pattern)
From Wikipedia, the free encyclopedia
| This article needs additional citations for verification. (July 2010) |
Triangle Patterns can be broken down into three categories: the ascending triangle, the descending triangle, and the symmetrical triangle. While the shape of the triangle is significant, of more importance is the direction that the market moves when it breaks out of the triangle. Lastly, while triangles can sometimes be reversal patterns—meaning a reversal of the prior trend—they are normally seen as continuation patterns (meaning a continuation of the prior trend).
Contents
[hide]The ascending triangle[edit]
The ascending triangle is formed when the market makes higher lows and the same level highs. These patterns are normally seen in an uptrend and viewed as a continuation pattern as buying demand gain more and more control, running up to the top resistance line of the pattern. While you normally will see this pattern form in an uptrend, if you do see it in a downtrend it should be paid attention to as it can act as a powerful reversal signal.The chart below offers an example of an descending triangle.
The descending triangle[edit]
The descending triangle is formed when the market makes lower highs and the same level lows. These patterns are normally seen in a downtrend and viewed as a continuation pattern as the bears gain more and more control running down to the bottom support line of the pattern. While you normally will see this pattern form in a downtrend, if you do see it in an uptrend it should be paid attention to as it can act as a powerful reversal signal.The image below illustrates.
The symmetrical triangle[edit]
The symmetrical triangle is formed when the market makes lower highs and higher lows and is commonly associated with directionless markets as the contraction of the market range indicates that neither the bulls nor the bears are in control. If this pattern forms in an uptrend then it is considered a continuation pattern if the market breaks out to the upside and a reversal pattern if the market breaks to the downside. Similarly if the pattern forms in a downtrend it is considered a continuation pattern if the market breaks out to the downside and a reversal pattern if the market breaks to the upside.The image below illustrates.
External links[edit]
See also[edit]
Technical Analysis 13
Technical Analysis 13
Wedge pattern
From Wikipedia, the free encyclopedia
The wedge pattern is a commonly found pattern in the price charts of financially traded assets (stocks, bonds, futures, etc.). The pattern is characterized by a contracting range in prices coupled with an upward trend in prices (known as a rising wedge) or a downward trend in prices (known as a falling wedge).
A wedge pattern is considered to be a pattern which is forming at the top or bottom of the trend. It is a type of formation in which trading activities are confined within converging straight lines which form a pattern. It should take about 3 to 4 weeks to complete the wedge. This pattern has a rising or falling slant pointing in the same direction. It differs from the triangle in the sense that both boundary lines either slope up or down. Price breaking out point creates another difference from the triangle. Falling and rising wedges are a small part of intermediate or major trend. As they are reserved for minor trends, they are not considered to be major patterns. Once that basic or primary trend resumes itself, the wedge pattern loses its effectiveness as a technical indicator.
Falling wedge
The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range. When this pattern is found in a downward trend, it is considered a reversal pattern, as the contraction of the range indicates the downtrend is losing steam. When this pattern is found in an uptrend, it is considered a bullish pattern, as the market range becomes narrower into the correction, indicating that the downward trend is losing strength and the resumption of the uptrend is in the making.
In a falling wedge, both boundary lines slant down from left to right. The upper descends at a steeper angle than the lower line. Volume keeps on diminishing and trading activity slows down due to narrowing prices. There comes the breaking point, and trading activity after the breakout differs. Once prices move out of the specific boundary lines of a falling wedge, they are more likely to move sideways and saucer-out before they resume the basic trend.
Rising wedge
The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When this pattern is found in an uptrend, it is considered a reversal pattern, as the contraction of the range indicates that the uptrend is losing strength. When this pattern is found in a downtrend, it is considered a bearish pattern, as the market range becomes narrower into the correction, indicating that the correction is losing strength, and that the resumption of the downtrend is in the making.
In a rising wedge, both boundary lines slant up from left to right. Although both lines point in the same direction, the lower line rises at a steeper angle then the upper one. Prices usually decline after breaking through the lower boundary line. As far as volumes are concerned, they keep on declining with each new price advance or wave up, indicating that the demand is weakening at the higher price level. A rising wedge is more reliable when found in a bearish market. In a bullish trend what seems to be a Rising Wedge may actually be a Flag or a Pennant (stepbrother of a wedge) requiring about 4 weeks to complete.
A wedge pattern is considered to be a pattern which is forming at the top or bottom of the trend. It is a type of formation in which trading activities are confined within converging straight lines which form a pattern. It should take about 3 to 4 weeks to complete the wedge. This pattern has a rising or falling slant pointing in the same direction. It differs from the triangle in the sense that both boundary lines either slope up or down. Price breaking out point creates another difference from the triangle. Falling and rising wedges are a small part of intermediate or major trend. As they are reserved for minor trends, they are not considered to be major patterns. Once that basic or primary trend resumes itself, the wedge pattern loses its effectiveness as a technical indicator.
