Market School: Chart Patterns – Bottom Triangle

Implication

Bottom Triangles and Bottom Wedges are considered to be bullish signals that mark a possible reversal of the current downtrend.

Description

Bottom Triangles and Bottom Wedges make up a group of patterns which have the same general shape as Symmetrical Triangles, Wedges, Ascending Triangles and Descending Triangles. The difference is that these particular formations are reversal and not continuation patterns. These patterns have two converging trendlines. The pattern will display two highs touching the upper trendline and two lows touching the lower trendline. Contrary to Triangle formations, Wedges are characterized by their boundary trendlines both moving in the same direction.

This pattern is confirmed when the price breaks upward out of the Bottom Triangle or Bottom Wedge formation to close above the upper trendline.

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Market School: Japanese Candlesticks – Bearish Falling Three Methods

Bearish Falling ThreeThe Falling Three Method is a bearish continuation pattern. The opposite of the bearish Falling Three Methods pattern is the bullish Rising Three Methods.

The first day’s red candlestick is followed by a group of small candlesticks, which hold within the long red candlesticks range. The small candlesticks can be any color but green is the most common. The final day is a strong red candlestick with a close below the first day’s close. The formation represents a rest before resuming the bearish trend, which is similar to Flag or Pennant formations.
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Market School: Japanese Candlesticks – Bearish Side by Side White Lines

bearish side by sideBearish Side by Side White Lines pattern is a bearish continuation pattern. The first candle is a red one and the next two are green candles. The second candlestick opens with a gap below the first and the third one is similar size candlestick that opens near the second one.

Side by Side White Lines appears in a bearish market. The first candlestick confirms the continuation of the bearish market.  The second and third days are failed attempt to reverse the downtrend.

Intensifying factors:
- The similarity of the last two candlesticks is important.
- If on the third day there is heavy volume.

Bearish Side by Side Chart

Gap Trading

In this post we go over Gap Trading; types of gaps, tips, and how Daily Stocks Pro can help you be a better Gap Trader.

Gaps are unfilled areas on a chart, in other words, an area where no trading takes place. A Gap can be either up or down and generally it is news driven.

Gaps are significant; there are many ways to take advantage of gaps. Some market speculators trade when fundamental or technical factors favor a gap and some fade gaps in opposite direction once a high or low point has been determined.

There are four types of gaps (source: wikipedia):

Breakaway Gap: It 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: It 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: Also known as 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.

Things to remember:

- Once a stock has started to fill the gap, it will rarely stop.
- Be sure that you correctly classify the gap. e.g. Exhaustion and Measuring Gaps predict the price moving in different directions.
- Be patient; wait for confirmation before taking a position.
- Be sure to watch the volume.

Daily Stocks Pro and Gap Trading

Daily Stocks Pro scans all US stocks for Gaps in real-time. If you are a day trader, you can use the constantly updating list to identify different type of gaps and trade by favoring or fading these gaps. If you are a swing trader, you can wait for the market close for your end-of-day gap trading strategy.

Please note that Daily Stocks Pro also provides auto Fibonacci lines. This is significant in Gap Trading since gapping a stock that crosses above resistance levels provides reliable entry signals. Similarly, a short position would be signaled by a stock whose gap down fails support levels.

Here are some screenshots from Daily Stocks Pro:


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Market School: Chart Patterns – Megaphone Bottom

Implication

A Megaphone Bottom also known as a Broadening Bottom is considered a bullish signal, indicating that the current downtrend may reverse to form a new uptrend.

Description

This rare formation can be recognized by the successively higher highs and lower lows, which form after a downward move. Usually, two higher highs between three lower lows form the pattern, which is completed when prices break above the second higher high and do not fall below it.

The pattern is completed when, usually on the third upswing within the pattern, prices break above the prior high but fail to fall below this level again.

Market School: Japanese Candlesticks – Bearish Harami

Harami_icon (1)The Bearish Harami pattern is a small red candlestick, which is contained with a prior relatively long green candlestick, it is the opposite of the Bullish Harami pattern. The formation is comparable to Inside Day pattern (see NR4 ID). The pattern is more significant if the second candlestick is a Doji. The Harami pattern without a Doji is usually not as significant of a reversal signal as the Engulfing pattern.

The heavy buying is reflected by first day’s long green candlestick, and then it is followed by the small red candlestick which implies uncertainty. This could indicate a trend reversal since the bulls’ power has diminished.

Intensifying factors:
- The smaller the second candlestick the stronger the reversal signal.

Bearish_Harami (1)

The bearish Harami pattern is included in our Daily Stocks Pro iPad and Japanese Candlestick iPhone apps.

For a full list of Japanese Candlestick Patterns tracked by these apps visit our Japanese Candlesticks Page.

Daily Stocks Pro & Auto Fibonacci Detection

Fibonacci retracement is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence. Retracement levels alert traders or investors of a potential trend reversal, resistance area or support area. Retracements are based on the prior move. A bounce is expected to retrace a portion of the prior decline, while a correction is expected to retrace a portion of the prior advance.
Daily Stocks Pro runs an advanced algorithm that finds all the important retracement points for all US stocks in real-time. This is a feature that doesn’t exist in any other stock market related mobile application.

Here are a couple of examples from Daily Stocks Pro to show how Fibonacci Lines can help you in your trading:

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In the examples above, you can see that price found some temporary support or resistance at Fibonacci retracement levels. These levels are considered strong levels of support or resistance, and typical levels for a correction of a long-term, well-established trend. The Fibonacci Lines are ways to better determine entry points into a market.

Daily Stocks Pro displays Fibonacci Lines on shorter and longer timeframes as well. In the examples below you can see the same stock (SLW) and it’s Fibonacci Lines on shorter timeframes. This helps traders to see more detail.

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These fibonacci lines, running in real-time, are a great tool to add to your technical analysis arsenal and you can have access to them with Daily Stocks Pro.
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Market School: Japanese Candlesticks – Bearish Engulfing

Engulfing_iconBearish Engulfing Pattern is a reversal pattern characterized by a large red candlestick engulfing a green small candlestick, which appears after an uptrend.

The market has to be clearly in an uptrend. Day one continues the trend with a short green candlestick which suggests that the bulls are still in command. The second day is a long red day that engulfs the body of the first day, closing well below the previous days close. This implies that the uptrend is losing momentum and the bears are taking control.

Intensifying factors:
- The higher the relative signs of the bodies, the stronger the reversal signal.
- If the second day of the engulfing pattern engulfs more than one real body.
- If on the second day there is heavy volume.

Bearish Engulfing Pattern within a Real-Time Stock Chart

The bearish Engulfing pattern is included in our Daily Stocks Pro iPad and Japanese Candlestick iPhone apps.

For a full list of Japanese Candlestick Patterns tracked by these apps visit our Japanese Candlesticks Page.

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