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Leavitt Brothers: Education

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Education
Trade MT4As with anything in life, education is a foundational building block of successful trading. But there is no holy grail out there. A "can't miss" strategy does not exist, but a general understanding of basic trading strategies is Regulated Firm EA hosting, absolutely necessary.
Effectiveness of a particular strategy will depend on many factors. You will need to study them and pick the ones that fit your personality best. Then practice and experiment to see what works best for you.

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In this section we discuss the 3-headed "technical" monster…chart patterns, candlestick patterns, and technical analysis. We also cover popular option strategies, and of course we offer our recommended reading on our bookshelf. Technical

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Leavitt Brothers: Forget the Fundamentals

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Chart Patterns
At the end of the day, the only thing that matters in the stock market is supply and demand. When there are more buyers than sellers, stocks go up. More sellers than buyers, stocks go down. A chart is simply a graphical representation of supply and demand. Any news or information that is important or relevant will show up in the chart. It is a totally unbiased, unemotional, direct representation of everything going on in the stock.

Company Stock Research 2,000 Stock Analyst Reports & History has shown that stocks often form patterns, and when these patterns are broken, price movements can Picks Free 14 Day be predicted with a high degree of accuracy. Trial- Sign Up Today! Here we discuss numerous popular chart patterns used by successful traders.
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Bullish Patterns Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines Recommended Reading

Neutral Patterns Symmetrical Triangles Rectangles

Bearish Patterns Symmetrical Triangles Descending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Top Trendlines

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Technical Analysis of Stock Trends, 8th Edition by Robert Edwards, John Magee, W.H.C. Bassetti (editor)

Technical Analysis of the Financial Markets by John J. Murphy

Secrets for Profiting in Bull stocks and Bear Markets headed? by Stan Weinstein

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Leavitt Brothers: Forget the Fundamentals

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Symmetrical Triangles
Bullish symmetrical triangles represent neutral periods of doubt and indecision. They are characterized by a series of higher lows and lower highs as the forces of supply and demand are nearly equal.Each rally is seen as a selling opportunity while each dip is met with buying. The pattern is typically large and takes several months or more than a year to form.

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Neutral Patterns
Symmetrical Triangles Rectangles

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The best breakouts occur ½ to ¾ of the way through the pattern. A stock seems to gain energy as it is compressed into the triangle, but that energy dissipates beyond the ¾ point. It is recommended that traders abandon a stock that trades beyond the ¾ mark for very little movement is likely to occur. Volume typically diminishes as the pattern develops because traders become more and more unsure as to the stock's future direction. Then, seemingly without warning, the stock explodes out of the pattern. Bullish symmetrical triangles appear in uptrends and typically resolve themselves to the upside. Breakouts to the upside must be accompanied by a significant increase in volume to confirm the breakout. Failure to accomplish this doesn't automatically render the play invalid, but it does raise a yellow flag. Besides volume, the astute trader ought to look for a close above the most recent high. This price represents the previous area of selling pressure and an area where stockholders may be looking to “get out even.” It is recommended that if volume does not accompany the break, and if the stock fails to make a higher high within a reasonable amount of time, the trader should move a sell stop up to protect profits. The expected price movement upon breakout is approximately equal to the widest part of the pattern.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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TEO formed a typically symmetrical triangle in an uptrend in the late winter months of '03. After steadily rallying on solid volume (notice the black volume bars are generally bigger than the red ones) the stock made a lower high and a couple higher lows as the stock was compressed by converging trendlines. Volume then surged on the mid-April breakout. Notice the widest part of the Trader Makes pattern (approx. 1.75 points) accurately predicted the move from 4.25 up to 6.0. Textbook play. $4 Billion

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

TRPS traded into a symmetrical triangle and broke out on massive volume. Notice the move from 10 to 20 into the pattern was pretty good at forecasting the move from 20 to 30 upon breakout.

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BDY formed a solid symmetrical triangle pattern in the fall of '01 and provided a great move to the upside when the stock broke out. Notice the volume; it was huge on the rally into the pattern, and than it significantly fell off within the pattern.That's exactly what you want to see. Then volume surged again on the breakout. Textbook scenario.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Ascending Triangles
Ascending triangles form in uptrends and characterized by a series of higher lows but the same highs. They have a definite bullish bias and typically form in 2 to 8 weeks.

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Neutral Patterns
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It is as if a massive sell order has been placed at the upper trendline and even though the stock is strong and in an uptrend, it takes some time to fully execute the order. Volume usually diminishes as the pattern develops. Once the overhead supply is absorbed, the stock is free to catapult higher because the lack of supply shifts the supply/demand imbalance to favor the buyers. Also, if indeed a stock is in a steady uptrend, every stockholder who bought in the prior several months will be showing a gain. Satisfied and happy stockholders rarely sell. This reality also helps to push the stock higher after the break. The best breakouts occur ½ to ¾ on. Breakouts that art art breakouts occur &frac1e delayed until prices crowd into the apex usually fail or are mediocre at best. If by chance a stock trades below the lower trendline, it is not reason to go short. Instead, the trader ought to simply redraw the lower trendline and keep watching for an eventual break to the upside. This act of redrawing a trendline is pretty common. Remember, drawing trendlines is a subjective art at best. They are the trader's best guess as to where support and resistance could be or should be, so redrawing them is perfectly permissible. Breakouts should be accompanied by a significant increase in volume. Failure to accomplish this doesn't render the breakout invalid, but a red flag is raised and appropriate stops should be employed. There are two guidelines a trader can use to determine the extent of the rally upon breakout. The first expected price movement is approximately equal to the widest part of the pattern. The second price target is equal to the rally into the pattern. The extent of the advance will often depend on the overall market. A strong market will help greatly in achieving the more ambitious price target, but in a weak market, a trader should be happy with just a moderate advance.

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http://www.leavittbrothers.com/education/chart_patterns/ascending_triangle_bullish.cfm[3/12/2009 10:47:43 AM]

Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

ATH was in a steady uptrend when it consolidated in an ascending triangle pattern. Resistance is not perfectly defined but the series of higher lows maintains the generally upward nature of the stock. Volume didn't exactly surge on the breakout, but the stock didn't pullback much, so there was never a reason to get out (remember, volume is used as a confirmation – not a decision making element). Eventually the bulls stepped up and provided a nice gain for those patient enough to stay with the position.

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This is a textbook play for MOVI. Volume surge on the move into the pattern and then calmed down within the pattern. Then volume surged again on the breakout. This is exactly the type of action you want to see.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

AGI was in a steady uptrend when it traded into and then exploded out of this ascending triangle pattern. Notice how resistance is very easy to determine (always a bonus when it's exact, and you don't have to estimate) and how volume dried up just prior to the breakout.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Rectangles
Bullish rectangles represent large periods of doubt and indecision. They are characterized by parallel trendlines as the forces of supply and demand are nearly equal. The pattern is typically large and forms either horizontally or with a slight downward slant against the overall uptrend.

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Neutral Patterns
Symmetrical Triangles Rectangles

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Bearish Patterns
Symmetrical Triangles Descending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Top Trendlines

Bullish rectangles appear in uptrends and typically resolve themselves to the upside. Breakouts to the upside must be accompanied by a significant increase in volume to confirm the breakout. Failure to accomplish this doesn't automatically render the play invalid, but it does raise a red flag. Besides volume, the astute trader ought to look for a close above the most recent high. This price represents the previous area of selling pressure and an area where stockholders may be looking to “get out even.” It is recommended that if volume does not accompany the break, and if the stock fails to make a higher high within a reasonable amount of time, the trader should move a sell stop up to protect profits.

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On a side note, rectangles are difficult to play. Symmetrical triangles have converging trendlines, and therefore must break by a certain day. But since rectangles have parallel trendlines – and therefore theoretically can go on for many months - no time horizon is offered as to when the stock will most likely break.
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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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CIG was in a solid uptrend with volume to support the strength when it traded into this bullish downward sloping rectangle pattern. The falling nature of the pattern acts to shake out the weak long positions and cause a little confusion (as evidenced by the lack of volume in June and July. The stock then breaks out and volume surges. It's not an easy trade because the parallel trendlines don't offer any clues as to when the stock will breakout, but following other charting tools (like the high volume bullish engulfing pattern that formed at the bottom of the pattern just before the stock moved up and broke out) will help.

DPH was in steady uptrend when it formed this bullish rectangle pattern. At first the pattern is bullish because the stock is in an uptrend. If the pattern lasts too long (this is subjective) the momentum would be neutralized. Notice the big volume in late February and early March. The first price target is measured by the height of the rectangle. The second target is measured by the move into

http://www.leavittbrothers.com/education/chart_patterns/rectangle_bullish.cfm[3/12/2009 10:50:09 AM]

Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles the pattern.

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This is a textbook bullish rectangle pattern. The stock rallied on huge volume in early September. Then the stock traded between parallel trendlines on much lighter volume, and then the stock broke out on another big volume surge. The quick and violent move into the pattern was from about 7 to 11, so it is no surprise the move out of the pattern was also quick and violent and from 10 to 14.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles
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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Pennants
Pennants are small continuation patterns that represent brief pauses within an already existing trend. They are characterized by converging trendlines and have a definite bullish or bearish bias depending on the overall trend.

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Neutral Patterns
Symmetrical Triangles Rectangles

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Where are stocks headed? The answer may Bullish pennants typically appear in the middle of large rallies or immediately after a stock has broken out surprise you. Find of a basing period. out now with Bullish breakouts should be accompanied by a significant increase in volume. Use appropriate stops if this Chart of the Day.
is not seen. The price action prior to the pennant formation can be used as a guide in predicting the price movement upon breakout. So, for a bullish pennant in an uptrend to truly possess great potential, it must have been preceded by a significant move (i.e. if the movement into the pattern was quick and full of energy, the rally after the breakout most likely will be quick and full of energy). The expected price movement upon breakout is approximately equal to the distance of the move into the pattern.

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http://www.leavittbrothers.com/education/chart_patterns/pennant_bullish.cfm[3/12/2009 10:51:29 AM]

Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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NWS was steadily trending up when it traded into this 7-week bullish pennant pattern. The volume surge within the pattern is not typical; in fact one would think that type of volume would cause the stock to penetrate one of the trendlines. Also notice the number of touches along resistance. The more touches the better.

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Here is an example of a stock that broke out from a very long basing period and then immediately traded into a bullish pennant. This scenario happens often. It takes a lot of energy to breakout of the base, so the stock needs to “rest” before continuing its move up. Notice the volume on both the breakout from the base as well as the breakout from the pennant.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

SNIC was a pretty simple play. The stock was in a steady uptrend when it exploded up in late-July. The stock then trended sideways in a small pennant and then busted out again with another volume surge. Textbook pattern and trade.

FRNT is another example of a stock that broke out of large base on strong volume and then immediately traded into a small bullish pennant. After its brief rest, the stock then broke out again on another strong volume surge. This action is typical and somewhat easy to play.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles
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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Flags
Bullish flags are small continuation patterns that represent brief pauses within an already existing uptrend. They appear flat or trade with a slight downward slant and typically occur in the middle of a large rally or immediately after a stock has broken out of a basing period.

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Neutral Patterns
Symmetrical Triangles Rectangles

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Company Stock Research 2,000 Stock The slight short-term downtrend against the overall uptrend is very healthy as it functions to scare off weak Analyst Reports & and emotional long positions that would otherwise slow the movement after the breakout. These longs Picks Free 14 Day would sell at the first sign of strength. But instead, as the stock slowly trends down, these weak Trial- Sign Up stockholders sell their positions. Once enough have sold, the overhead resistance in essence is cleared Today!
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Whether a bullish flag pattern appears during a large rally or after breaking out of a consolidation period, the expected price movement upon breakout is approximately equal to the preceding move into the flag. It is important to emphasize that for a bullish flag to truly posses great potential, it must have been preceded by a significant move on heavy volume. Like pennants, bullish flags tend to be symmetrical in that the stock movement after the breakout often mirrors the move into the pattern.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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AZO formed a textbook bullish flag pattern in 2001. The stock was in a steady uptrend when it popped up on strong volume. It then traded into a 3+ week bullish flag on lighter volume before busting out on a huge volume surge. This is the exact sequence of events you want with a bullish flag pattern.

BYD is an example of a stock that broke out of a large basing period and then needed to rest in a bullish flag before continuing its move up. In this situation you would use the move into the pattern to measure the expected move out of the pattern, but the massive volume that accompanied the breakout tells you there are a lot of buyers, and you can expect to get a bigger move.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

CREAF is another example of a stock that broke out of large basing period, moved up and traded into a bullish flag, and then busted out again. The move into the pattern (from approx. 4 to 8.5) predicted a move to 12.5 when the stock broke out at 8. Not bad, but price targets are only guidelines and should never be blindly adhered to. Sometimes stocks come up short while other times they blow right through them.

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This is not what we would consider an easy trade. Certainly the chart posted here look easy and obvious to play, but notice how the stock basically giggled in place for a few weeks before busting out. It took a high volume gap up to break out of the pattern, and only an active and patient trader would have gotten in the trade. » back to top

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Wedges
Bullish wedges are small continuation patterns that represent brief pauses within an already existing uptrend. They are characterized by converging trendlines and have a definite bullish bias. They are similar to bullish pennants except where pennants are generally flat, wedges have a definite slant against the overall trend.

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The price action prior to a wedge formation can be used as a guide in predicting the price movement upon Free Java DAO breakout. So, for a bullish wedge in an uptrend to truly possess great potential, it must have been preceded by a significant move (i.e. if the movement into the pattern was quick and full of energy, the rally Generator Create a fully after the breakout most likely will be quick and full of energy). The expected price movement upon breakout is approximately equal to the distance of the move into the pattern.

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DOVP was in a steady uptrend when it traded into a downward sloping bullish wedge. This pattern is very similar to a bullish pennant except here both trendlines slant down. Volume popped on the breakout and was then fairly steady during the rally.

URBN traded into a textbook bullish wedge in the spring of '02. Three touches established both support and resistance and

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CRK was a herky jerky stock that traded into a downward sloping bullish wedge in the late summer months of 2003. Volume surged several consecutive days on the breakout, and that makes the pattern easier to trade because each of the highs from within the pattern can act as resistance on the way up. Getting a big explosive move that achieves “separation” from the breakout area is always desirable.

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Head & Shoulder Bottom
Bullish head & shoulders bottoms are powerful and reliable reversal patterns that appear as large basing periods after a substantial downtrend. Its completion signals a trend reversal. Three successive troughs characterize the pattern with the middle one being the deepest and the two outside ones being shallower and approximately equal.

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The above chart illustrates the sequence of events that unfold as the pattern develops. The left shoulder is formed as just another sell-off and bounce within a long downtrend. The stock then falls and makes another lower low. This action, which forms the left shoulder and first half of the head is no different than what is expected with a stock in a typical downtrend. And at this point in time, there is no way for the trader to know that a head & shoulders bottom is forming. The stock then begins its usual “bounce within a downtrend,” but not only does the stock trade above the left shoulder, it rallies to, or close to, the same level as the previous bounce. The head has now been formed. This is the first sign that the selling pressure may be abating and the stock seems to be gaining strength. A trendline, called the neckline, can be drawn between the two troughs. The stock then falls again but the imbalance of supply and demand is such that the stock does not make a lower low. This is the second sign the downtrend may be nearing an end. A rally from this shallower dip (right shoulder) through the neckline with a volume surge would mark a successful reversal of the downtrend. Like all other upside breaks, a surge in volume must accompany the breakout. Failure to accomplish this doesn't necessarily mean the pattern will be a complete failure, but a red flag is raised. The stock may have broken prematurely due to overall market strength. The stock may just need to pull back to do more “work” (form a second right shoulder) before the real breakout occurs. Remember, a head & shoulders bottom occurs after a weak stock has been in a long downtrend. There really needs to be a massive amount of buying to reverse the downtrend. The character and extent of the expected price movement upon breakage depends on several factors. Typically it is equal to the distance from the neckline to the extreme point of the head. But this is just a guideline. Head and shoulders is a reversal pattern, so there must be a significant move to reverse. A small move into the pattern usually results in a small rally upon break. Also, the rally tends to be the mirror image of the preceding drop. This means a quick and violent drop foreshadows a quick rally. Duration of the entire pattern (i.e. how long the stock trades below the neckline) also plays a role. The longer the stock trades down there, the greater the chance that most of the disgruntled stockholders will have sold when a breakout happens. This means there will not be many investors who are looking to get out even; they have already gotten out. Whether a stock pulls back to the neckline after breaking out can depend on the overall market. If the entire market is strong, there probably will be no pullback. If on the other hand the market is weak at the same time a stock completes its pattern, then a pullback is likely.

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Head & shoulder bottom patterns rarely fit the textbook description, and ANAD is a good example of that. Typically you'd like the pattern to be bigger, but in this case the neckline was fairly easy to determine and the volume surge on the breakout sealed the deal. Absent the volume surge, the stock most likely would have pulled right back into the pattern.

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MACR formed a nice head & shoulder bottom pattern in the fall of 2001. Notice the volume pick up on the right side of the head, and fall off on the left side of the right shoulder. The volume surged when the stock exploded out of the pattern.
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Whole numbers are often significant numbers, so when AAPL formed a head & shoulder bottom pattern with its neckline at 20, the astute trader needs to pay more attention. The move down into the pattern was 5 points (from 25 down to 20) and the size of the head was 5 points (15 to 20), so the projected move out of the pattern was 5 points (from 20 to 25). We didn't quite get it (probably because there wasn't much volume on the breakout), but we did get a nice 20% move nevertheless.

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Cup & Handle
Cup & handle patterns are powerful and reliable continuation patterns that form in uptrends and therefore have bullish implications. Their completion signals the end of a consolidation period and the continuation of its bullish uptrend.