Falling wedge[edit]
In a falling wedge, both boundary lines slant down from left to right. The upper descends at a steeper angle than the lower line. Volume keeps on diminishing and trading activity slows down due to narrowing prices. There comes the breaking point, and trading activity after the breakout differs. Once prices move out of the specific boundary lines of a falling wedge, they are more likely to move sideways and saucer-out before they resume the basic trend.
Rising wedge[edit]
In a rising wedge, both boundary lines slant up from left to right. Although both lines point in the same direction, the lower line rises at a steeper angle then the upper one. Prices usually decline after breaking through the lower boundary line. As far as volumes are concerned, they keep on declining with each new price advance or wave up, indicating that the demand is weakening at the higher price level. A rising wedge is more reliable when found in a bearish market. In a bullish trend what seems to be a Rising Wedge may actually be a Flag or a Pennant (stepbrother of a wedge) requiring about 4 weeks to complete.
External links[edit]
- How To Trade Wedges at investopedia.com
- Analyzing Chart Patterns: The Wedge at investopedia.com
Technical Analysis 11
Technical Analysis 11
Broadening top is technical analysis chart pattern describing trends of stocks, commodities, currencies, and other assets.
In the figure above, price of the share reverses five times, reversal point d is made at a lower point than reversal point b and reversal point c and e occur successively higher than reversal point a.
One can't be sure of the trend unless price breaks down the lower of the two points (b & d) and keeps on falling. In the figure below, Broading Top is confirmed.
Broadening Top confirmation
Broadening top
From Wikipedia, the free encyclopedia
| This article does not cite any references or sources. (July 2010) |
Contents
[hide]Point of formation[edit]
Broadening Top formation appears much more frequently at tops than at bottoms. It is a difficult formation to trade in. Its formation usually has bearish implications.Role of big players[edit]
It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage.Price and volume[edit]
Price keeps on swinging unpredictably and one can't be sure where the next swing will end. Regarding the shares volume, it is very irregular and leaves no clue to the direction of the next move.How broadening top is formed[edit]
In the broadening top formation five minor reversals are followed by a substantial decline.
Five minor reversals a-b-c-d-e
One can't be sure of the trend unless price breaks down the lower of the two points (b & d) and keeps on falling. In the figure below, Broading Top is confirmed.
See also[edit]
Other chart patterns[edit]
- Candlestick pattern
- Double top and double bottom
- Gap (chart pattern)
- Head and shoulders top and bottom
- Island reversal
- Triple top and triple bottom
- Wedge pattern
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Technical Analysis 10
Technical Analysis 10
Triple top and triple bottom are reversal chart patterns used in the technical analysis of stocks, commodites, currencies, and other assets.
Triple top confirmation
Formation
The formation of triple tops is rarer than that of double tops in the rising market trend. The volume is usually low during the second rally up and lesser during the formation of the third top. The peaks may not necessarily be spaced evenly like those which constitute a Double top. The intervening valleys may not bottom out at exactly the same level, i.e. either the first or second may be lower. The triple top is confirmed when the price decline from the third top falls below the bottom of the lowest valley between the three peaks.
Selling strategy
Opportunity
There are several different trading strategies that can be employed to take advantage of this formation. Of course, first and second peaks are perfect point to place sell orders. After the double top has been confirmed and if prices are moving up again with low volume, it is an opportune point to sell. One can sell short with a stop (calculated loss) above the highest peak of the Double top. The next opportune point to sell would be after a Triple top has formed and a fourth top is being formed at the lower level.
Notes Observation shows that it is rare to see four tops or bottoms at equal levels. In case prices continue to rally up to the level of the three previous tops, there is a good chance that they will rally up higher. If they come down to the same level a fourth time, they usually decline.
Triple bottom
Most of the rules that are applied in the formation of the triple top can be reversed in the formation of triple bottom. As far as volume is concerned, the third low bottom should be on low volume and the rally up from that bottom should show a marked increase in activity.
The formation of Triple bottom occurs during the period of accumulation.
Triple top and triple bottom
From Wikipedia, the free encyclopedia
| This article needs additional citations for verification. (July 2010) |
Triple top[edit]
The formation of triple tops is rarer than that of double tops in the rising market trend. The volume is usually low during the second rally up and lesser during the formation of the third top. The peaks may not necessarily be spaced evenly like those which constitute a Double top. The intervening valleys may not bottom out at exactly the same level, i.e. either the first or second may be lower. The triple top is confirmed when the price decline from the third top falls below the bottom of the lowest valley between the three peaks.
