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Technical Analysis Downside Breaks Rising Wedges NDAQ CX
Sunday, September 10, 2006

Stock Trading

If you trade stocks online, invest in stocks, trade the stock market, looking for advise on how to trade stocks effectively and looking for the tools to effectively trade the stock market. Including the right tools to research for investing, or day trading or swing trading. Including but not limited to penny stocks and high beta momentum then this tutorial is for you. Technical Analysis Update

Continuation Wedge (Bearish) Classic Pattern

 

Implication

A Continuation Wedge (Bearish) is considered a bearish signal, indicating that the current downtrend may continue.

Description

A Continuation Wedge (Bearish) consists of two converging trend lines. The trend lines are slanted upward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle. This is because prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows. A bearish signal occurs when prices break below the lower trendline.

Over the weeks or months that this pattern forms the trend appears upwards but the long-term range is still downward.

risingwedge

Volume should diminish as the pattern forms.

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Trading Considerations

Pattern Duration

Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.

Target Price

The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.

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Criteria that Supports

Volume

Volume should diminish as the pattern forms.

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Criteria that Refutes

Moving Average

The penetration of the 200-day Moving Average by the price is a false bull signal.

Rising or Stable Volume

Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.

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Underlying Behavior

In this pattern prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows indicating that bulls are winning over bears. However, at the breakout point the bears emerge the victors and the price descends.

CX--SHORT PICK
Stock Charts
Downside Breakout Classic Pattern
 
 

Implication

A Downside Breakout is considered a bearish signal, marking a breakout from a trading range to start a new downtrend.

Description

A Downside Breakout occurs when prices break out through the bottom of a trading range and descend quickly as a new downtrend forms. It appears that the market is being flooded with sell orders. There are usually gaps throughout this activity. This pattern can last for a few days to a few weeks.

downsidebreak

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Criteria that Supports

Duration of Trading Range

The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The longer the duration of the trading range the more significant the breakout.

Narrowness of Trading Range

The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a small difference between the upper and lower boundary (making it narrow) then the breakout is considered stronger and more reliable.

Support and Resistance

Look for a region of support or resistance. A region of price consolidation or a strong Support and Resistance Line at or around the target price is a strong indicator that the price will move to that point.

Moving Average Trend

Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. The Moving Average should change direction during the duration of the pattern and should head in the direction indicated by the pattern.

Volume

A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.

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Criteria that Refutes

Duration of Trading Range

The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The shorter the duration of the trading range the less significant the breakout.

Narrowness of Trading Range

The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a large difference between the upper and lower boundary (making it wide) then the breakout is considered weaker and less reliable.

No Volume Spike on Confirmation

The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable.

Moving Average Trend

Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. A Moving Average that is trending in the opposite direction to that indicated by the pattern is an indication that this pattern is less reliable.

 

NDAQ--SHORT PICK

Stock Charts