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The above chart illustrates the sequence of events that unfold as the pattern develops. After a nice rally (preferably on solid volume), the stock begins a long drawn out correction. When the pullback begins, many stockholders decide that after the nice rally, they now would like to take profits up near the peak. There were also many late-to-the-party buyers who bought at the peak, and as the stock starts to drop, these stockholders have one thing on their mind – to “get out even.” These two groups will create selling pressure when the stock regains strength. Months later when the stock trades close to the first peak, stockholders jump at the opportunity and start selling. Thus a second pullback begins. A line drawn through the two peaks forms a trendline. This second pullback is very healthy and normal for a strong stock or a stock that is gaining strength. Since stock movements have such a large psychological component to them, it is unlikely the stock will enjoy any type of rally as long as there exists many disgruntled stockholders. It takes time to weed out these weak links. Once enough time has passed (the formation of the handle), the stock is free to move higher for there is now an absence of stockholders who will sell at the first good opportunity. The trendline should be flat or slightly downward sloping. Cup & handle patterns usually take several months and sometimes over a year to form.

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The best patterns possess a decent amount of symmetry with the right half of the cup mirroring the left half and the right half of the handle mirroring the left half. But while it is nice for the pattern to have a smooth even balance, it is not absolutely necessary. Also, it is important that the handle not go below the midpoint of the cup. Theoretically, only the selling to satisfy the people who want to get out near the previous high Trading Forex needs to take place. But if the stock drops below the midpoint of the cup, it is a warning that more selling is Otomatis Banyak Pilihan taking place than simply a handful of panicky holders. It is not unlikely, and perhaps common, for 2 handles to form, so anticipating the breakout and entering a position early is not a good idea. This is healthy for the stock and is simply an indication that a little more “work” is needed to allow the weak stockholders to get out. The same breakout requirements govern as with other breakouts. Volume must surge to validate the breakout, and appropriate stops shall be implemented if volume is not satisfactory. There are two guidelines a trader can use to determine the expected price movement upon breakout. The first is the equal to the depth of the cup. The second is the price movement into the first peak. Often the strength or weakness of the overall market will dictate the success of the pattern.

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volume starting to pick up on the right side of the cup and then drop off on the left side of the handle before surging during the breakout. That is textbook action.

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HEPH also formed a cup & handle pattern while in a steady uptrend. The stock did pull back to test the breakout area, and after succeeding it began a nice steady climb. It would have been nice to get a big breakout from the get-go, but this isn't rocket science – patterns don't always work perfectly. As long as the stock stays in its uptrend, there is no reason to exit the trade.

WMAR is another decent cup & handle example. Notice the volume starting to pick up on the right side of the head and then falloff on the left side of the handle. That is the type of action you want to see.

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Trendlines
We classify trendlines as being either continuation patterns or reversal patterns. Small trendlines that form after a nice advance are continuation patterns that definitely have a bullish bias. Although the stock doesn't exactly fit the bullish flag, pennant, or wedge patterns, it still remains a strong stock in an uptrend that is temporarily “resting” before continuing its upward movement. These trendlines shall be played the same as the continuation patterns previously discussed. This is to say a volume surge is needed to confirm the breakout and the pricing action after the breakout should mirror the move into the pattern. Bullish trendlines also appear after a stock has suffered a big drop and is forming a base. The pattern must be long and drawn out. This requirement allows time for mad stockholders to sell their positions and be replaced by new stockholders who aren't so upset and won't sell at the first sign of strength. Like the head & shoulders bottom reversal pattern, there really needs to be a massive amount of buying to be considered valid. Remember, an attempt is being made to reverse a large downtrend, and that takes great effort.

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After gapping down and basing for 5 months with easily defined resistance, DCN broke out on steady volume that lasted well over a month. Maybe you can call it a head & shoulder pattern with two shoulders on each side…it doesn't matter. The only important features are the size of the base (5 months) and the volume on the breakout. We got both, so it doesn't matter what you call the pattern.

AXL was generally trading neutral with easily defined trendline resistance overhead. Until the stock breaks out on volume, there isn't much to do from a “chart pattern” standpoint other than play the range. But once resistance is taken out on big volume, the stock become playable to the upside.

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CNX is another simple example of a trendline being used to determine entry on a trade. Resistance is formed by a couple touches, and volume pops on the breakout. Notice how the pricing action on the rally after the breakout is very similar to the pricing action on the move up into the pattern.

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IMAX didn't really fit well into the bullish wedge, flag or pennant patterns, but the pattern was too good to ignore. In this case we just plop it into our bullish trendline category and play the volume breakout like any other continuation pattern.

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Symmetrical Triangles
Bearish symmetrical triangles represent neutral periods of doubt and indecision. They are characterized by a series of higher lows and lower highs as the forces of supply and demand are nearly equal. Each rally is seen as a selling opportunity while each dip is met with buying. The pattern is typically large and takes several months or more than a year to form.

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The best breakouts occur ½ to ¾ of the way through the pattern. A stock seems to gain energy as it is compressed into the triangle, but that energy dissipates beyond the ¾ point. It is recommended that traders abandon a stock that trades beyond the ¾ mark for very little movement is likely to occur. Volume typically diminishes as the pattern develops because traders become more and more unsure as to the stock's future direction. Then, seemingly without warning, the stock explodes out of the pattern. Bearish symmetrical triangles appear in downtrends and typically resolve themselves to the downside. Breakdowns do not have the same volume or movement requirements as their opposite upside breaks. In fact, when stock breaks support with a massive volume surge, it often signals that of a capitulation sell-off and the stock rebounds shortly after. The best downside breaks occur on average volume followed by the stock drifting lower for a few days on increasing volume. Psychologically, when a stock first breaks support, stockholders become concerned; many of them show a loss and some sell. As the stock trades lower, concern becomes fear and the selling accelerates. Then fear becomes panic, and people sell regardless of price. This is why there typically is a delayed volume surge with breaks to the downside. The expected price movement upon breakout is approximately equal to the widest part of the pattern.

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BRCM was in a steady downtrend when it traded into this bearish symmetrical triangle. Notice how the volume dropped off towards the completion of the pattern. That's a sign that temporarily it's an equal battle between the bulls and bears and neither one is willing to step up and place a bet as to the stock's future movement. Then the stock breaks support and volume ramps up as the stock continues its move down.

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TEO formed a decent size symmetrical triangle within a steady downtrend. These patterns typically resolve themselves in the direction of the trend, and that's exactly what happened. Notice how volume dried up within the pattern and then surge after the stock broke down. That's exactly what you want to see.

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Pretty pattern here. Not all bearish symmetrical triangles will setup this nicely. ALSC was in a downtrend...two higher lows formed support while one lower high formed resistance. Volume dropped off within the pattern and then surged after the break down. The stock did bounce around between 9 and 10 after the break down, but as a chart pattern trader, as long as the overall market is leaning weak, that action is nothing to worry about. Give the stock room to run its course.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Rectangles
Neutral rectangles represent large periods of doubt and indecision. They are characterized by parallel trendlines as the forces of supply and demand are nearly equal. The pattern is typically large and takes several months or more than a year to form.

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Stock Market Winners Learn techniques Rectangles can form in trends, but their sheer size will often neutralize whatever momentum existed when from the current the pattern first started to form. So when an extremely large pattern forms one can never be sure which World Record way it will break until it actually happens. Rarely are any reliable clues given. A trader can only wait until Holder in the the stock “makes up its mind;” then and only then should money be committed to a position. market.
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If the rectangle is large, the expected price movement is approximately equal to the height of the rectangle. If the pattern is on the smaller size, then the expected price movement should mirror the price movement Trade MT4preceding the pattern. On a side note, rectangles are difficult to play. Symmetrical triangles have converging trendlines, and therefore must break by a certain day. But since rectangles have parallel trendlines – and therefore theoretically can go on for many months - no time horizon is offered as to when the stock will most likely break.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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ADRX formed a very large neutral rectangle pattern in the second half of '02 that could have broken out either way. A good trader can play the range by buying at support and selling and selling short at resistance. But if this is done, the prudent trader would exit and go the other way if either support or resistance was penetrated.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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ADBE was in an uptrend when it started to meander its way sideways in this neutral rectangle pattern. With 3 touches at resistance, 5 touches at support, and sporadic volume within the pattern, the stock could have broken either way. A good trader could play the range while always being ready for a break when one of the trendlines in approached.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Neutral symmetrical triangles represent neutral periods of doubt and indecision. They are characterized by a series of higher lows and lower highs as the forces of supply and demand are nearly equal. Each rally is seen as a selling opportunity while each dip is met with buying. The pattern is typically large and takes several months or more than a year to form.

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The best breakouts occur ½ to ¾ of the way through the pattern. A stock seems to gain energy as it is compressed into the triangle, but that energy dissipates beyond the ¾ point. It is recommended that traders abandon a stock that trades beyond the ¾ mark for very little movement is likely to occur. Volume typically diminishes as the pattern develops because traders become more and more unsure as to the stock's future direction. Then, seemingly without warning, the stock explodes out of the pattern.

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Expert Advisor Hosting With Forex.com® Symmetrical triangles can form in trends, but their sheer size will often neutralize whatever momentum Registered FCM existed when the pattern first started to form. So when an extremely large pattern forms one can never be Micro lots, tight sure which way it will break until it actually happens. Rarely are any reliable clues given. A trader can only spreads, hedging
wait until the stock “makes up its mind;” then and only then should money be committed to a position. Breakouts to the upside follow the same guidelines as bullish symmetrical triangles and breakouts to the downside follow the same guidelines as bearish symmetrical triangles. The expected price movement upon breakout is approximately equal to the widest part of the pattern.
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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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TWR was generally a neutral stock. Although it was in a slight uptrend, the size of the symmetrical triangle neutralizes whatever momentum existed on the rally into the pattern. In this case the stock could breakout either way. Although there were a few black volume surges within the pattern, the volume is neutreal, so as a trader you really have to wait until the stock makes its move. Obviously you can see the result...with volume to support the move.

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WMS was in a steady uptrend when it traded into this large 6-month symmetrical triangle. The size of the pattern neutralizes the strong move into the pattern, so the stock simply becomes trendless rather than a strong stock in a steady uptrend. The size of the pattern was about 10 points, so that is our first expected price move. Once that is accomplised, use the rally into the pattern to project the second target.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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CTXS was in a downtrend when it traded into this symmetrical triangle. If the pattern lasts a couple months we would consider the stock to be weak and is a downtrend (and most likely to resolve itself to the downside), but the pattern is big enough to neutralize the battle between the bulls and bears. The stock did continue the move down, but it could have broke out either way.

DISH was trending sideways for 6 months when it made a series of higher lows and lower highs to form this symmetrical triangle. Given the neutrality of the pattern, the stock could have broken out either way. Notice how volume fell off towards the end of the pattern and then ramped up after the break. That's exactly what you want to see.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Descending Triangles
Descending triangles form in downtrends and are characterized by a series of lower highs but the same lows. They have a definite bearish bias and typically form in 2 to 8 weeks.

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$4 Billion Wiz Kid It is as if a massive buy order has been placed at the lower trendline, and even though the stock is weak Santa Monica Wiz and in a downtrend, it takes some time to fully execute the order. Volume usually diminishes as the pattern Kid makes $4 develops. Once the underneath demand is absorbed, a big drop in the stock can occur because the lack of Billion Trading demand shifts the supply/demand imbalance to favor the sellers. Also, given this is a weak stock in a Stock Options!
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The best breakdowns occur ½ to ¾ of the way through the pattern. Breakdowns that are delayed until prices crowd into the apex usually fail or are mediocre at best. Similar in concept to ascending triangles, if a stock forming a descending triangle were to trade up through its upper trendline opposite the overall trend, then the trendline should be redrawn, and the stock is still playable as a short when support is broken.

Like symmetrical triangles, downside breaks do not have strict volume requirements. The best downside www.chartoftheday.com breaks occur on average volume followed by the stock drifting lower for a few days. Volume then ramps up as traders throw in the towel, and the stock crashes. There are two guidelines a trader can use to determine the extent of the fall after the break. The first expected price movement is approximately equal to the widest part of the pattern. The second price target is equal to the price movement into the pattern. The drop will often depend on the overall market. A weak market will help push the stock lower, but a strong market may slow or stop the descent.

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PMCS formed a pretty simple descending triangle pattern. Volume was big into the pattern and the first couple weeks of the pattern's formation and then fell off noticeably right before support was penetrated. The move we got on the downside was approx. equal to the size of the triangle, and that is what you can expect as long as the overall market cooperates.

http://www.leavittbrothers.com/education/chart_patterns/descending_triangle_bearish.cfm[3/12/2009 1:40:19 PM]

Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

ULCM sold off big time and then traded sideways into a descending triangle pattern. Notice the volume surge on the break and the steady down volume that lasted several weeks. As an added bonus, it's nice when support is a whole number like 15. That makes it easier to play.

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Here is a good example of volume ramping up after support is penetrated. When the stock first breaks down, stockholders start to Dow Jones 100 Year Chart get worried and some sell. As the stock continues down, general concern turns to fear which then turns to an outright panic, and You owe it to the volume ramps up exactly as seen here.

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Bearish rectangles represent large periods of doubt and indecision. They are characterized by parallel trendlines as the forces of supply and demand are nearly equal. The pattern is typically large and forms either horizontally or with a slight upward slant against the overall uptrend.

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Like symmetrical triangles, breakouts to the upside require a volume surge upon breakout, but the best breaks to the downside occur on average volume only to see volume ramp up as the stock falls.

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Bearish rectangles appear in downtrends and typically resolve themselves to the downside. Breakdowns do not have the same volume or movement requirements as their opposite upside breaks. In fact, when Morningstar stock breaks support with a massive volume surge, it often signals that of a capitulation sell-off and the Research stock rebounds shortly after. The best downside breaks occur on average volume followed by the stock 4,000 Stock and drifting lower for a few days on increasing volume. Psychologically, when a stock first breaks support, Mutual Fund stockholders become concerned; many of them show a loss and some sell. As the stock trades lower, Reports with concern becomes fear and the selling accelerates. Then fear becomes panic, and people sell regardless of Buy/Sell Opinions price. This is why there typically is a delayed volume surge with breaks to the downside.

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If the rectangle is large, the expected price movement is approximately equal to the height of the rectangle. If the pattern is on the smaller size, then the expected price movement should mirror the price movement Where are preceding the pattern. On a side note, rectangles are difficult to play. Symmetrical triangles have converging trendlines, and therefore must break by a certain day. But since rectangles have parallel trendlines – and therefore theoretically can go on for many months - no time horizon is offered as to when the stock will most likely break.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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CIMA gapped down on big volume and then traded into a bearish rectangle pattern. These patterns typically resolve themselves in the direction of the trend which was obviously down. In this situation, traders need to be aware of a possible attempt at filling the gap, but once support was taken out, the stock couldn't even muster any type of bounce for over a month.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles CVC was in a steady downtrend when it formed this bearish rectangle pattern. The false break down in July serves as example as to the difficulty in trading such patterns. Unlike triangles which have converging trendlines and therefore must break down by a Force Volume certain day, rectangles can last years, and false moves in both directions are very common. Analysis

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Textbook play here. ADIC was weak and then trended sideways between parallel trendlines. Once support was taken out, the downtrend continued and made for a nice trade for those who like to enter positions and patiently let them run their course.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Pennants are small continuation patterns that represent brief pauses within an already existing trend. They are characterized by converging trendlines and have a definite bullish or bearish bias depending on the overall trend.

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The price action prior to the pennant formation can be used as a guide in predicting the price movement when the stock breaks down. If the move into the pattern was quick and full of energy, one can expect that Where are stocks same trading activity when support is taken out. But if the stock slowly meanders its way into the pattern, headed? do not expect big fireworks on a breakdown. The expected price movement is approximately equal to the distance of the move into the pattern.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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Here's an example of a stock forming a bearish pennant immediately after breaking a longer term support trendline. This happen often as the stock is still generally in an uptrend when the first break occurs and some amateur traders recognize what they think is a buying opportunity. But the pros are unloading and when buying from the public dries up, the bottom falls out.

Here's is another example of a stock trading into a bearish pennant soon after a longer term uptrend was broken. Notice volume on the initial break was simply average, but the next day was a blood bath. This happens often…a delayed volume surge.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

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MCD traded into a bearish pennant while in a downtrend. The trendlines are easy to draw which is a bonus. Notice how volume ramped up after the break and stockholders didn't throw in the towel until well after the stock broke support.

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PXLW is another example of how volume typically ramps up after a stock breaks down.

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Flags
Bearish flags are small continuation patterns that represent brief pauses within an already existing downtrend. They appear flat or trade with a slight upward slant and occur in the middle of a large drop or immediately after a stock has broken down from a substantial rally.

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Bearish Patterns
Symmetrical Triangles Descending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Top Trendlines

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The slight short-term uptrend against the overall downtrend is very healthy and has serves two functions. 1) Weak shorts that were hoping to take profits at a lower price get scared and cover their positions. This covering is partially responsible for the short-term upward slant. Once enough have covered, the underneath support in essence is lessened. 2) The slight uptrend also indicates that the lay public is being “suckered into” the stock as they buy what they believe to be a cheap stock.

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Technical Analysis When the buying from the lay public dries up and the weak shorts finish covering, support disappears, and Charts Charts, analysis, the stock continues it downward movement. indicators and Whether a bearish flag pattern appears during a large fall or after breaking down from a distribution period, trading systems the expected price movement upon breakout is approximately equal to the preceding move into the flag. for US indexes
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IDPH was rolling along when it formed this bearish flag pattern. Notice how volume ramped up into the pattern and then fell off within the pattern. It then picked up again with support was taken out. This is the type of volume action you want to see to confirm the price moves.

