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Double Top and Double Bottom Reversal Patterns
The next sets of patterns are very important and are the easiest to spot. The double top and bottom form when the stock tries to retest old support/resistance levels and fails. Look at these examples of a double top and bottom:
Here, we see an “M†pattern forming on a double top which is a major bearish sign. In a double bottom a “W†type pattern is formed in which we see a bullish rally to follow. If the stock is to form more humps and continue to test the resistance or support areas there will be a major move in…
23Jul2006 | S. Oakes | Comments Off | ContinuedOptimal Moving Average Positioning
Moving averages come in three kinds known as simple (SMA), weighted, or exponentially smoothed averages. An example of a 50-day moving average would be the last 50 days of a stock’s closing price added together, and then divided by 50. This procedure is repeated each day and forms a line.
Major moving averages can act as great supports for a stock. It can be like a magnet in the way a stock will bounce off it only to return to the moving average and bounce off it again.
On the other side of acting as a support, moving averages can also form…
23Jul2006 | S. Oakes | Comments Off | ContinuedFlag and Triangle Continuation Patterns
A stock’s price can do two things. It can either reverse or continue in the same direction. Continuation patterns are made up of candlesticks and indicate great buying opportunities. In this chart we will take a look at a few patterns to study and spot for further profits. One thing to remember is that when stocks are in an uptrend and pulls back in the form of flags; make sure the pullbacks occur on low volume. Low volume means that the pullback is not powerful enough to break the uptrend.
Congested and Continuation Patterns
Congested and consolidation patterns are easy to spot. When a stock trades and moves in an irregular pattern, it is said that the stock is congested. We do not want to a stock when it is behaving in such a manner. The second that investors trade a stock with uncertainty, the market shows us her sense of humor as foolish investors are taken to the cleaners.
On the other hand, when a stock seems to trade in a sideways and orderly fashion, it is said that the stock is consolidating. The longer a stock trades in this pattern, the more powerful…
22Jul2006 | S. Oakes | Comments Off | ContinuedSpinning Tops and High Wave Candlesticks
The last groups of candlesticks shown below are named “spinning tops” and, high wave candlesticks. Candlesticks that show a smaller real body and obtain either color are known as spinning tops. They do not act an indicator, but tend to show up in charts.
High wave candlesticks show very long upper and/or lower shadows. A group of high wave candlesticks may tell of a trend change.
Long-legged Doji and Gravestone Candlesticks
In this graph we will look at a “Long-legged Doji†and the “gravestone†patterns. The long legged doji has very long upper and lower shadows and usually shows up around the tops of trends. This is a complete sign of indecision. Here, the bulls and bears are fighting it out in a struggle to gain ground. Again, in a situation like this take profits immediately.
The gravestone is another profit taking pattern for the bulls when the stock is in an uptrend. Usually following this symbol one will probably see a mob of sellers waiting anxiously to drive the stock price…
22Jul2006 | S. Oakes | Comments Off | ContinuedCandlestick Star Patterns
The next group of patterns is made up of three candlesticks that include “stars.†These patterns are very strong signs that a reversal is coming. These candlesticks must appear at the top or bottom of a trend. The star must gap away from the other two candlesticks surrounding it. If the star is a doji, we should consider this an even more powerful sign that a reversal is occurring. The other bodies surrounding the star should be long real bodies of opposing color. Note that a doji that does not exactly open and close on the same price is still…
Harami and the Harami Cross
The “harami†pattern is made up of a long real body that engulfs the smaller candlestick. This can be associated to a parent with their child. The longer body must occur first, followed by a shorter body. The colors do not need to be opposite, but are usually found in that manner. These patterns warn that the current trend may be slowing down or ready to trade sideways for some time.
The “harami cross†forms when the second candlestick is a doji. Since we have a doji forming, there will be a powerful move. This move depends on what body is…
22Jul2006 | S. Oakes | Comments Off | ContinuedCandlestick Reversal Patterns
The next sets of candlesticks shown below are known as the “hammer†and the “hanging man.†The lower shadows attached to the bodies should be twice the length of the real body itself. These candlesticks will have no upper shadow and appear to have a “flat head.†When you come across a hammer which has formed after a downtrend, remember that the trend may then slow down and change direction by moving sideways or changing directions by heading straight into an uptrend. A hanging man represents the exact opposite. Once you see a hanging man following an uptrend, take profits…
22Jul2006 | S. Oakes | Comments Off | Continued
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