Archive for March, 2010
Improve Your Market Timing: Channeling Stocks
March 27th, 2010 | 
Author: - Stocks will typically channel 65-70% of the time.
- There are essentially three types of channels; Ascending, Descending and Sideways.
- The channel is comprised of two parallel trend lines which define support and resistance.
- The trading opportunity is as a result of buying the bounce off the lower trend line and selling the resistance.
- Channeling stocks as a continuation pattern occur as the stock trends and then consolidates for a period of time, only to eventually break out to resume the prior trend.
- Ascending Channels are usually embedded in a broader downtrend and act as a respite to the primary downtrend.
- Accordingly, Descending Channels are a respite in a broader uptrend and will more often than not resume the initial bullish trend after channeling.
- Sideways Channels are considered consolidations before resuming the original trend.
- The investment community recognizes that stocks neither go directly up nor down without pause.
- A majority of trading activity resides in channels as supply and demand play “tug of war”.
- Eventually traders will push the stock out of the range.
- The quality of the breakout/breakdown move should be measured by the investor participation as evidenced by increased volume.
- The opportunity to make money with channeling stocks are as a result of two approaches: 1) buy on the bounce off of the lower trend line and sell at the top of the channel at resistance and 2) Play the breakout/breakdown out of the channel.
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Improve Your Market Timing: The Double Top Chart Pattern
- This is a bearish reversal pattern that appears at the top of a trend and is characterized by a peak followed by a pullback and then a second peak that stalls at the level of the first peak and then retraces.
- The buyers at the top of the first peak were victims of buying from the “smart money” as they sold to the “not so smart money” at the top of the trading range.
- These unfortunate buyers will usually hold, refusing to take a loss and waiting for the opportunity to unload the stock at a breakeven.
- When that opportunity presents itself, at the second top, selling pressure increases and drives the stock lower.
- Other knowledgeable traders who know that the “Double Top” will present an opportunity to short, will do so, thereby increasing the downward move.
Improve Your Market Timing: The Symmetrical Triangle Chart Pattern
- The Symmetrical Triangle is a continuation pattern that is comprised of two symmetrically converging trend lines. The continuation will normally be in the direction of the prior trend, although at times the pattern can reverse the trend.
- The breakout usually occurs prior to the triangle reaching its apex and is strongest if that is the case.
- The target is the trend line breakout/breakdown plus the length of the widest part of the triangle.
- After the stock has moved either up or down relatively quickly and with increased volume, the stock then begins a period of pause as the stock moves sideways or with a slight retrace against the trend.
- The initial trading in the period of pause consists of a wider amplitude and narrows as the upper and lower trend lines converge symmetrically.
- The investment community is telling us that it is indecisive as to the continuing direction of the stock as the trading range narrows and finally breaks out to resume the trend.
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