KLIC is an example of a stock that formed a bearish flag pattern after having broken a longer term support line. You can see how volume dried up within the pattern and then got huge during and after the breakdown.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

PCSA is another example of a stock that formed a bearish flag immediately after breaking down from a larger pattern. Volume was Analysis School strong on the break down and then surge in the following couple days.

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HGSI is very similar to the IDPH pattern above. The stock was gently rolling along in a downtrend when if formed a bearish flag pattern. Notice how volume was strong into the pattern and then fell off within the pattern. That's what you want to look for when considering playing a bearish flag formation.

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Bullish Patterns
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Wedges
Bearish wedges are small continuation patterns that represent brief pauses within an already existing downtrend. They are characterized by converging trendlines and have a definite bearish bias. They are similar to bearish pennants except where pennants are generally flat, Wedges have a definite slant against the overall overall trend.

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earish Wedges appear in the middle of a large fall or immediately after a stock has broken down from a substantial rally. Downside breaks do not have the same volume requirement as their bullish counterparts. Like other bearish breaks, there often is a delayed volume surge.

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The price action prior to a wedge formation can be used as a guide in predicting the price movement upon breakdown. If the move into the pattern was quick and full of energy, one can expect that same trading $4 Billion Wiz activity when support is taken out. But if the stock slowly meanders its way into the pattern, do not expect Kid big fireworks on a breakdown. Santa Monica Wiz The expected price movement upon breakout is approximately equal to the distance of the move into the pattern.

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CPRT is a good example of a stock that traded into a upward sloping bearish wedge while being in a pretty ugly downtrend. Notice how volume dropped off while the stock traded up within the pattern. That's a dead give-away that lower prices will follow.

SGR got crushed in the early months of 2003 and then slowly traded into a bearish wedge pattern. Unlike a bearish rectangle

http://www.leavittbrothers.com/education/chart_patterns/wedge_bearish.cfm[3/12/2009 1:44:14 PM]

Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles which has parallel trendlines and offers no clues as to when the stock may break down, the converging trendlines with a wedge pattern at least narrow the breakdown day to within a few weeks. Notice, like many bearish pattern, volume surged well after the break.

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Do you see the blue line on the volume chart slope down during the time the pattern was forming? Average volume was declining as the stock was moving up, and this increases the bearishness of the formation. Once support is broke, each of the lows within the pattern could potentially act as support, so watch for bounces in those areas.

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Head & Shoulder Top
A bearish head & shoulders top is a powerful and reliable reversal pattern that appears as a large distribution period after a significant uptrend . Its completion signals a trend reversal. Three successive peaks characterize the pattern with the middle one being the tallest and the two outside ones being shorter and approximately equal.

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The above chart illustrates the sequences of events that unfold as the pattern develops. The left shoulder is formed as just another peak and correction within a long uptrend. The stock then rallies and makes another higher high. This action, which forms the left shoulder and first half of the head is no different than what is expected with a stock in a typical uptrend. And at this point in time, there is no way for the trader to know that a head & shoulders is forming. The stock then begins its usual “pullback within an uptrend,” but not only does the stock trade below the left shoulder, it falls to, or close to, the same level as the previous pullback. The head has now been formed. This is the first sign that the buyers may be getting tired and the stock seems to be losing strength. A trendline, called the neckline, can be drawn between the two troughs. The stock then rallies again but is unable to eclipse its previous high. This is the second sign the uptrend may be nearing an end. A sell-off from this shorter peak (right shoulder) through the neckline would mark a successful reversal of the uptrend. There is a tendency for a head & shoulders to develop a high degree of symmetry. This is amazing considering all the news and events and “things” that can influence a stock's price on a day-to-day basis. Some traders demand symmetry and only consider the pattern valid if the two shoulders are equal in size and duration. However, although this is desired and the pattern may have a very satisfying balance, it is not necessary. A perfectly symmetrical head & shoulders pattern doesn't happen often. There usually is some distortion or variation (such as the formation of a second right shoulder) in the pattern, and since chart reading is an art, there will always remain a subjective human aspect to the analysis. The neckline should be flat or slightly upward sloping. Downward sloping necklines do occasionally occur, but their existence indicates negativeness is slowly working itself into the stock and a large correction is probably not imminent. In this case, the trader ought to look elsewhere for trading opportunities. Breakouts to the downside do not have the same volume or movement requirements as their bullish counterparts. In fact, when stock breaks support with a massive volume surge, it often signals that of a capitulation sell-off and the stock rebounds shortly after. The best downside breaks occur on average volume followed by the stock drifting lower for a few days on increasing volume. Psychologically, when a stock first breaks support, stockholders become concerned; many of them show a loss and some sell. As the stock trades lower, concern becomes fear and the selling accelerates. Then fear becomes panic, and people sell regardless of price. This is why there typically is a delayed volume surge with breaks to the downside. The character and extent of the expected price movement upon breakage depends on several factors. Typically it is equal to the distance from the neckline to the extreme point of the head. But this is just a guideline. Head and shoulders is a reversal pattern, so there must be a significant move to reverse. A small move into the pattern usually results in a small drop upon break. Also, the drop tends to be the mirror image of the preceding rally. This means a quick rally full of energy foreshadows a quick drop.

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Duration of the entire pattern (i.e. how long the stock trades above the neckline) also plays a role. There is an old adage on Wall St. that reads “the bigger the top, the bigger the drop.” The extent and speed of the drop will be related to the extreme imbalance between the buyers and sellers. A lengthy pattern suggests many people bought the stock above the neckline, and it is these late-to-the-party buyers who will provide much of the selling pressure when the stock breaks support. the entire market is weak, there probably will be no bounce. If on the other hand the market is trending up
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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles at the same time a stock completes its pattern, then a bounce is likely. A Head & shoulders top that breaks through its neckline almost always experiences a significant drop; a failed head & shoulders top is almost never the beginning of a large rally. However, the stock, which now appears cheap, may attract buyers, so a second right shoulder may form, but in the end, the most likely scenario is an eventual drop.

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anyways. Ideally you'd like to see volume pick up a little more on the right side of the head. That would indicate sellers are starting to step up.

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DIGL traded into a small head & shoulder top pattern after having rallied from just over 10 to up near 60. Notice the bounce in late June. After breaking down on big volume the stock rallies back up near the neckline before being rejected and heading back down. The stock wasn't just playable on the violation of support but also on the failed bounce attempt to “support turned resistance.”

OII formed a head & shoulder top pattern during the summer of '02. The move down after the neckline was penetrated was prefectly projected by the "height" of the head.

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Bullish Patterns
Symmetrical Triangles Ascending Triangles Rectangles Pennants Flags Wedges Head & Shoulder Bottom Cup & Handle Trendlines

Trendlines
We classify trendlines as being either continuation patterns or reversal patterns. Small trendlines that form within a downtrend are continuation patterns that definitely have a bearish bias. Although the stock may not fit the bearish flag, pennant, or wedge patterns, it still remains a weak stock in a downtrend that is temporarily “resting” before it most likely plunges again. These trendlines shall be played the same as the continuation patterns previously discussed. This is to say a volume surge is not required on the break because a delayed volume surge is preferable, and the pricing action after the break should mirror the move into the pattern. Bearish trendlines also appear after a stock has had a big rally and tops out. A large pattern indicates many stock holders would be showing a loss if the stock traded below support, and these stockholders would create much of the downside selling pressure. Breaks to the downside do not have a volume requirement. As with other bearish breaks, often there is a delayed volume surge.

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Don't be fooled here – not all trendline breaks work this well. But it does go to show you what can happen. When PCS traded below the June low, every single trader/investor who bought the stock in the previous 9 months was showing a loss. As the stock dropped and more and more stockholders became frustrated, fear turned to panic and the stock completely collapsed when everyone tried to run for the exit.

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ARW was in a steady downtrend and then traded sideways with resistance established at 15. The pattern trading action didn't exactly fit any of our “canned” patterns discussed in this section, but it was still playable when support was taken out…just a simple continuation pattern.

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Leavitt Brothers: Education - Chart Patterns - Symmetrical Triangles

EXTR formed a large pattern that neutralized whatever downside momentum existed when the stock finally started trading sideways in March. The stock could have broken either way, but in this case, once support was taken out, volume ramped up and the stock continued its move down.

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WBSN was in a steady downtrend when it paused at this trendline that fell into the “continuation” category. Once support was broken, volume picked up, and the stock continued its move down.

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Candlestick Patterns
A single day's trading activity can be summarized in a "candle." Groups of candles or certain candlestick formations indicate the underlying psychology and intentions of traders. Couple with chart patterns and technical analysis, knowledge of the most common candlestick patterns - as one of many tools to be used can greatly increases a trader's success. Here we discuss 68 different bullish and bearish patterns used by successful traders. Bullish Candles Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap Bearish Candles Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Downside Gap Three Methods Downside Tasuki Gap Doji Star Dragonfly Doji Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows Recommended Reading:

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Bullish Candlestick Patterns

[ Bearish Candlestick Patterns ]

Abandoned Baby

Belt Hold

Breakaway

Concealing Baby Swallow

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Doji Star
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Dragonfly Doji

Engulfing

Gravestone Doji

Hammer

Harami

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Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom
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Piercing Line

Rising Three Methods

Separating Lines

Side By Side White Lines

Stick Sandwich

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Three Inside Up

Three Line Strike

Three Outside Up

Three Stars In The South

Three White Soldiers

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Tri Star

Unique Three River Bottom

Upside Gap Three Methods

Upside Tasuki Gap

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Abandoned Baby
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A long black day is followed by a Doji that gaps in the direction of the trend. Then a white day occurs gapping in the opposite direction with no overlapping shadows. The Psychology In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This isn't necessarily bullish, but it's certainly less bearish. The pattern is confirmed by the next day's gap up and rally. The bullish Abandoned Baby formation doesn't occur too often and is similar to the bullish Doji Star, bullish Morning Star, and the bullish Morning Doji Star.

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GENZ fell and churned along the 20 level to establish support. It then formed a bullish Abandon Baby pattern which began its reversal of the downtrend. If this pattern formed as the first set of candles at 20, it is less likely a reversal could have immediately occurred, but since the Abandon Baby formed after the stock was able to establish support, the play to the long side became more reliable.

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Belt Hold
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low Identification A white day occurs with no lower shadow and a close near the day’s high. The Psychology The Belt Hold occurs fairly often and is not very reliable. The fact that the day’s opening price holds as the low of the day and the stock trends up all day leans bullish, but one really needs to make note of the overall trend and receive confirmation with an additional up day.

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COT was in a nice uptrend when it pulled back to support on declining volume. The Belt Hold candle was playable on the long side because it occurred at support and at 20 (a nice whole number). This candle is much more reliable if played within an uptrend rather than at the end of a downtrend.

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Breakaway
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate

Identification ForexCandlesticksMadeE A long black day is followed by a black day that gaps below the first day. The next two days continue in the same direction with lower consecutive closes. The final day is a long white day that closes in the gap Morningstar between the first and second days.

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Research 4,000 Stock and The Psychology In a downtrend or within a pullback of an uptrend, the stock exhausts itself with a gap down, but although Mutual Fund the downward movement continues, it slows noticeably. The long white day suggests a possible reversal in Reports with Buy/Sell Opinions the making to at least fill the overhead gap. Declining volume on the three middle days with a pickup in - Learn More volume on the white day serve as confirmation.
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Concealing Baby Swallow
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification The first two days are Black Marubozu days (open is the high of the day and the close is the low of the day). The following day is a black day that gaps in the same direction but trades up into the body of the second day. The final day is a Black Marubozu that gaps up and sells off to engulf the third day.

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Forex Candlesticks? Don't Take The Psychology In a downtrend or within a pullback of an uptrend, the two consecutive Black Marubozus indicate the bears Another Forex Course Until You are in complete control. The gap down on the third candle is bearish and attempt #1 is made to rally the stock (as evidenced by the upper shadow). Attempt #2 comes on the next day’s gap up, but the stock sells Read This off again to indicate the bulls are throwing in the towel. But this is why the pattern works. Once the bulls are Shocking Report
given up, there are no more sellers, so the down trend stops. Once the shorts start to cover, there are no sellers to stand in the way of a bounce. The bullish Concealing Baby Swallow is similar to the bearish Three Black Crows and bullish Ladder Bottom.

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Doji Star
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate Identification A long black day is followed by a Doji that gaps in the direction of the trend. The shadows of the Doji should not be long. The Psychology In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. The halt of the downtrend signifies the possibility of a reversal, so confirmation is needed with a strong third day (preferably with volume behind it). The bullish Doji Star could be the first two days of the bullish Morning Doji Star or the bullish Abandoned Baby.

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Dragonfly Doji
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low/moderate Identification A Doji forms at the upper end of the trading range with a long lower shadow (the longer the more bullish). The Psychology In a downtrend or within a pullback of an uptrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close at its opening price near the day’s high. This hints at the possibility of a reversal. Bulls most likely were shaken out by the intraday weakness, and shorts start getting a little worried with the bounce. A strong following day on solid volume is needed to confirm the pattern. The bullish Dragonfly Doji is similar to the bullish Hammer, bearish Hanging Man, and bearish Dragonfly Doji.

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Engulfing
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate

Identification www.FOREX.com/Metatr A black day is completely “engulfed” by a large white day that gaps below the black day’s low and rallies to close above its high. The Psychology In a downtrend or within a pullback of an uptrend, the gap down may be the blow out that causes the bulls to throw in the towel. When selling abates, bottom fishers and shorts rally the stock to close above the previous day’s high. The bullish Engulfing pattern is very common…literally dozens occur every day and many are just incidental. Watch volume for confirmation. The bullish Engulfing is similar to the bullish Piercing Line and could be the first two days of the bullish Three Outside Up.

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Here is a great example of when a bullish Engulfing pattern is very reliable. SSYS was in a solid uptrend when it established a point of support on May 28. After bouncing the stock pulled back and formed a bullish Engulfing pattern at the same support point. www.FOREX.com/Metatr This candle formation presented a great entry on the long side to ride the next leg up.

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BBBY also formed a bullish Engulfing pattern at a level that had previously been established as support. This is what we mean when we say this pattern is better played on a pullback within an uptrend rather than at the end of a down trend.

CSCO was trending up when it pause for a few days. It then formed a bullish Engulfing pattern as a continuation of the uptrend.

JNJ bounced around in volatile fashion and then established short term support at around 49. After a few days of churning, the stock formed a bullish Engulfing pattern that started a leg up. If this pattern would have formed as the first set of candles at 49, it is less likely the stock would have reverse, but because the stock churned around for a few days, the pattern became much more reliable.

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Gravestone Doji
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low/moderate Identification A Doji forms at the lower end of the trading range. The upper shadow is usually long while the lower shadow is small or almost nonexistent. The Psychology In a downtrend or during a pullback within an uptrend, the stock gaps down. A valid attempt is made to rally the stock off the bottom, but the strength subsides and the stock falls to close near the day’s low at the same price it opened. The rally attempt failed, but it does suggest that there are some bulls out there looking to buy. For a reversal to occur a strong follow up day is needed with solid volume. The bullish Gravestone Doji is similar to the bullish Inverted Hammer, bearish Shooting Star, and bearish Gravestone Doji.

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Here's a good example of playing what is considered a reversal candle….in a continuation scenario. GNTX was steady trending up when it pulled back on declining volume to an area that had previously been established as possible support. It then formed a bullish Gravestone Doji candle, and this started the reversal of the move down (but we actually consider it to be a continuation of the move up).

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Hammer
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low/moderate Identification A small real body forms at the upper end of a trading range with a long lower shadow (the longer the more bullish) with no, or almost no upper shadow. The Psychology In a downtrend or within a pullback of an uptrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close near its opening price near the day’s high. This hints at the possibility of a reversal. Bulls most likely were shaken out by the intraday weakness, and shorts start getting a little worried with the bounce. The pattern is a slightly more reliable if the real body is white, but a strong following day on solid volume is still needed to confirm the pattern. The bullish Hammer is similar to the bullish Dragonfly Doji, bearish Hanging Man, and bearish Dragonfly Doji.

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CCK rallied nicely off its early May low on seven consecutive up days. The stock then pulled back to establish a possible short term support level. The bullish Hammer candle that formed a few weeks later was playable to the upside when confirmation was given by the white candle that followed.

NKE suffered a pretty drastic sell off in February '00. In our opinion a bullish Hammer candle in late Feb would not have been playable…too risky. But two weeks later after the down trend had been halted, the bullish Hammer presented a favorable risk/reward trade on the long side.

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SUP is another example of waiting for a stock to establish support before playing a reversal. Playing the first Hammer candle would have been too risky, but waiting for the second one increases the reliability of the pattern.

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Harami
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low Identification A long black day is followed by a white day which gaps opposite the trend and is completely engulfed by the real body of the first day. The Psychology In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day. Reliability of the bullish Harami is low, so a strong following day is needed for confirmation. The bullish Harami is similar to the bullish Homing Pigeon and could be the first two days of the bullish Three Inside Up pattern.

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ACAS made a higher high in late April and that level then became support a few weeks later. A bullish Harami candle formed and the stock never did trade below that level. This is where we like to play Harami candles…at support, not at the end of a downtrend.

ATSI was trading in a bullish triangle pattern and was getting close to decision time because the stock was near the apex of the pattern. The bullish Harami signaled the beginning of the breakout and next leg up.

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The bullish Harami that formed here with GMH carried a little more risk because it did not occur at support. But the high volume rally and the lighter volume pullback did present a decent risk/reward setup.