Selling strategy
Notes Observation shows that it is rare to see four tops or bottoms at equal levels. In case prices continue to rally up to the level of the three previous tops, there is a good chance that they will rally up higher. If they come down to the same level a fourth time, they usually decline.
Triple bottom[edit]
The formation of Triple bottom occurs during the period of accumulation.
External links[edit]
- Triple Bottom Video with Statistics and Price Targets
- Analyzing Chart Patterns: Triple Tops And Bottoms at investopedia.com
- How to Trade the Double Bottom Pattern at StockChartPatterns.org
Technical Analysis 9
Technical Analysis 9
Double top and double bottom are reversal chart patterns observed in the technical analysis of financial trading markets of stocks, commodities, currencies, and other assets.
Double top confirmation
The double top is a frequent price formation at the end of a bull market. It appears as two consecutive peaks of approximately the same price on a price-versus-time chart of a market. The two peaks are separated by a minimum in price, a valley. The price level of this minimum is called the neck line of the formation. The formation is completed and confirmed when the price falls below the neck line, indicating that further price decline is imminent or highly likely.
The double top pattern shows that demand is outpacing supply (buyers predominate) up to the first top, causing prices to rise. The supply-demand balance then reverses; supply outpaces demand (sellers predominate), causing prices to fall. After a price valley, buyers again predominate and prices rise. If traders see that prices are not pushing past their level at the first top, sellers may again prevail, lowering prices and causing a double top to form. It is generally regarded as a bearish signal if prices drop below the neck line.
The time between the two peaks is also a determining factor for the existence of a double top pattern. If the tops appear at the same level but are very close in time, then the probability is high that they are part of the consolidation and the trend will resume.
Volume is another indicator for interpreting this formation. Price reaches the first peak on increased volume then falls down the valley with low volume. Another attempt on the rally up to the second peak should be on a lower volume.
Double bottom confirmation
A double bottom is the end formation in a declining market. It is identical to the double top, except for the inverse relationship in price. The pattern is formed by two price minima separated by local peak defining the neck line. The formation is completed and confirmed when the price rises above the neck line, indicating that further price rise is imminent or highly likely.
Most of the rules that are associated with double top formation also apply to the double bottom pattern.
Volume should show a marked increase on the rally up while prices are flat at the second bottom.[citation needed]
Double top and double bottom
From Wikipedia, the free encyclopedia
| This article does not cite any references or sources. (December 2010) |
Double top[edit]
The double top is a frequent price formation at the end of a bull market. It appears as two consecutive peaks of approximately the same price on a price-versus-time chart of a market. The two peaks are separated by a minimum in price, a valley. The price level of this minimum is called the neck line of the formation. The formation is completed and confirmed when the price falls below the neck line, indicating that further price decline is imminent or highly likely.The double top pattern shows that demand is outpacing supply (buyers predominate) up to the first top, causing prices to rise. The supply-demand balance then reverses; supply outpaces demand (sellers predominate), causing prices to fall. After a price valley, buyers again predominate and prices rise. If traders see that prices are not pushing past their level at the first top, sellers may again prevail, lowering prices and causing a double top to form. It is generally regarded as a bearish signal if prices drop below the neck line.
The time between the two peaks is also a determining factor for the existence of a double top pattern. If the tops appear at the same level but are very close in time, then the probability is high that they are part of the consolidation and the trend will resume.
Volume is another indicator for interpreting this formation. Price reaches the first peak on increased volume then falls down the valley with low volume. Another attempt on the rally up to the second peak should be on a lower volume.
Double bottom[edit]
A double bottom is the end formation in a declining market. It is identical to the double top, except for the inverse relationship in price. The pattern is formed by two price minima separated by local peak defining the neck line. The formation is completed and confirmed when the price rises above the neck line, indicating that further price rise is imminent or highly likely.Most of the rules that are associated with double top formation also apply to the double bottom pattern.
Volume should show a marked increase on the rally up while prices are flat at the second bottom.[citation needed]
External links[edit]
- Double Bottom video describing the time and price movement traits of the double bottom with the four double bottom patterns each with chart examples: Eve & Eve, Adam & Adam, Eve & Adam, and Adam & Adam double bottom; all information has cited sources
- Double Top video with chart examples of the: Eve & Eve, Adam & Adam, Eve & Adam, and Adam & Adam double top; all information has cited sources
- Trading the Double Bottom Pattern at StockChartPatterns.org
- Analyzing Chart Patterns: Double Top And Double Bottom at investopedia.com
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