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Harami Cross
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low

Identification www.FOREX.com/Metatr A long black day is followed by a Doji which gaps opposite the trend and is completely engulfed by the real body of the first day. The Psychology In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day. The stock closes where it opens to signify a churn day with neither the bulls nor bears showing much force after the opening gap up. Reliability of the bullish Harami Cross is low, so a strong following day is needed for confirmation.

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Here is an example of a stock forming bullish reversal candle at support…the most reliable place to appear. Your risk/reward is heavily in your favor if you play a Harami Cross at support rather than at what you think might be the end of a downtrend.

POOL presents anther desirable place to play a Harami Cross. The stock was in a steady uptrend and simply pulled back to the longer term support trendline and formed the bullish reversal (we consider it a continuation) candle. The white candle that follows is your entry.

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Homing Pigeon
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate Identification A long black day is followed by another black day which gaps opposite the trend and is completely engulfed by the real body of the first day. The Psychology In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day, but the stock gives some of its gap up back causing the candle to be filled in. This relaxes the bears and worries the bulls, and this is the exact recipe needed for a possible bounce. Confirmation is needed with a strong following day on solid volume. The bullish Homing Pigeon is similar to the bullish Harami and bullish Matching Low.

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This isn't a great example of a bullish Homing Pigeon, but it at least gives the reader a glimpse at one may look like. MDG was a fairly weak stock, so buying this pattern was risky. In hindsight it turned out to be support, but hindsight is always 20/20.

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Inverted Hammer
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: low/moderate Identification A small real body forms at the lower end of the trading range. The upper shadow is usually no more than twice as long as the real body and there is no or almost no lower shadow. The Psychology In a downtrend or during a pullback within an uptrend, the stock gaps down. A valid attempt is made to rally the stock off the bottom, but the strength subsides and the stock falls to close near the day’s low. The rally attempt failed, but it does suggest that there are some bulls out there looking to buy. For a reversal to occur a strong follow up day is needed with solid volume. The bullish Inverted Hammer is similar to the bearish Shooting Star, bullish Gravestone Doji, and bearish Gravestone Doji and could become the middle day of the bullish Morning Star.

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Kicking
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A Black Marubuzo (open is the high of the day and the close is the low of the day) day is followed by a White Marubuzo (open is the low of the day and the close is the high of the day) day that gaps in the opposite direction.

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Stock Performance The Psychology Get Stock The current trend is not very important with a bullish Kicking pattern. The fact that the stock can gap up and Research and rally to close at its high is bullish regardless of the previous trend. Use volume on the white day to confirm Reports from the movement. Morningstar.com
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The bullish Kicking is similar to the bullish Separating Lines.

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Ladder Bottom
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate Identification Three black days occur with successive lower opens and lower closes. Then a black day forms with some noticeably upper shadow. The final day is a white day that gaps against the trend and opens above the body of the fourth day. The Psychology In a downtrend or during a pullback within an uptrend, the bears are certainly in control. The buying that takes place on the forth day that forms the long upper shadow hints at buyers starting to bottom fish and shorts possibly taking some profits, but the intraday sell-off that closes the stock at the lows likely wipes out the bulls, and with the lack of sellers available, there isn’t much resistance left when the shorts start to cover. The bullish Ladder Bottom is similar to the bullish Concealing Baby Swallow and bearish Three Black Crows.

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Mat Hold
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: continuation Reliability: high Identification A long white day in an uptrend is followed by a relatively small black day that gaps in the direction of the trend. The next two days continue the brief pullback and are small days that stay within the range of the first day. The fifth day is a long white day that closes above the close of the first day and continues the uptrend. The Psychology In an uptrend, a long white day is followed by a brief pullback (preferably on lightish volume). The fifth day simply continues the trend. The brief pullback is nothing more than a few days off for the bulls. The bullish Mat Hold is similar to the bullish Rising Three Methods.

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Matching Low
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A long black day is followed by another black day with equivalent closes both days.

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The Psychology Futures & In a downtrend or during a pullback within an uptrend, a long black day occurs signaling the bears being in Options Data control. The stock gaps up the next day but then sells off to close at the same level as the previous day. Quotes, Charts, The more times a stock can successfully test and hold a low, the higher the chance a reversal will occur News - FREE once the seller become exhausted. Strength the following day with volume would confirm the pattern. Commodity Paper

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The bullish Matching Low is similar to the bullish Homing Pigeon.
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Here is a great place to go long a bullish Matching Low formation. In a steady uptrend, TNE pulled back and formed the pattern right at a previous support area.

NEM was slowly moving up when it formed a bulling Matching Low pattern. The stock immediately moved higher (probably coincidental) and continued its move up.

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Meeting Lines
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Pattern: reversal Reliability: moderate Identification A long black day is followed by a long white day that gaps in the direction of the trend but then rallies to close at the same price as the black day’s close.

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Company Stock The Psychology Research In a downtrend or during a pullback within an uptrend, a long black day occurs. The next day gaps down in 2,000 Stock the direction of the trend and most likely causes the remaining bulls to throw in the towel. The stock then Analyst Reports & rallies as bottom fishers step in and shorts start to cover. The author considers the identical close of the Picks Free 14 Day two candles to be incidental and not extremely important. The fact remains the bulls were washed out and Trial- Sign Up now short covering may cause the stock to bounce. Today!
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The bullish Meeting Lines is similar to the bullish Piercing Line, bearish In Neck, bearish On Neck, and bearish Thrusting.

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Morning Doji Star
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Pattern: reversal Reliability: high Identification A long black day is followed by a Doji that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day. The Psychology In a downtrend or during a pullback within an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bullish Doji Star formation. A subsequent follow through gap up that closes above the midpoint of the black day completes the Morning Doji Star and confirms the reversal. The bullish Morning Doji Star is similar to the bullish Abandoned Baby and bullish Morning Star.

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AMH rallied nicely on solid volume before trending sideways and establishing support at around 27. Then a bullish Morning Doji Star formed, volume picked up, and the stock continued to move up. Although Morning Doji Star formations are considered reversal patterns, their reliability increases significantly if you play them at support.

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Morning Star
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A long black day is followed by a small day that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day.

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Company Stock The Psychology Research In a downtrend or during a pullback within an uptrend, the market gaps down but enough buyers step in to 2,000 Stock halt the weakness. The lack of ability of the bears to press the issue indicates the downtrend may be Analyst Reports & weakening. The gap up and rally that closes the white day above the top half of the black day confirms the Picks Free 14 Day reversal if accomplished with a surge in volume. Trial- Sign Up Today!
The bullish Morning Star is similar to the bullish Morning Doji Star, bullish Abandoned Baby, and bullish Doji Star and could be a continuation of the bullish Inverted Hammer.
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Here is a great example of an ideal entry place with a Morning Star formation. ASML was in a steady uptrend when the stock fell back to a longer term support trendline in late June. The bullish Morning Star pattern presented a low risk/high reward setup just the same as the bullish Engulfing pattern on May 27 offered.

A bullish Morning Star formation also presented a good entry with DRCO. The stock was in a nice uptrend when it established and then bounced off support in June. These candlestick patterns don't always work, but if you patiently wait for your ideal entries, the odds significantly shift in your favor.

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Piercing Line
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Pattern: reversal Reliability: moderate Identification A long black day is followed by a white day that gaps below the black day’s low and closes within and above the midpoint of the black day’s body. The Psychology In a downtrend or during a pullback within an uptrend, the stock gaps down, finds some buyers and then rallies. This simply signifies the possibility of a reversal that is more reliable if the gap down occurs at support and the white day is accompanied by a surge in volume. The bullish Piercing Line is similar to bearish On Neck, bearish In Neck, bearish Thrusting, bullish Engulfing, and bullish Meeting Lines.

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GE was trending sideways with well established support. Although bullish Piercing Line candles are considered reversal patterns, we think the reliability of the candle increases if played at support as shown here.

GM formed a Piercing Line candle formation at support, and that started the next leg up. How far it goes is unknown when the pattern forms. All you can do is play it and move stops according to the pricing action. In this case it turned out to be a good one.

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Company Stock Like the other examples, AMZN formed a bullish Piercing Line formation right at support, and that started a better than 30% move Research in under one week. 2,000 Stock Analyst Reports & Picks Free 14 Day » back to top Trial- Sign Up Today!
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Rising Three Methods
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Pattern: continuation Reliability: high Identification A long white day in an uptrend is followed by three relatively small candles that move opposite the overall trend but stay within the range of the first day. The fifth day is a long white day that closes above the close of the first day and continues the uptrend. The Psychology In an uptrend, a long white day is followed by a brief pullback (preferably on lightish volume). The fifth day simply continues the trend. The brief pullback is nothing more than a few days off for the bulls. The bullish Rising Three Methods is similar to the bullish Mat Hold.

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Some of these candlestick patterns don't form too often. We tried hard to find a Rising Three Methods formation but have failed so far. So we are using a Rising “two” Methods to serve as an example. Note the move up in early June got close to 80 but was rejected. Then the 80 level was solidified as being noteworthy when the stock traded above and below the level for 6 consecutive days later in the month. It should then come as no surprise that the Rising Methods formed and used 80 as support before moving up.

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Separating Lines
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Pattern: continuation Reliability: low Identification A black day is followed by a white day that has the same opening price. The Psychology In an uptrend, the underlying issue gaps up and falls to produce a black day. This proves to be simple profit taking within the uptrend when the issue gaps up the next day and rallies to close near its high. The bullish Separating Lines is similar to the bullish Kicking.

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Side by Side White Lines
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Pattern: reversal Reliability: high Identification A white day is followed by another white day that gaps in the direction of the trend. The third candle is also white and is almost identical to the previous day. The Psychology In an uptrend the second white candle that gaps up could signify the last of the bulls getting in “at any price.” The gap down the next day could be the start of a pullback, but since the stock rallies again, the bulls obviously are not done yet. As a continuation pattern, this formation hints at more upside to come.

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Stick Sandwich
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate Identification A black day is followed by white day that gaps against the downtrend and closes above the black day’s high. The third day is a black day whose close is equivalent to that of the first day.

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جى تى Ø ¢ÙŠÙ„ ÙØ¤Ø ±ÙƒØ³ The Psychology After two consecutive higher opens, the stock is right back where it started. One can sense the stock wants أي لجنة. لا to move up, but it needs to solidify support first. As long as support holds a reversal is possible. مصلØØ© لل.400:1 النÙوذ. بدء Øساب ع٠٠يا Trader Makes $4 Billion Wiz Kid Stock & Option Trader Makes $4 Billion Trading Stock Options!
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Three Inside Up
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A bullish Harami pattern is followed by a white day that has a higher close than the second day.

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The Psychology In a downtrend or during a pullback within an uptrend, a bullish Harami pattern forms. This pattern has low Decision Point Your technical reliability, but when it is followed up with another white day, a reversal becomes much more probable – analysis toolbox. especially when accompanied by volume. The Three Inside Up may be a continuation of the bullish Harami.

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If bullish Harami candles have high reliability when played at support then bullish Three Inside Up formations have very high reliability. Here is an example. BNN/A.TO (Canadian stock) traded down to 33 – a level that had previously been established as significant. The stock then formed a bullish Three Inside Up pattern that then started the next leg up.

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Three Line Strike
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: continuation Reliability: low Identification Three long white days with consecutively higher closes are followed by a fourth day that gaps open in the direction of the trend and closes below the open of the first day. The Psychology In an uptrend the Three Line Strike pattern has low reliability. The large black day can really scare the bulls and many contrarians will cite this as bullish. If indeed the uptrend is strong, the one black day should not ruin the pattern. Hence, if the next day is up, the uptrend should continue. The bullish Three Line Strike is a possible continuation of the bullish Three White Soldiers.

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Three Outside Up
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification A bullish Engulfing pattern is followed by a white day whose close is higher than the second day. The Psychology In a downtrend or during a pullback within an uptrend, a bullish Engulfing pattern forms. By itself the pattern has moderate reliability as a reversal indicator, but when the it is followed by another white day (preferably on strong volume), the overall pattern becomes much more reliable. The Three Outside Up may be a continuation of the bullish Engulfing.

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Since bullish Engulfing patterns have decent reliability when played at support, Three Outside Up formations have high reliability when they form in the same situation. Here, FMXI rallied and then gave back about 50% of its gains. The stock then formed a bullish Engulfing pattern and followed it up with a another up day to complete the Three Outside Up pattern, and the stock proceeded to bounce over 30% in just one week.

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Here is another example of the high reliability bullish Three Outside Up pattern forming at a level that was previously established as support. Note the volume surges.

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TEVA was bouncing around in pretty volatile fashion when it formed a bullish Three Outside Up pattern which ended the consolidation period and began the next leg up for the stock.

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Three Stars in the South
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate

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www.FOREX.com/Metatr Identification A long black day with a long lower shadow is followed by a similar but smaller black day whose lower shadow is shallower than the first day. The third day is a small Black Marubozu (open is the high of the day The Truth and the close is the low of the day) that lies within the second day’s trading range.

The Psychology Three Stars in the South is a bottoming pattern. Each of the successive black candles is slightly less bearish that the previous one, so the trend is slowly weakening. As long as the low of the first candle is held, and a white candle on volume can form soon after, a reversal may be in the works. The bullish Three Stars in the South is similar to the bearish Three Black Crows.

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Three White Soldiers
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: high Identification Three long white days occur with each successive open being within the body of the previous day and each successive close being higher than the previous day and near the day’s high.

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stocks The Psychology In a downtrend or during a pullback within an uptrend, the three long white candles speak for themselves. If headed? The answer may volume accompanies the move, the reliability of the pattern increases significantly.
The bullish Three White Soldiers is similar to the bearish Advance Block and bearish Deliberation and could be the beginning of the bullish Three Line Strike.

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Here is an example of a bullish Three White Soldiers formation that formed well into CP's uptrend. I personally think it's a little late to chase the stock, so this merely serves as an example of what this pattern looks like.

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Tri Star
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate

Identification ForexCandlesticksMadeE Dojis occur on three consecutive trading days with the second gapping down and the third gapping back up. The Psychology In a downtrend or during a pullback within an uptrend, a battle begins. The bears start to back off while the bulls step up. Dojis indicate an even battle between the bulls and bears. The formation of three Dojis within a downtrend hints that the bulls may be starting to reassert themselves. A white day with volume is needed to confirm the reversal.

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Unique Three River Bottom
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: reversal Reliability: moderate Identification The first day is a long black day, followed by a Homing Pigeon whose lower shadow makes a new low. The last day is small and white, and closes below the second day’s close. The Psychology In a downtrend or during a pullback within an uptrend, a black day occurs. The second black day that has a long lower black shadow indicates the possibility of an intraday washout of the bulls. Since the third day gaps down, the bears are still thought to be somewhat in control, but the higher close (inability of the bears to push the stock down) suggests the bearish tone may be changing.

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Upside Gap Three Methods
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: continuation Reliability: moderate Identification A long white day is followed by a second long white day that gaps in the direction of the trend. The third day is black and fills the gap between the first two days. The Psychology In an uptrend a gap is simply filled. As long as the white candles have higher volume than the black, the one black profit taking day shouldn’t be a big concern. The uptrend should continue if indeed the stock is strong. The bullish Upside Gap Three Methods is similar to the bullish Upside Tasuki Gap.

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Here's an example of a bullish Upside Gap Three Methods formation as a continuation pattern. After breaking out of a base, CLSR paused in a this candle pattern and then continued the move up.

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Upside Tasuki Gap
Abandoned Baby Belt Hold Breakaway Concealing Baby Swallow Doji Star Dragonfly Doji Engulfing Gravestone Doji Hammer Harami Harami Cross Homing Pigeon Inverted Hammer Kicking Ladder Bottom Mat Hold Matching Low Meeting Lines Morning Doji Star Morning Star Piercing Line Rising Three Methods Separating Lines Side by Side White Lines Stick Sandwich Three Inside Up Three Line Strike Three Outside Up Three Stars In the South Three While Soldiers Tri Star Unique Three River Bottom Upside Gap Three Methods Upside Tasuki Gap

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Pattern: continuation Reliability: moderate Identification A long white day is followed by a second long white day that gaps in the direction of the trend. The third day is black and opens within the body of the second day and closes within the gap. The Psychology In an uptrend a gap is partially filled. This is simply a profit taking scenario. We have a strong stock in an uptrend that pulls back. As long as the black day is on lighter volume, the bulls will most likely retake control soon after. The bullish Upside Tasuki Gap is similar to the bullish Upside Gap Three Methods.

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DIS was in a steady uptrend when it formed a bullish Upside Tasuki Gap formation. Notice the large volume on the up days compared to the lighter volume on down days. That was dead giveaway that higher prices were to come.

ATW formed a sloppy bullish Upside Tasuki Gap pattern at the same time it broke resistance. The trade was to play the breakout, but if you missed it, you could go long when support held at 24.5.

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Bearish Candlestick Patterns

[ Bullish Candlestick Patterns ]

Abandoned Baby

Advance Block

Belt Hold

Breakaway

Dark Cloud Cover

Deliberation

Doji Star

Downside Gap Three Methods

Downside Tasuki Gap

Dragonfly Doji

Engulfing

Evening Doji Star

Evening Star

Falling Three Methods

Gravestone Doji

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Hanging Man

Harami

Harami Cross

Identical Three Crows

In Neck

Kicking

Meeting Lines

On Neck

Separating Lines

Shooting Star

Side by Side White Lines

Three Black Crows

Three Inside Down

Three Line Strike

Three Outside Down

Tri Star Thrusting Two Crows Upside Gap Two Crows
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Abandoned Baby
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification A long white day is followed by a Doji that gaps in the direction of the trend. Then a black day occurs gapping in the opposite direction with no overlapping shadows. The Psychology In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue it's upward movement. Instead enough bears step in to bring supply and demand back into equilibrium and the stock churns in place. This isn't necessarily bearish, but it's certainly less bullish. The pattern is confirmed by the next day's gap down and drop. The bearish Abandoned Baby formation doesn't occur too often and is similar to the bearish Doji Star, bearish Evening Star, and bearish Evening Doji Star.

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If you can handle the volatility, DAL provided a decent entry on a short when the stock formed a bearish Abandoned Baby formation at resistance. If this pattern had formed in a steady uptrend, it would be very risky, but given that it formed at a previous high, the reliability of the pattern increases.

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Advance Block
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate

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Identification Three white days occur. Each successive day opens within the body of the previous day and closes above the previous day. The bodies of the candles get progressively smaller with the upper shadows of day 2 and Forex Trading 3 getting progressively longer.

Strategy Many Currency The Psychology Each successive candle is smaller and closes further from its intraday high. This isn't necessarily extremely Pairs To Choose bearish, but it's certainly less bullish. It hints that the bounce is losing steam because each attempt to rally From Open Free Demo Account. intraday fails by a greater degree. Visit Us!
The bearish Advance Block is similar to the bullish Three White Soldiers and bearish Deliberation.

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This bearish Advanced Block pattern which formed at a previous high wasn't going to signal the end of the uptrend and beginning of a downtrend (look at all the black volume), but it did signal the beginning of a small pullback that was could be playable for short term traders.

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Belt Hold
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: low Identification A black day occurs with no upper shadow and a close near the day's low. The Psychology The Belt Hold occurs fairly often and is not very reliable. The fact that the day's opening price holds as the high of the day and the stock trends down all day leans bearish, but one really needs to note the overall trend and receive confirmation with an additional down day.

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Breakaway
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate

Identification www.chartpattern.com A long white day is followed by a white day that gaps above the first day. The next two days continue in the same direction with higher consecutive closes. The final day is a long black day that closes in the gap Stock Tips & between the first and second days. The Psychology In an uptrend or within a bounce of a downtrend, the stock exhausts itself with a gap up, but although the upward movement continues, it slows noticeably. The long black day suggests a possible reversal in the making to at least fill the gap. Declining volume on the three middle days with a pickup in volume on the black day serve as confirmation.

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Dark Cloud Cover
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high

Identification A long white day is followed by a black day which gaps above the high of the white candle and then closes www.Morningstar.com below the midpoint of the first day's body. The Psychology In an uptrend or within a bounce of a downtrend, the stock gaps up and immediately encounters sellers who push the stock back down. This simply signifies the possibility of a reversal that is more reliable if the gap up occurs at resistance and the black day is accompanied by a surge in volume. The bearish Dark Cloud Cover is similar to the bearish Engulfing.

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Dark Cloud formations are thought to be of the reversal variety but we also think they are playable on bounces within steady downtrends. CL was falling steadily and bounced on less than impressive volume. The Dark Cloud Cover formation signaled the end of the bounce and a continuation of the downtrend.

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Here is an example of a Dark Cloud Cover candle formation occurring at resistance. In a steady uptrend, playing this pattern for a Technical reversal is risky, but when the pattern forms at resistance, the odds favor a successful result.

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WEDC formed a bearish Dark Cloud Cover candle right at a previous high and began a tradable leg down. When this candle forms at resistance, your risk declines on a the short side.

After rallying nicely FRED pulled back and then formed a bearish Dark Cloud Cover at the top of the subsequent bounce. But realistically, given the strenght of the stock, you could not expect the stock to trade below the previous low. Active traders could sell a long when the candle forms and then look to rebuy when support holds.

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Deliberation
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A long white day is followed by a second long white day that closes higher than the first. The third white day gaps above the second and becomes a white spinning top or Doji. The Psychology The first two white days say “full speed ahead” as the stock appears strong and in a solid uptrend. But the gap up and failure to rally much suggests that the strength may be waning. This isn't necessarily bearish, but it's certainly less bullish, so stops are raised, or profits taken on long positions. The bearish Deliberation is similar to the bullish Three White Soldiers and bearish Advance Block and could be the beginning of the bearish Evening Star.

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Deliberation formations are not for the light of heart because you are essentially shorting a strong stock. Here you can see AT&T rally strongly on high volume. The third white day (which was small) hinted that the buyers may be getting tired. A good trader would wait until the next day to short the gap down at the open…or the pattern could simply be used as an exit strategy for an existing long position.

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Again, it's hard to short a stock as strong as VXGN was in this bearish Deliberation pattern, but its formation could offer an exit strategy if you are long.

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Doji Star
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A long white day is followed by a Doji that gaps in the direction of the trend. The shadows of the Doji should not be long. The Psychology In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium and the stock churns in place. The halt of the uptrend signifies the possibility of a reversal, so confirmation is needed with a weak third day (preferably with volume behind it). The bearish Doji Star could be the first two days of the bearish Evening Doji Star or the bearish Abandoned Baby.

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Dragonfly Doji
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: low/moderate Identification A Doji forms at the upper end of a trading range with a long lower shadow (the longer the more bearish) with no, or almost no upper shadow. The Psychology In an uptrend or within a bounce of a downtrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close at its opening price near the day's high. Although the stock recovers from its intraday sell-off, it suggests the bulls are starting to lose strength, and a reversal may occur. A weak following day on solid volume is still needed to confirm the pattern. The bearish Dragonfly Doji is similar to the bearish Hanging Man, bullish Dragonfly Doji, and bullish Hammer.

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Downside Gap Three Methods
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: moderate Identification A long black day is followed by a second long black day that gaps in the direction of the trend. The third day is white and fills the gap between the first two days. The Psychology In a downtrend a gap simply gets filled. As long as the black candles have higher volume than the white, the one white profit taking day for the shorts shouldn't be a big concern. The downtrend should continue if indeed the stock is as weak as it appears. The bearish Downside Gap Three Methods is similar to the bearish Downside Tasuki Gap.

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APD was going nowhere when if formed a bearish Downside Gap Three Methods pattern. Essentially the stock was trying to bounce prior to hitting support, but that obviously didn't happen. If you were short and the white day occurs on light volume as it did here, there is no reason to cover just yet. But when the stock falls to support, then you better be ready to cover is the stock bounces.

TNE pulled back from resistance and formed a bearish Downside Gap Three Methods pattern while attempting to move up again. After one more attempt on less than average volume, resistance held and the stock fell. Once again, don't blindly trade these candle formations in a vacuum. Make sure you check out the longer term charts and the overall market.

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Downside Tasuki Gap
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: continuation Reliability: moderate Identification A long black day is followed by a second long black day that gaps in the direction of the trend. The third day is white and opens within the body of the second day and closes within the gap. The Psychology In a downtrend a gap is partially filled. This is simply a profit taking scenario for the shorts and a sucker entry for dumb longs. We have a weak stock in a downtrend that bounces. As long as the white day is on lighter volume, the bears will most likely retake control soon after. The bearish Downside Tasuke Gap is similar to the bearish Downside Gap Three Methods.

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I wouldn't exactly say this is a good example of a Downside Tasuki Gap candle because I'd put it in the category of candle formations that form by happenstance. ANF was going nowhere with no clear trend, but nevertheless it does give the reader a glimpse at was this type of pattern could look like.

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Engulfing
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A white day is then completely “engulfed” by a large black day which gaps above the white day's high and closes below its low.

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Company Stock The Psychology Research In an uptrend or within a bounce of a downtrend, the gap up may be the blow out that causes the shorts to 2,000 Stock throw in the towel and cover. Meanwhile the smart money is selling and getting short and the selling activity Analyst Reports & is so intense, the stock closes below the previous day's low. The bullish Engulfing pattern is very Picks Free 14 Day common…literally dozens occur every day and many are just incidental. Watch volume for confirmation. Trial- Sign Up Today!
The bearish Engulfing is similar to the bearish Dark Cloud Cover and could be the beginning of the Three Outside Down.
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Betterbee Everything you need to get started making beeswax candles Like many reversal patterns, the bearish Engulfing pattern is better played at resistance rather than blindly in an uptrend. In the chart above, HL tried hard to move up but the 7 area was too much to handle. Twice the stock formed a bearish Engulfing candle, and more.
and the second one officially ended the consolidation pattern and began the move down.
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NKE formed a bearish Engulfing pattern at an area of a previous resistance point. The stock then broke support to confirm the reversal. You can't expect all trades to work this well; but you can enter and keep a reasonable stop in place while letting the stock www.oblatesusa.org run its course.

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DRD formed a bearish Engulfing pattern and broke support on the same day…a nice one-two punch.

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Evening Doji Star
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: reversal Reliability: high Identification A long white day is followed by a Doji that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle. The Psychology In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bearish Doji Star formation. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal. The bearish Evening Doji Star is similar to the bearish Doji Star, bearish Evening Star, and bearish Abandoned Baby.

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We consider this to be a risky trade. ET was rallying on strong volume when it formed a bearish Evening Doji Star formation that ended the uptrend and began a downtrend. We consider this to be a risky trade even though Evening Doji Stars carry a high reliability rating. A safer play would be the formation of this pattern at resistance.

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Evening Star
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: reversal Reliability: high Identification A long white day is followed by a small body that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle. The Psychology In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium so a small body forms. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal. The bearish Evening Star is similar to the bearish Evening Doji Star, bearish Abandoned Baby, bearish Doji Star, bearish Two Crows, and bearish Upside Gap Two Crows.

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Trading Software Build profitable trading systems using advanced GFF was in a steady uptrend when it formed an Evening Star pattern at an area that was previously established as possible resistance. Coupled with confirmation from one or two technical indicators, this reversal pattern is very reliable – especially when it neural networks
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JNJ bounced nicely off 49, but the area of the previous reaction highs were too much to overcome and the bearish Evening Star pattern suggested a reversal was likely.

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Here is somewhat of a hap-hazard play. AMTD gapped up on big volume and immediately formed a bearish Evening Star pattern, and the stock turned right around and started a steady decline.

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Fallling Three Methods
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: continuation Reliability: high Identification A long black day in a downtrend is followed by three relatively small candles that move opposite the overall trend but stay within the range of the first day. The fifth day is a long black day that closes below the close of the first day and continues the downtrend. The Psychology In a downtrend, a long black day is followed by a brief bounce (preferably on lightish volume). The fifth day simply continues the trend. The brief bounce is nothing more than a few days off for the bears.

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Gravestone Doji
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: low/moderate Identification A Doji forms at the lower end of the trading range. The upper shadow is usually long while the lower shadow is small or almost nonexistent. The Psychology In an uptrend or within a bounce of a downtrend, the stock gaps up. A valid attempt is made to rally the stock, but the strength subsides and the stock falls to close near the day's low at the same price it opened. Failure to follow through with strength suggests the bulls may be losing strength. Although this is not necessarily extremely bearish, it is less bullish, so stops should be moved up or profits taken on longs. For a reversal to occur a weak day is needed to confirm the pattern. The bearish Gravestone Doji is similar to the bearish Shooting Star, bullish Inverted Hammer, and bullish Gravestone Doji.

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Hanging Man
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: low/moderate Identification A small real body forms at the upper end of the trading range with a long lower shadow (the longer the more bearish) with no, or almost no upper shadow. The Psychology In an uptrend or within a bounce of a downtrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close near its opening price near the day's high. Although the stock recovers from its intraday sell-off, it suggests the bulls are starting to lose strength, and a reversal may occur. The pattern is a slightly more reliable if the real body is black. A weak following day on solid volume is still needed to confirm the pattern. The bearish Hanging Man is similar to the bullish Dragonfly Doji and bullish Hammer.

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Bearish Hanging Man candles form very often so you need to use other indicators to confirm potential moves. Here BBBY formed a Hanging Man candle that was followed up by a bearish Engulfing stick. That's a good one-two combination to play.

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After making a higher high DPH formed a bearish Hanging Man candle on strong volume and was followed a filled candle that confirmed the reversal of the uptrend.

Here is a bearish Hanging Man candle that would be best used to exit a long position rather than as a short entry. The stock is simply too strong to short unless you are a very slick short term trader.

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Harami
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: reversal Reliability: low Identification A long white day is followed by a black day that gaps down and is completely engulfed by the real body of the first day. The Psychology In an uptrend or within a bounce of a downtrend a long white day occurs. The next day's gap down comes as a surprise to bulls who thought they were sitting on a great position the previous day. Reliability of the bearish Harami is low, so a weak following day is needed for confirmation. The bearish Harami could be the first two days of bearish Three Inside Down.

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Bearish Harami formations carry low reliability but when they occur at resistance like with APH, reliability increases and the risk/reward tradeoff shifts to a more favorable level.

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AA also formed a bearish Harami at resistance. Notice the lack of volume on the rally up to the previous high. That's hint #1 that the stock has limited upside potential. When the stock got rejected and dropped on big volume and then gapped down the next day, the Harami candle was confirmed, and the stock did indeed reverse course.

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Harami Cross
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: reversal Reliability: moderate Identification A long white day is followed by a Doji that gaps down and is completely engulfed by the real body of the first day. The Psychology In an uptrend or within a bounce of a downtrend a long white day occurs. The next day's gap down comes as a surprise to bulls who thought they were sitting on a great position the previous day. Reliability of the bearish Harami Cross is better than that of the bearish Harami, but it is still on the low side. A weak following day is needed for confirmation.

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The Truth About Forex Don't Take Given the average reliability of the Harami Cross candle as a reversal pattern, you need to look at other indicators or be picky in Another Forex only playing the pattern at resistance. Here CGNX formed a small head & shoulder top pattern with a bearish Harami Cross at the Course Until You top of the right shoulder. That provided a low risk short entry because the prudent trade would exit immediately if a higher high was Read This made. Shocking Report
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Identical Three Crows
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification Three black days occur with each day opening where the previous day closed. The Psychology In an uptrend three successive days open at the previous day's close and close down on the day. This pattern is more severe than the Three Black Crows pattern and thus has a higher reliability as a reversal pattern.

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Company Stock TJX formed two Identical Three Crows formations in short order in the early fall months of 2003. You can see that by the time the Research 2,000 Stock pattern forms the stock will have already dropped quite a bit, so most likely you would be exiting a long or going short a little late. Also notice how resistance in July became support in September and support in August remained support in September. Shorting Analyst Reports & Picks Free 14 Day after the second pattern would have been foolish because the stock was right at support. Again, you must look at the big picture Trial- Sign Up when making trading decisions. Today!
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In Neck
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: moderate Identification A long black day is followed by a long white day that gaps down at the open and closes at the same price as the black day. The Psychology The In Neck pattern is a less severe relative of the On Neck pattern because it rallies further intraday. A gap down is seen as a buying and short covering opportunity, but failure to rally the stock up into the previous day's range indicates the buying most likely will be brief and the downtrend shall resume.

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Kicking
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

Pattern: reversal Reliability: high Identification A White Marubuzo (opens at low and closes at high) is followed by a Black Marubuzo (opens at high and closes at low) that gaps down. The Psychology A big black candle that opens at its high and closes at the day's low is bearish regardless of the overall trend. Volume confirmation on the black day solidifies the patter as is a follow up weak day. The bearish Kicking is similar to the bearish Separating Lines.

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Meeting Lines
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A long white day is followed by a long black day that gaps up at the open but then drops to close at the same price as the white day's close.

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The bearish Meeting Lines is similar to the bearish Dark Cloud Cover.

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On Neck
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: moderate

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The Truth About Forex Don't Take Another Forex Course Until You Read This The bearish On Neck is similar to the bullish Piercing Line, bearish In Neck, bearish Thrusting, and bullish Shocking Report
The Psychology The On Neck pattern is a more severe relative of the In Neck pattern because it fails to rally as much intraday. A gap down is seen as a buying and short covering opportunity, but failure to rally the stock up into the previous day's range indicates the buying most likely will be brief and the downtrend will resume. Meeting Lines.

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Separating Lines
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: low Identification A white day is followed by a black day that has the same opening price. The Psychology In a downtrend, the price gaps down and bounces intraday with a white candle. This proves to be simple profit taking by shorts and bottom fishing by dumb longs when the downtrend continues with the next day's gap down and low close. The bearish Separating Lines is similar to the bearish Kicking.

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Shooting Star
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: low/moderate

Identification ForexCandlesticksMadeE A small body forms at the lower end of the trading range. The upper shadow is usually long while the lower shadow is small or almost nonexistent. The Psychology In an uptrend or within a bounce of a downtrend, the stock gaps up. A valid attempt is made to rally the stock, but the strength subsides and the stock falls to close near the day's low and near its opening price. Failure to follow through with strength suggests the bulls may be losing strength. Although this is not necessarily extremely bearish, it is less bullish, so stops should be moved up or profits taken on longs. For a reversal to occur a weak day is needed to confirm the pattern. The bearish Shooting Star is similar to the bullish Inverted Hammer, bearish Gravestone Doji, and bullish Gravestone Doji.

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Here is an example of how a bearish Shooting Star can be used to pick the top of a range. BMY was trading aimlessly without much conviction in either direction, so a buying the bottom and selling and selling short the top would provide profits for the patient trade. After the stock bounced from 25 to over 27, it was a Shooting Star candle that signaled the top.

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the previous high) like it did here with NEOF, the reliability of a successful reversal significantly increases.
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Here's a risky play. DCLK was in a good uptrend when it formed a bearish Shooting Star candle. It's a sign that longs should look to take some money off the table, but only aggressive traders should look to short such a strong stock.

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Side By Side White Lines
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: moderate

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www.Morningstar.com Identification A black day is followed by a white day that gaps in the direction of the trend. The third candle is also white and is almost identical to the previous day.

The Psychology In a downtrend a black day is followed by two white days that are gapped below the first day. The lack of follow through on the second white day suggests the bears are still somewhat in control, and unless the bulls can fill that overhead gap with some volume behind the move, the downtrend will remain intact.

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Three Black Crows
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification Three long black days occur with each successive open being within the body of the previous day and each successive close being below the previous day's and near the day's low. The Psychology In an uptrend or within a bounce of a downtrend, the three long black candles speak for themselves. If volume accompanies the move, the reliability of the pattern increases significantly. The bearish Three Black Crows is similar to the bearish Identical Three Crows, bullish Concealing Baby Swallow, bullish Ladder Bottom and bullish Three Stars in the South and could be the beginning of the bearish Three Line Strike.

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Three Black Crows is a solid reversal pattern whose only flaw is the fact that it takes three down days to form, so going short after its formation may be chasing the stock. You can see above SUNW dropped 8 points (about 12%) before the pattern was completed. Exiting a long at that time was a little late to enter a short carried higher risk.

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BMC presented a more favorable way to play a bearish Three Black Crows formation. The third candle also broke support. That's a nice one-two combination and because the prudent trader will often wait until support it taken out, you don't feel like you are chasing the play.

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After gapping down, CKFR made a valiant attempt at filling the gap, but that attempt ended with a bearish Three Black Crows formation. Notice the previous low held, so that's here you take profits.

Here's an example of a bearish Three Black Crows pattern that failed miserably...and it formed at resistance (40). They don't always work!!

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Three Inside Down
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification A bearish Harami pattern is followed by a black day whose close is lower than the second day. The Psychology In an uptrend or within a bounce of a downtrend, a bearish Harami forms. By itself this pattern has moderate reliability as a reversal pattern, but when followed by a weak day (preferably with a pick up in volume) the overall pattern becomes much more reliable. The bearish Three Inside Down is a continuation of the bearish Harami.

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DRD was in a steady uptrend, but the mid-September attempt at a higher high failed and resulted in a bearish Three Inside Down candle formation which reversed the uptrend.

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SFD collapsed on huge volume in late June. The stock then experienced an oversold bounce which ended in a bearish Three Inside Down pattern.

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Here is an example of when not to play a bearish Three Inside Down formation. LFG has just made a higher high on better than average volume. The candle pattern was just a pause in an uptrend...not a reason to go short.

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Three Line Strike
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: low

Identification www.chartoftheday.com Three long black days with consecutively lower closes is followed by a fourth day that gaps in the direction of the trend and closes above the open of the first day. Company The Psychology In a downtrend, the Three Line Strike pattern has low reliability. The large white day can really scare the shorts and many contrarians will site this as bearish. If indeed the downtrend is strong, the one white day should not ruin the pattern. Hence, if the next day is down, the downtrend should continue. The bearish Three Line Strike is a possible continuation of the bearish Three Black Crows.

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Three Outside Down
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification A bearish Engulfing pattern is followed by a black day whose close is lower than the second day. The Psychology In an uptrend or within a bounce of a downtrend, a bearish Engulfing pattern forms. By itself this pattern has moderate reliability as a reversal indicator, but when the it is followed by another black day (preferably on strong volume), the overall pattern becomes much more reliable. The bearish Three Outside Down is a continuation of the bearish Engulfing.

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The bearish Three Outside Down pattern is one of the most reliable candle formations, and when it occurs at resistance, the risk/reward on the short side is heavily in your favor. In this ATH example, support on the way down became resistance on the way up, and after several weak attempts (see the low volume) to break up, the Three Outside Down pattern started the next leg down.

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Here is another reliable scenario. Although NTAP was in a decent uptrend, the stock formed a bearish Three Outside Down pattern and broke support at the same time. That's a nice one-two punch.

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SINA is an example of the riskiest way to play this formation. The stock was generally in a good uptrend with no noticeable Technical resistance nearby. The Three Outside Down pattern did mark the end of the rally, but given the lack of overhead resistance, it was Analysis a riskier play. Improve Your

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Thrusting
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: continuation Reliability: low Identification A black day is followed by a white day which gaps in the direction of the trend and closes below the midpoint of the black day.

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Where are stocks headed? The answer may surprise you. Find out now with The bearish Thrusting is similar to the bullish Piercing Line, bearish On Neck, bearish In Neck, and bearish Chart of the Day.
The Psychology The Thrusting pattern is a weaker version of the bearish On Neck and bearish In Neck continuation patterns. The bulls start to assert themselves as evidenced by the rally into the previous day's trading range, but by closing in the lower half of that range, the overall pattern is still bearish. Meeting Lines.

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Tri Star
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A Doji occurs on three consecutive trading days with the second gapping up and the third gapping back down. The Psychology In an uptrend or within a bounce of a downtrend, a battle begins. The bulls start to back off while the bears step up. Dojis indicate an even battle between the bulls and bears. The formation of three Dojis within a uptrend hints that the bulls may be starting to reassert themselves. A black day with volume is needed to confirm the reversal.

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Two Crows
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: moderate Identification A long white day is followed by a black candle which gaps up in the direction of the trend. The final day opens within the body of the small black day, drops to fill the gap and closes within the body of the first day. The Psychology In an uptrend or within a bounce of a downtrend, a gap up which fails to close above its open hints at a weakening trend. The second day that gaps and then falls to fill the downside gap confirms the reversal of the trend. The bearish Two Crows is similar to the bearish Upside Gap Two Crows and bearish Evening Star.

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Here's a bad example (sorry) of a bearish Two Crows pattern picking the top of a stock trading aimlessly. After the pattern was in place the stock dropped about 10% in just a couple days.

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Upside Gap Two Crows
Abandoned Baby Advance Block Belt Hold Breakaway Dark Cloud Cover Deliberation Doji Star Dragonfly Doji Downside Gap Three Methods Downside Tasuki Gap Engulfing Evening Doji Star Evening Star Falling Three Methods Gravestone Doji Hanging Man Harami Harami Cross Identical Three Crows In Neck Kicking Meeting Lines On Neck Separating Lines Shooting Star Side By Side White Lines Three Black Crows Three Inside Down Three Line Strike Three Outside Down Thrusting Tri Star Two Crows Upside Gap Two Crows

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Pattern: reversal Reliability: high Identification A long white day is followed by a black candle which gaps in the direction of the trend. The final day engulfs the small black day and closes within the gap of the first two days. The Psychology In an uptrend or within a bounce of a downtrend, successive gaps up which close down to force a black candle to form suggests the bulls are weaken. They are not able to rally the stock intraday and the bears are starting to take over. The reliability of the increases if the gaps up bump into resistance. The bearish Upside Gap Two Crows is similar to the bearish Two Crows and bearish Evening Star.

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Here is an example of reversal pattern that would be better used to exit a long position rather than initiating a short. After all, the stock had just bounced on big volume. The prudent trader would look to exit a long position and then rebuy the dip.

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Technical Analysis
Technical analysis is a broad name given to the study of a company via its trading activity (versus fundamental analysis, which studies the balance sheet etc.) of a company. Over the years, mathematicians and traders have used the pricing activity of stocks to derive formulas that assist in determining the underlying intentions of the trading/investing participants. Here we discuss numerous popular technical indicators successful traders use in conjunction with chart patterns and candlestick patterns. Market Internal Indicators Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO Chart Indicators Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

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Overlay Indicators Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

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Market Internal Indicators
Market Internal Indicators are technical indicators that deal with the overall market, not an individual stock. Some, like the TRIN and New Highs/New Lows, are very short term indications of possible market direction while others, like the Advance/Decline Line, are longer term. Here are some commonly used Internal Indicators traders use. Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

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Advance/Decline Line
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The Advance/Decline Line (A/D Line) is a widely followed “breadth” indicator used to measure the market's internal strength. It is the cumulative total of the difference between the number of NYSE issues that are advancing versus those declining. When the A/D Line is moving up the market is said to have good breadth while a downward sloping line indicates internal weakness.

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The A/D Line can be used to confirm the movement in the overall market or to hint at a possible reversal. If both the market and the A/D line are moving up, one can expect the market strength to continue. But if the market moves up while the A/D starts to flatten out and then move down, it hints at internal weakness, and Stock Market the overall market is very likely to pull back.

Free Trial: 1800 Stock Research On the downside, if both the market and the A/D Line are moving down, one can expect the market weakness to continue. But if the market moves down while the A/D Line starts to flatten out and then move Reports with Buy & Sell Prices up, internally the market is gaining some strength and the indexes will likely bottom and reverse course.
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The A/D Line is a long term indicator. The next two chart show an example of a positive divergence that formed between the NYSE and the NYSE A/D Line. While the market was making a series of lower highs during the last half of 2002 and beginning months of $4 Billion Wiz 2003, the A/D Line had bottomed and started turning. Strength was building, and the NYSE rally was not far off. Kid

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The next two chart show the opposite situation. While the market was steadyily moving up, the A/D Line was making lower highs. Something had to give. Either the market was going to pull back or the A/D Line was going to start moving up. In this case the A/D www.Morningstar.com Line broke support and the NYSE wasn't far behind.

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TRIN (Arms Index)
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The Arms index, or TRIN, was developed by Richard Arms in 1967 and is used to determine the strength/weakness of the market on a day-to-day basis. It takes into consideration the number of advancing and declining issues and the volume associated with those issues. The formula is: ((advancing issues/declining issues)/(advancing volume/declining volume)) If the TRIN > 1 the market is leaning bearish with a higher number being more bearish, but an extremely high number being a possible contrarian indicator. If the TRIN <1 the market is leaning bullish with a lower number being more bullish.

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Morningstar Research 4,000 Stock and On a short term basis (for day traders only) the actual number is less important than the direction it is moving. So if the number is 1.5 but 2 hours ago it was 2.0, and it has been steadily falling, the number says Mutual Fund Reports with the market is leaning bearish but the direction tells you the market is improving. Buy/Sell Opinions Extreme readings can be used as evidence the market is either overbought or sold and will likely reverse, - Learn More
but this is a very short term indicator that should only be used by day traders. But again, unlike the A/D Line which is a “stand back and gauge the strength/weakness of the overall market indicator,” the TRIN - for the most part - is strictly a short-term day-to-day guideline. There is however a longer term use that presents a buy signal (but it rarely appears). See below.
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Decision Point Your technical analysis toolbox. Here is a typical 5-minute indraday TRIN line. Judging by the value most of the day, it's safe to say it was a weak day for the market. Charting stocks, But the TRIN's uptrend was broken 2 hours before the close, and then another support line was broken 1 hour before the close. Let's funds, indicators
see what happened to the S&P 500 during this day.
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As expected the market opened and immediately fell; it spent a majority of the day deep in the red. But when the TRIN topped out around 12:00, the market bottomed. Then when the TRIN broke support around 14:00, the market broke resistance and started to pick up some momentum. New lows for the TRIN was mirrored by new highs for the market. But as we stated...this is a short term day trader's indicator that should be used with the intraday A/D Line to help determine intraday activity. The longer term indication given by the TRIN is associated with consistantly high readings. More specifically, if the TRIN closes above 2.0 for 3 consecutive days, history says the market will move up. That doesn't mean it will rally hard; it just means over time, a reading that high for 3 days has resulted in a very solid bounce. Here's an example.

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In Nov '02 the TRIN closed 3 consecutive days above 2.0.

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The S&P 500 proceeded to bounce 65 points over the following three weeks. Again, this indicator rarely presents itself...maybe once or twice/year. But when it does, its accuracy is dead on.

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Bullish Percent Index
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The Bullish Percent Index (BPI) is a popular market “breadth” indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Generally speaking, values over 70% indicate an overbought situation whereas values under 30% indicate an oversold environment Like many of the market internal indicators, it is used both to confirm a move in the market and as a nonconfirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving up as more and more stocks make the “buy list.” When the market moves down, one expects the BPI to also move down to confirm the market's weakness.

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Morningstar Research 4,000 Stock and Mutual Fund Reports with However, if the market moves up while the BPI starts to head down, the market more likely than not will pull Buy/Sell Opinions back. This scenario unfolds when the big-caps are strong (they are causing the indexes to move up - Learn More
because the indexes are weighted to favor them) but the small- and mid-caps are starting to weaken (hence the BPI is moving down).
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On the other side, when the market moves down while the BPI starts to head up, a short-term bottom and reversal are not too far off.

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Here is what a typical Bullish Percent Index chart looks like. Since the BPI is the percentage of stocks given a buy signal by their point & figure charts, mathematically the value must stay between 0 and 100.

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Looking at the above Bullish Percent chart of the NASDAQ, you can see the indicator being pretty good at picking a short term www.Morningstar.com bottom when the BPI drops to around 30 or lower and then moves up. Also note the confirmation of the March to November uptrend by the steadily rising BPI. But don't read too much into the failure of the indicator to make higher highs above 70 when the market continues up - after all there is a ceiling at 100, and realistically it will never get close to that number.

TWR had traded sideways for many months when it formed this 4-month symmetrical triangle. Notice the volume surge on the breakout as the stock rallied over 40% in under one week.

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McClellan Oscillator
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The McClellan Oscillator is a market breadth indicator developed by Sherman and Marian McClellan. It is the smoothed difference between advancing and declining issues on the NYSE.

Decision Point Your technical analysis toolbox. The oscillator typically fluctuates between -100 and 100. If the oscillator rallies to between 70 and 100 and Charting stocks, then turns down, the underlying market is believed to be overbought and a sell signal is offered. If the funds, indicators
oscillator drops to between -70 and -100 and then bounces, the underlying is thought to be oversold and a www.decisionpoint.com buy signal if given. If the McClellan Oscillator goes beyond the 100 or -100 marks, a short-term reversal may briefly occur, but it is very likely the trend will continue.

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We realize this chart is hard to read, so we'll walk you through it. The bottom line is the McClellan Oscillator. You can see how it basically meanders up and down. The text book use of the oscillator is to buy the underlying issue when the oscillator goes below 70 and then turns up and to sell or sell short when the oscillator goes above 70 and turns down. From the above example, each buy signal was indeed a good signal, but each sell signal merely indicated a pause in the existing uptrend and shorting would have Where are stocks at best been a breakeven proposition. The opposite scenario probably would exist for a downtrending stock. Sell signals would work great while buy signals merely indicate a pause in the downtrend.

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McClellan Summation Index
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The McClellan Summation Index was developed by Sherman and Marian McClellan. It is a longer-term version of the McClellan Oscillator and is used to determine the market's overall health. The McClellans suggest a reading below -1300 hints that a major market bottom is near while a reading above 1600 indicates a major top will be hit soon. These top and bottom signals are more significant when a divergence between the overall market and this index is present.

The following two charts exemplify how a positive divergence between an index and its McClellan Summation Index works. Notice the NYSE making a series of lower highs, but the Summation Index made two higher lows. Strength was building, and the NYSE took the lead of the SI and rallied.

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New Highs/New Lows
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

Morningstar Research 4,000 Stock and Mutual Fund When the market is strong the number of stocks making new highs should easily out number those making Reports with new lows, and vice versa when the market is weak. Buy/Sell Opinions - Learn More
The New Highs-New Lows (NH-NL) indicator is widely followed and used to gauge the market's strength. It is the difference between the number of stocks making 52-week highs versus those making 52-week lows. This indicator is most useful in identifying short term overbought or oversold situations. When the NH-NL line spikes up it often indicates a short term top. After all, with so many stocks making new highs, a pullback in the near future would appear likely. On the other side, when the NH-NL line spikes down, it reeks of a capitulation sell-off and often preludes a short-term bottom and market bounce.
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These spikes are the only usefulness of the NH-NL line because the line spends so much time going nowhere.

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Put/Call Ratio
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

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The Put/Call ratio (P/C) was developed by Martin Zweig to determine the general market sentiment and expectations. It is a ratio of the number of calls and puts traded on the Chicago Board Options Exchange (CBOE). The CBOE widely advertises that 85% of all options expire worthless, and this is at the heart of the P/C's effectiveness. Most of the options volume is due to buying, not selling. And unlike stocks where for every buyer there is a seller and for every seller there is a buyer, the options market is very one-sided. The exchange itself acts as a buyer to all sellers and a seller to all buyers.

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Those who buy call options expect the market to rally while those who buy puts expect it to fall. Since most options traders are wrong, one can get a clue as to the future move of the market by studying the action in Stock Market the options market. One could say the P/C is a contrarian indicator. When the Put/Call ratio spikes up, it indicates most traders belief that the market will fall. Since most options traders are wrong, one can use this as a clue that perhaps bearishness has reached an extreme level and higher prices are coming. Since the market has a general bullish bias to begin with, this type of extreme put/call reading is not equally effective on the downside.

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Where are stocks headed? The answer may Here is a typical Put/Call line. It fluctuates wildly, and as you can see it spends most of its time below 1.0. This indicates call option surprise you. Find volume usually beats put option volume. Spikes to the downside are not very useful, but spikes to the upside can indicate a panic out now with by the bulls (they are buying puts to protect their holdings), and a bounce can occur. Chart of the Day.
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Here is the NYSE chart during this same time period. The spike in the Put/Call line did indeed signal an end to the small pullback

with an otherwise uptrending market.

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VIX and VXO (Volatility Index)
Advance/Decline Line Arms Index (TRIN) Bullish Percent Index McClellan Oscillator McClellan Summation Index New Highs/New Lows Put/Call Ratio VIX and VXO

The VIX and VXO have been introduced by the Chicago Board Options Exchange (CBOE). They are hypothetical options that are at-the-money and have 30 days until expiration. They attempt to represent the implied volatility of their respective option. When prices fall, put option buyers are more willing to pay a higher premium, and the VIX and VXO move up. The opposite occurs when stock prices drop. Put buyers are less willing to "pay up" for puts, so the VIX and VXO move down. The VIX is based on the SPX (S&P 500), and the VXO is based on the OEX (S&P 100). When the market is weak and falling, the VIX and VXO move up, but when the VIX and VXO spike up to reach extreme levels, the market is thought to be oversold and due for a bounce. On the other hand, when the market is rallying, the VIX and VXO move down. It is believe low VIX and VXO readings can be used to determine short-term market tops. In the author's opinion, the VIX and VXO do have some value forecasting possible market bottoms when the VIX and VXO spike, but they are utterly useless while the market is strong.

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Here is a VXO chart during a 7-month period in late 2002. High readings indicate put option buyers paying a premium, but amateur options players are usually wrong. So high VXO readings, which coorespond to put buyers being wrong at exactly the wrong time should indicate a market bottom.

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Here is the S&P 500 chart during this same time period. You can see each time the VXO spiked up, the SPX bottomed and bounced.

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BECOME A MEMBER SIGN MEMBER IN Chart Patterns | Candlestick Patterns | TECHNICAL ANALYSIS | Option Strategies | Bookshelf Overlay Indicators Overlay indicators are technical indicators that are plotted directly on an issue's price chart. They are often used to determine trading ranges and periods of extreme price movement. Here are the most popular Overlay Indicators professional traders use. Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

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Bollinger Bands
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

Bollinger Bans were developed by John Bollinger. They are a set of bands that are plotted at 2 standard deviations above and below an exponential moving average (20-day is widely used) and are displayed over a stock's price chart. Using 2 standard deviations guarantees 95% of the price data will lay between the bands. Since the bands are plotted at standard deviation levels, they are self-adjusting. When a stock becomes more volatile, the bands widen to give the stock more “room to move” within the bands. When a stock meanders around with little day-to-day movement, the bands contract. Because of the tendency for a stock to stay within the bands, prices are considered overbought when they reach the upper band and oversold when they reach the lower band. Bollinger offers the following characteristics: • Expect sharp prices changes after volatility lessens and the bands narrow. • When a stock moves outside the bands, expect the trend to continue. • A reversal usually occurs after a bottom or top is made outside the bands and then the underlying issue moves back inside the bands. • Prices tend to move from one band to the other, so this can aid in projecting price targets.

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Here is a typical set of Bollinger Bands with VECO. You can see how the stock spends most of its time within the bands and the general tendency to move back and forth between the bands. Used in conjuction with other indicators for confirmation, buying at the bottom band and selling at the top would provide consistent profits.

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This REMC chart reveals a stock's tendency to reverse after breaking through one of the bands and then pulling back within the bands.
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This XICO chart demonstrates two Bolliger Band principals. First is the tendency for a stock to experience a big move after the bands have narrowed. You can see this in late June. Second, when the stock moved outside the top band, although the stock did pull back, the uptrend continued.
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Donchian Channels
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

Donchian Channels (also called price channels) are simply an “envelope” around a set a pricing data. The top of the channel is the highest high over a given period of time while the bottom of the channel is the lowest low over the same period. Like other channels, a stock can be traded within the channel from one boundary to the other while watching for “breakouts” in either direction or false breakouts. As a side note, since the channel top and bottom are the highest high and lowest low of a given time period, it is mathematically impossible for the stock to breakout of the channel because the channel would immediately move if a new extreme price was hit.

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Here is a 3-minute intraday chart of QQQ. First note the stock always stays within the Donchian Channel (it's mathematical - it's impossible to breakout). Overall, when the market is weak, note the tendency for QQQ to "ride" the channel down while occasioanally popping up to touch the top of the channel. The is typical action for a trending day.

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Here again is a 3-minute QQQ chart except the stock is obviously in a steady uptrend. Equal and opposite the bearish action, note Where are the stock's tendency ride the upper part of the channel while occasionally pulling back to kiss the bottom channel line.

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Exponential Moving Average
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

An Exponential Moving Average (EMA) is plotted as a line directly on a stock's price chart. Like the simple moving average, it is the average value of a stock's price over a specified number of time intervals, but the exponential moving average applies more weight to recent trading action. Stocks have a tendency to either “ride” their moving averages or completely ignore them. If a stock tends to ride its MA, traders use the line as a buy or sell point. That is a very simplified strategy and works great with some stocks, but offers no assistance with entries and exits with other stocks. The prudent trader needs to do some homework to see which MA's (if any) work best with a particular stock.

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CORI is a great example of a stock that likes to ride its Exponential Moving Average. Each time the stock rallied away from it, the stock paused to allow the EMA to "catch up." Then the moving average acted as support, and the stock moved up again.

Some traders will plot two different moving averages over a stock chart and use the cross of the longer term moving average by

the shorter term MA for buy and sell signals. This type of strategy works well with gently rolling stocks that do not gap, and it worked will for TV above (note this is a 60-minute chart). But don't try this with high beta volatile stocks because too many false signals are suggested.

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Keltner Channels
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

Keltner Channel is a volatility-based “envelope” indicator developed by Chester Keltner. The difference between it and Bollinger Bands is that while Bollinger Bands represent volatility with standard deviation, Keltner channels use highs and lows. “Envelope” theory says prices will most likely stay within the envelope, so playing the range is a possible strategy. But if prices break through the channel, expect the price trend to continue.

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Free MetaStock® Formula Sign Up To The MetaStock Newsletter & This 60-minute QQQ chart shows how a Keltner Channel is typically displayed on a price chart. Make note of the circled candles. Download Those are the times when the stock traded outside the channel. The first time was the second day of the chart (a Friday). The stock Profitable traded through the bottom, and that started a 2-day drop. The following Wednesday the stock traded through the top of the channel, Formulas Now
and that started a solid trend day which is way for day traders to play. Two days later the stock again traded down through the channel's bottom, and a 2-day drop began. The only false move occurred on the next Tuesday when the stock traded above the channel, but we actually do not consider this a false move because the stock gapped up there rather than trading up there. A big gap up is not playable to the upside unless it can hold for the first hour...which it was not able to do here.
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Linear Regression
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

A Linear Regression line is a “best fit” line modeling a scatter plot of data. Option Calculators One can think of it as the equilibrium line of a set of data points. As used in technical analysis, it simply offers an indication as to the general direction of the underlying issue over a Assess the Risk of Derivatives. designated period of time.

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This Linear Regression line has been manually created after determining its plot with another charting service. You can see it simply offers an idea as to the general direction of the underlying issue over a specified period of time. In this case a negative divergence occurred. As the stock trended up, the RSI flattened out and began to move down. INTC then headed down.
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Parabolic SAR (stop and reversal)
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

The Parabolic SAR is a system developed by Welles Wilder that helps determine trailing stops for both long and short positions. Wilder recommended using the dotted lines below the price as a stop for a long position and the dotted lines above the price as a stop for a short position. Wilder's goal was to capture as much of a trending move as possible. At the beginning of a move there will be a decent cushion between a stock's price and the dotted line, but as the move progresses the dotted line will get closer and closer to the stock's price thereby tightening one's stop.

This MMM chart shows how Parabolic SAR is displed on a stock chart. Wilder used the indicator to determine stops - not entries. Note that as the stock trended, the little blue dots slowly got closer and closer to the price chart. Wilder's goal was to capture as much of the move as possible using a mechanical system, and this indicator did a pretty good job as you can see.

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Price by Volume
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

Price by Volume plots volume horizontally on the price chart to indicate how much volume occurred at each price point. It is very useful to see where the bulk of the volume occurred in determining support and resistance.

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This 13-month SPX chart shows how Price by Volume is displayed. Trader need to pay attention to the locations of large Price by Volume bars because those areas will often act as either support or resistance. This price chart indicates trendline resistance in the 950-965 area and a severe lack of volume above that zone. If the index can breakout, the lack of overhead resistance (indicated by the lack of volume that took place up there) will likely assist a rally because there won't be many traders up there looking to "get out even." Let's see what happened.

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Here is an example using Price by Volume that demonstrates why gaps often get filled. There is very little volume in the gap (and actually there is no volume in the gap for the previous 7 months). The lack of volume translates to lack of resistance. So a move into the gap could shift the supply/demand imbalance to favor the bulls because there are no sellers sitting in the gap wait to "get out even." Let's see how this unfolded.

DGIN moved into the gap and filled it in one day. This may be a bad example because the stock rallied big, and you can't expect that to happen often. But it's just an example of how Price by Volume can be used. Plot it on your charts to see where areas of support and resistance my lie.

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Simple Moving Average
Bollinger Bands Donchian Channels Exponential Moving Average Keltner Channels Linear Regression Parabolic SAR Price by Volume Simple Moving Average

A Simple Moving Average (SMA) is plotted as a line directly on a stock's price chart. It is the average value of the stock's closing price over a specified number of time intervals (i.e. the 50-day SMA is the average closing price over the previous 50 days on a daily chart, but on an hourly chart the 50-SMA would be the average closing price of the previous 50 hours). Stocks have a tendency to either “ride” their moving averages or completely ignore them. If a stock tends to ride its MA, traders use the line as a buy or sell point. That is a very simplified strategy and works great with some stocks, but offers no assistance with entries and exits with other stocks. The prudent trader needs to do some homework to see which MA's (if any) work best with a particular stock.

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Morningstar Research 4,000 Stock and Mutual Fund Some traders also like to plot two different moving averages (typically a longer-term line and a shorter-term Reports with line) on the same stock chart and use the crossing of the longer-term line by the shorter-term line to give Buy/Sell Opinions buy and sell signals. But again, the prudent trader needs to play around with different MA's to see what - Learn More
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Morningstar Research 4,000 Stock and Mutual Fund Reports with ELP is an example of a weak stock in a steady downtrend whose 50-day moving average posed as resistance each time the stock Buy/Sell Opinions bounced. - Learn More
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On the other side, LRW used it 50-day moving average as support on this 100% rally off its low.

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Some traders will plot two different moving averages over a stock chart and use the cross of the longer term moving average by the shorter term MA for buy and sell signals. This type of strategy works well with gently rolling stocks that do not gap, and it worked fairly well with INTC (note this is a 30-minute charts). But don't try this with high beta volatile stocks because too many false signals are suggested.

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Chart Indicators
Chart Indicators are lines or series' of data points that are derived from an issue's opening, high, low, and closing prices and/or volume. They attempt to either graphically confirm or not confirm price movement or identify overbought or oversold areas. None of them work all the time, and they all have their ideal "working conditions." The prudent trader should experiment to see what works best for him/her. Here are many common technical indicators used by professional traders. Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

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Accumulation/Distribution Line
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Accumulation/Distribution Line is a cumulative momentum indicator that uses price and volume to determine whether money is flowing into or out of a stock. It is similar to On Balance Volume (OBV) but instead of adding or subtracting the day's volume if the stock is up or down, the Accumulation/Distribution Line adds or subtracts a percent of the day's volume based on where the stock closed in relation to it high and low.

If a stock closes very close to the high of day then most of the volume is added to the cumulative total. If a www.Morningstar.com stock closes near its low, most of the volume is subtracted. This implies that if a stock consistently closes near its high on solid volume while having an occasional down day on weak volume, the Accumulation/Distribution Line will trend up with occasional small pullbacks. Where are Like many indicators, the Accumulation/Distribution Line ought to move in the direction of the underlying issue, and a divergence is a hint that reversal may be near.

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Morningstar Research 4,000 Stock and This DAL chart shows an example of a negative divergence the occurred between the stock and its Accumulation/Distribution Line. Mutual Fund The stock was bouncing and made two higher highs, but the indicator was trending down. That means volume on up days tended Reports with Buy/Sell Opinions to be lighter than volume on down days and many more days the stock closed near its intraday low rather that near its intraday - Learn More high. DAL eventually succumbed and fell.
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AA shows a positive divergence. While the stock was trending down, its Accumulation/Distribution Line was in a steady uptrend indicating some internal strength was building. The stock then broke out in mid November and enjoyed a nice rally.

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ADX (Wilder's DMI Directional Movement Index)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Directional Movement is a trading system developed by Welles Wilder to help determine if a stock is trending. The system involves the 14-day +DI (directional indicator) and the 14-day -DI. Wilder suggested buying when +DI rises above -DI and selling when +DI falls below -DI.

But this overly simplified suggestion offered many false signals, so Wilder went a step further. He then www.Morningstar.com suggested noting the high of the day when the +DI crosses over the -DI and only buying when prices eclipse this high. Likewise he suggested noting the low of the day when the +DI crossed below the -DI and to only sell when the stock made a new low.

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Technical Analysis Free Trial: 1800 Here is a simplified usage of ADX. When the line (the black line) is high, an indication is made the underlying issue is trending and Stock Research may be playable for a trend trade. But when the ADX value is low, the underlying issue is churning sideways and is only playable Reports with Buy by day traders. & Sell Prices
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given when the +DI line crosses below the -DI line. If this strategy was employed on the above chart, results would have been pretty good.
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ATR (Average True Range)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Morningstar Research 4,000 Stock and Mutual Fund It is the average range a stock typically covers in a specified period of time. For example if the daily ATR Reports with (14) is 2.0, then over the last 14 days, on average, the stock's daily range (price difference from high to low) Buy/Sell Opinions was 2 points. - Learn More
Average True Range was introduced by Welles Wilder as a measure of volatility. It was not meant to provide an indication of price direction but instead the degree of price movement (i.e. volatility).
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Another usage of ATR is with the actual number itself. If you are a swing trader who plans on holding a position for 5-7 days, and the weekly ATR is 4 points, it doesn't make sense to put a 1 point stop on the position because the normal fluctuations that typically take place during the week will likely stop you out.

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This HOV daily chart shows how ATR is typically displayed. Notice while the stock was churing around for the first few months of the chart, the ATR was low, but when the stock started to move, its ATR also moved up signifying a much more lively and active stock.

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Here is a weekly chart of JNJ. Notice how the stock become less volatile as it dropped, and that a pick up in volatility may signal and end to the down trend.

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This TOL chart shows how a relatively high ATR reading can often signal a short term top (buyers are exhausted) while a low volatilty reading can signal a bottom.
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CMF (Chaikin Money Flow )
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Chaikin Money Flow (CMF) was developed by Marc Chaikin to determine the degree to which money was flowing into or out of a security. But before we delve into a description, a little background information is needed. Joe Granville came first with his On Balance Volume (OBV) indicator. It compared a stock's closing price with its previous day's close and either added or subtracted the volume if the stock was up or down respectively.

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Larry Williams came next. He improved (this is subjective) the OBV by comparing a stock's closing price with the opening price and then added or subtracted volume based on the degree to which the stock closed Where are above or below its open.

stocks headed? Then Marc Chaikin entered the scene. Instead of using the opening price like Williams, he (Chaikin) used The answer may the mean price (the midpoint of the day's action). Chaikin believed that if a stock closed in the upper half of surprise you. Find its trading range on a particular day and volume was strong, the stock was being accumulated, but if the out now with stock closed in the lower half of its range, it was being distributed. Based on whether a stock closed in its Chart of the Day.

top or bottom half, Chaikin would either add or subtract volume. And while comparing stock trends through www.chartoftheday.com published resources and online resources is essential, getting information from the CMF may serve as a safety net or somewhat a life insurance when things go wrong. As with other indicators, Chaikin suggested looking for a divergence between the pricing action and the oscillator. If a stock trends up while the CMF rolls over and heads down, the stock will very likely top out soon after. On the other hand , if a stock trends down while the CMF bottoms out and begins to move up, the stock will very likely follow. The values of the CMF can also be used to indicate buying and selling pressure. Values that bounce between 0.1 and -0.1 and otherwise hang around the zero line are not strong enough to offer a bullish or bearish signal. Values above 0.1 and below -0.1 are indicative of buying and selling pressure respectively while values above 0.25 and below -0.25 are indicative of strong buying and selling.

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Here is an example of a postive divergence that occurred between Alcoa's stock chart and its CMF. As the stock was declining, money was actually flowing into the stock, and this buying eventually won out and the stock rallied nicely.
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This TWX chart demonstrates another positive divergence. The stock fell hard in late '99 and early 2000, and then as the stock flattened out and traded sideways, money started leaving the stock at a much slower rate (indicated by the negative CMF which was trending up). The stock then experience a nice tradeable bounce.

Here is an example of a negative divergence. After rallying all summer, IBM traded sideways for 3 months, but the CMF chart indicated money was leaving the stock. IBM eventually broke support and fell.

This JCP chart displays another negative CMF divergence. The stock was trendine up but the CMF was trending down. JCP eventually broke support and succumbed to the negative money flow.

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Chaikin Oscillator
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Morningstar Research 4,000 Stock and Mutual Fund The Chaikin Oscillator is calculated by subtracting the 10-period exponential moving average of the Reports with accumulation/distribution line from the 3-period exponential moving average of the accumulation/distribution Buy/Sell Opinions line. - Learn More
The Chaikin Oscillator is a moving average oscillator based on the accumulation/distribution line. It is an indicator of the accumulation/distribution…i.e. an indicator of an indicator.
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A buy signal is offered when the oscillator crosses over the centerline while sell signal is offered when the oscillator crosses down through the centerline. Also, like many indicators, a divergence between the pricing action and the indicator's movement is a warning that the underlying issue's trend may reverse in the short term. So if a stock trends up while the Chaikin Oscillator rolls over and heads down, the stock will very likely top out soon after. On the other hand, if a stock trends down while the oscillator bottoms out and begins to move up, the stock will likely follow suit.

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The most powerful use of most chart indicators is when divergences form. Indicators should support and confirm a stock's move, and when they don't, the indicator usually wins. In the above chart, each time a negative divergence occurred between the stock chart and the Chaikin Oscillator, the stock fell, and the one time a positive divergence formed, the stock rallied.

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Trader Makes $4 Billion Wiz Kid Stock & Option Trader Makes $4 Billion This PG chart shows another positive divergence between the stock chart and the Chaikin Oscillator. It also shows an example as Trading Stock to how the Chaikin Oscillator can be used in determining a entry point. When the indicator broke above its resistance and crossed Options!
the center line, the stock immediatley did the same thing.
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CCI (Commodity Channel Index)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Commodity Channel Index, which can be used effectively for stocks, not just commodities, was developed by Donald Lambert. It is meant to decipher a stock's trendiness. The faster the indicator is moving the stronger the trend is, and if the CCI bounces around in a small range, it simply indicates the lack of a trend. The CCI can be used as an overbought/oversold indicator. Readings above 100 imply an overbought situation and a possible pullback while readings under -100 imply an oversold condition and a possible reversal bounce. The CCI can also be used as a divergence. If a stock makes a new high but the CCI fails to follow suite, a warning is given that a pullback is likely.

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Stock Free Trial: 1800 This QQQ chart shows how CCI can be used as an overbought/oversold signal. The indicator is not perfect, but if you bought when Stock Research the CCI fell below -100 and then moved up and sold when the CCI moved above 100 and then fell, you would have done pretty Reports with Buy well. & Sell Prices
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Here is another example of the CCI being used to determine entries and exits. Again, it's not perfect, but when used with other indicators, it has a place in your technical analysis library.

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Comparative Relative Strength
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Comparative Relative Strength simply compares the price of one security with the price of another security or an index. It is most often used to compare a stock with an index or the sector to which it belongs. When the market or an individual sector is trending up, traders like to concentrate their buying in the strongest stocks, and Price Relative helps to identify which stocks are leading. When the market or an individual sector is trending down, traders like to concentrate their shorting in the weakest stocks, and Price Relative helps to identify which stocks are lagging.

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This chart shows that although MSFT was moving up, it was moving up at a much slower rate than the NASDAQ. Since the stock was so weak compared to the NASDAQ, all it takes is a little Nas pullback for the stock to fall hard.

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Here is an example of MMM holding on strong while the market was falling. Despite the market weakness, MMM held tight, and when the market bounced, being one of the stronger stocks, MMM took off.

Here is an example of a trendline berakout being used on an indicator. SUNW was underperforming the NASDAQ, but then "broke out" and the stock did the same. This shows a shift is strength. The stock went from underperforming to outperforming and that's enough to at least demand a look.

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MACD
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

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The MACD (moving average convergence/divergence) was developed by Gerald Appel. It is a momentum indicator that plots the difference between two moving averages (the 26-day and 12-day EMAs are most often used) and a third MA (usually the 9day EMA). This 3 rd MA is the signal or reference line. • Crossovers – some traders will buy when the MACD crosses over it's signal line and sell or sell short when it cross down through its signal line. They will also look to buy and sell when the MACD crosses up or Where are down through the zero line.
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stocks headed? • Divergence – The MACD will generally lag the underlying price slightly (i.e. when a stock moves up so The answer may will the MACD but slightly delayed), but when a divergence occurs where the MACD fails to confirm the surprise you. Find underlying issue's movement, the stock price typically reverses. So if a stock is rallying and the MACD tops out now with out and starts to head down, a big hint is being given that the stock , too , will top out soon. On the other Chart of the Day.
hand, if a stock falls but the MACD flattens out and starts to move up, a near-term bottom in the stock is likely.
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Here is an example of how MACD is often used to determine entries and exits. A buy signal is given when the shorter term line (the black line) crosses up through the longer term line (the blue line). This occurred in mid October. A sell signal is offered when a cross happens to the downside. Using this strategy, you entries and exits would have been pretty good.

Here is an example of a positive divergence with the MACD. QQQ was trending down, but its MACD bottomed and maded a higher low. The indicator led, and the stock turned around and moved up.

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RGLD formed a negative divergence. While the stock was moving up, its MACD was moving down, and when this happens, the indicator often wins. RGLD did indeed pull back.

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This WBSN chart demonstrates a positive divergence.

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MACD Histogram
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Morningstar Research 4,000 Stock and Mutual Fund The same principals apply here. Buy signals are generated when the MACD crosses over the zero line Reports with while sell signals are given when the zero line is crosses to the downside. Also when a stock moves up and Buy/Sell Opinions the MACD Histogram fails to confirm the move, a divergence occurs. This signals a pullback may be - Learn More
The MACD Histogram is similar in concept to the standard MACD except the histogram normalizes the signal or reference line to zero. This helps solve the lagging problem of the standard MACD. coming. And when a stock moves lower while the MACD Histogram flattens out and moves up, a near-term Morningstar.com bottom is likely.

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The MACD Histogram is most useful when it diverges from the underlying stock. In the above example, NTES made a series of higher highs while in a steady uptrend, but its MACD Histogram trended down and did not confirm the move. The stock eventually gave in.

Here is a positive divergence. QQQ trended down, but the MACD made a series of higher lows and then crossed the center line. That was the signal to go long.

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Momentum
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Momentum indicator measures the rate of change of a stock over a specified period of time. One could say it indicates the velocity of a move. Where the ROC displays this as a percentage, Momentum displays it as a ratio. Momentum can be used to trade trends (i.e. buy when oscillator bottoms and turns up and sell when the oscillator tops and starts to fall). But often when Momentum reaches extreme levels, although a reversal in prices may be near, one should assume the trend will continue.

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This INTC chart shows how Momentum acts (or causes the underlying stock to act depending on your perspective) during a solid uptrend. As INTC rallied, Momentum moved up thus confirming the move. But when Momentum reached a peak level, a signal was given that the stock wasn't necessarily going to reverse, but some sideways trading was in order. Each time Momentum peaked, INTC moved sideways.

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OBV (On Balance Volume)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

On Balance Volume is a cumulative momentum indicator developed by Joe Granville. It uses both price and volume to determine whether money is generally flowing into or out of a stock.

Stock Free Trial: 1800 Stock Research When a stock closes positive, it is believe money is flowing into the stock, so its volume is added to the on Reports with Buy balance volume total. When the stock closes negative, it is thought that money is flowing out of a stock, so & Sell Prices
its traded volume on that particular day is subtracted from its on balance volume total. The On Balance Volume does have a major flaw in its calculation. It completely disregards how much a stock closed up or down. Common sense says there is a big difference between a stock closing up 10 cents or 2 dollars, but the On Balance Volume does not differentiate the two. Because of this the On Balance Volume should not be used as a short-term indicator. Instead one should simply look at the overall direction to confirm or not confirm whether money is flowing into or out of an issue. Divergences work here too. If the market moves up while the OBV tops out and moves down, a warning is served that a pullback is near. Likewise if the market moves down while the OBV flattens out and moves up, a short-term bottom is near.
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This is what you'd like to see from OBV when a stock is rallying. The OBV was steadily moving up, and this confirms more money is moving into the stock on up days than leaving it on down days.

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This HLTH chart demonstrates a powerful negative divergence. The stock rallied but the OBV was flat. Money was not supporting the move up, and the lack of powerful buying eventually gave way when support was broken.

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PPO (Price Oscillator)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Price Oscillator is a momentum indicator that plots the difference between two moving averages. It is identical to the MACD except the MACD typically uses the 26-day and 12-day EMAs while the PPO allows the user to select which two EMAs to use. Also, while the MACD uses points, the PPO uses percentages. Nevertheless, if you eliminate the scale on the side of the chart, one will get the exact same result with either one. The PPO is most effective in wide-swinging trending markets and tends to lag price movements. It has a couple popular uses. • Crossovers – some traders will buy when the PPO crosses up over its signal line and sell or sell short when it cross down through its signal line. They will also look to buy and sell when the PPO crosses up or down through the zero line. • Divergence – The PPO will generally lag the underlying slightly (i.e. when a stock moves up so will the PPO but slightly delayed), but when a divergence occurs where the PPO fails to confirm the underlying issue's movement, the stock price typically reverses. So if a stock is rallying and the PPO tops out and starts to head down, a big hint is being given that the stock too will top out soon. On the other hand, if a stock falls but the PPO flattens out and starts to move up, a near-term bottom in the stock is likely.

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The GE chart demonstrates how a negative divergence can be used to as a warning that lower prices are coming. GE moved up, but its PPO flattened out. As with many case, the stock eventually followed the indicator...in this case down for a pullback.

Here is an example as to how PPO can be used to offer buy and sell signals. A buy signal is given when the shorter term line (the black line) crosses up over the longer term line (the blue line), and sell signal is offered when there is a "cross down." If this stategy was employed with the above chart, you entries were not perfect, but they weren't bad either.

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ROC (Rate of Change)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Morningstar Research 4,000 Stock and Mutual Fund The ROC is generally used as a short-term overbought or oversold indicator. The higher the ROC goes, the Reports with more overbought the underlying is and the more likely a pullback will occur. The lower the ROC goes, the Buy/Sell Opinions more oversold the underlying stock is, and a bounce is due. - Learn More
The Rate of Change is an oscillator that indicates the change in price between “today” and the price x periods ago. So the 10-day ROC is the percentage change in price between today's closing price and the closing price 10 days ago.
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But like many other indicators one needs to do his/her homework to determine historically what ROC values are typically high or low for a particular stock.

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Company Stock Research 2,000 Stock Here is a great example of ROC being used as an overbought/oversold indicator. If you would have bought each time the indicator Analyst Reports & bottomed and moved up and then sold and went short each time the indicator peaked and moved down, you would have done Picks Free 14 Day very well. Trial- Sign Up Today!
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Here's how ROC could be used in an uptrending stock. Notice how buy signals were given just before the stock rallied and sell signals were given at the beginning of a sideways consolidation period.

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RSI (Relative Strength Index)
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

RSI is an oscillator developed by Welles Wilder. It ranges between 0 and 100 and compares the magnitude of a stock's recent gains/losses with the stock's pricing action over a given time period (14-day RSI is most popular). Like moving averages, traders should experiment with different time frames to see what works best for an individual stock. Wilder recommends a couple uses for RSI… • The RSI usually tops around 70 and bottoms around 30. This typically corresponds to a short-term top and bottom with the underlying issue. • The RSI does sometimes form chart patterns with easily determined support and resistance. Often a breakout or down of the RSI will lead to a move up or down with the underlying issue. • The most powerful usage is when a divergence forms between the RSI and the underlying. If a stock moves up and makes a higher high but the RSI flattens out and moves down, the stock very likely will reverse and drop. On the flip side, when the stock moves down to new lows and the RSI flattens out and starts to move up, a near-term bottom is probably not far off.

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www.Morningstar.com The most powerful usage of RSI is when a divergence forms. Here you can see the VXO was moving up but its RSI was flat. When this happens the indicator usually wins, and it did. VXO fell. The a positive divergence formed. VXO was trading flat while the RSI had started to move up.When the RSI bounced off support, so did the underlying index, and when the RSI made a higher high, the VXO did too.

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This BWA weekly chart shows two negative divergences which both worked great. In both cases the stock was trending up while the RSI did not confirm the move. In the first case, the RSI was flat while the second scenario shows the RSI had already started to move down.

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The middle of this chart shows a confirming RSI. The stock moved up and so did the indicator. Then the stock flattened out, but the RSI was more aggressive to the downside. The stock, as they often do, did as the indicator did.

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Stochastic Oscillator
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

The Fast Stochastic Oscillator was developed by George Lane . It compares a stock's closing price with its price range over a given period of time. Lane observed that as prices move up, closing prices tend to be in the upper end of its range and when prices move down, stocks tend to close in the bottom part of its range. The Fast Stochastic is displayed as two lines. The main line (%K) is displayed as a solid line. The second line (%D) is the moving average of %K and is displayed as a dotted line. There are 3 ways the Stochastic is typically used. • When the Stochastic (either %K or %D) rallies above a specific value (80 is often used) and then falls below that value, a sell signal is given. When the Stochastic falls below a value (20 for example) and then rises above it, a buy signal is offered.

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and sell signals. If prices move up but the Stochastic does not, prices may reverse at least in the short term. If prices move down but the Stochastic starts to turn up, prices very likely will bottom and reverse. The Stochastic works best in wide-swinging markets and typically does not work well in a trending market. As with many indicators, the prudent trader needs to do his/her homework to see which stocks can be traded using the Stochastic Oscillator and for which stocks the indicator is useless.
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This GLW chart demonstrates how the Stochastic Oscillator can be used to offer buy and sell signals. When a crossover occurs from a low level, a buy signal is given, and when the oscillator crosses down from a high level, a sell signal is given. Using this strategy on the above chart, your results would have been pretty good.

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The Stochastic can also offer buy and sell signals when a divergence occurs. Twice the Stochastic diverged from its underlying issue (QQQ) and both times the stock pulled back. But do note the stock was in a steady uptrend, so the divergence was simply a warning for the bulls that a pullback was likely coming. It was not a reason to go short unless you were a very slick short term trader.

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Volume
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Company Stock Research 2,000 Stock Analyst Reports & If a stock moves up and volume is strong, all signs point towards continued strength. But if prices move up Picks Free 14 Day while volume falls off, less “votes” are being cast in favor of the move and a short-term pullback may occur. Trial- Sign Up But on the other hand, although one likes to see strong volume to support a price move, too much volume Today!
Volume is simply the number of shares traded in a given time period. Volume typically either confirms or does not confirm a price move because it indicates the number of investors/traders “voting” for the move. is a sign that a reversal may be coming. It is not uncommon to see a huge volume spike at tops or bottoms as either shorts scramble to cover , or longs sell at any cost , respectively. Low volume simply means there is much uncertainty with regards to a stock's trading activity and future movement. Combined with Bollinger Bands, a period of low volume and little volatility often ends in an explosive move.
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Morningstar Research 4,000 Stock and When a stock is strong, you want there to be solid volume surges to support the move. This ADIC chart, which was trading flat and Mutual Fund Reports with then began an uptrend in mid August had several bursts of volume to support the move. Buy/Sell Opinions - Learn More
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When a stock moves up but volume fails to confirm the move, the stock will often pullback. Volume = votes, and when volume is light, one could say not many traders are "voting" for whatever move the stock is experiencing. Here MMM was slowly moving up but volume was weak. The uptrend did continue, but not until after a pullback.

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This is exactly what you want the volume to look like when a stock is rallying. When the stock moved up, volume significantly picked up, and if you look closedly, you can see the blue line on the volume chart moving up too. Volume confirmation is important in identifying strong stocks.

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Volume Oscillator
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Net App Monitoring Powerful indepth Since volume is so closely watched by traders to confirm or not confirm a price move, traders use the PVO Net App to determine if volume momentum is increasing or decreasing. monitoring See latency, IO per When the PVO crosses up over the zero line, it indicates shorter term volume is moving up in relation to volumes, more.
The Volume Oscillator is identical to the Price Oscillator (PPO) except we are obviously dealing with volume, not prices. longer term volume, but if the PVO crosses down below the zero line, it indicates shorter term volume is falling off compared to longer term volume.
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Here is an example of how PVO can be used when a negative divergence forms. As GE was moving up, volume was falling off, so the Volume Oscillator moved down. Although we would not necessarily recommend going short, the divergence is enough to raise Where are a red flag if you are long. stocks headed?

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Williams %R
Accumulation/Distribution Line ADX (Wilder's DMI) Average True Range (ATR) Chaikin Money Flow (CMF) Chaikin Oscillator Commodity Channel Index (CCI) Comparative Relative Strength MACD MACD Histogram Momentum On Balance Volume (OBV) Price Oscillator (PPO) Rate of Change (ROC) Relative Strength Index (RSI) Stochastic Oscillator Volume Volume Oscillator (PVO) Williams %R

Williams %R (pronounced “percent R”) is a momentum indicator developed by Larry Williams. It oscillates between 0 and -100. Readings in the -80 to -100 range indicate an oversold condition while readings in the 0 to -20 range indicate an overbought condition. Like many “overbought/oversold” oscillators it is best to wait for the underlying's price to change direction and for the indicator to reverse course to confirm the move.

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The percent R has been known to be very good at reversing a few days before prices do (i.e. it peaks a few Company days before a top is achieved and bottoms a few days before the underlying reverses). But it is not uncommon for an overbought or oversold indicator to stay overbought or oversold for a long period of time, Stock Research so one needs to study the history of the percent R with a stock to determine its tendencies.

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Here is a simple example as to how Percent R can be used as an overbought or oversold indicator. After a big rally in June and July which saw the Percent R get into overbought territory and generally stay there, a sell signal was given when the indicator moved down. Then, after falling for 4 weeks an seeing the Percent R move into oversold territory and stay there, the indicator moved up, and the stock bounced soon after.

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Here is an example many false sell signals being given by Percent R. No indicator works all the time, and some indicators work better with some stocks than others. The prudent trader never blindly relies on any one technical indicator.

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Option Strategies
Options are a popular vehicle traders/investors use with regards to pulling money from the market. There are three main uses of options: portfolio protection, generation of income on a portfolio, and for pure speculation. Here we discuss numerous option trading strategies that are typically used by successful option traders. Bullish Strategies Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put Neutral Strategies The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor Bearish Strategies Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Long Calls
Risk: limited Reward: potentially very high

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a long call position simply entails buying call options…preferably ones that are in-the-money.

Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking calloptionputoption.com If you are very bullish a stock, you can buy the stock or you can buy a call option which grants you many of the same benefits of owning the stock at a fraction of the cost. But what you gain in leverage you lose with time. Whereas a stock can be held indefinitely, options have an expiration date. So the stock doesn't just need to do Online Share Trading what you think it will do, it needs to do it within a specified time frame.

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Trade shares online with no Example Let's say MSFT is trading @ 55, and you think it will rally in the next few weeks. You could buy 1000 shares for fees free charts, Free Demo $55,000, but instead you buy (10) 55 call options for $2.50 ($2500) that expire next month. Account
www.gcitrading.com If the stock rallies to 57.5, you will break even. For every point above 57.5, you will profit $1,000, so a huge rally could bring you a huge profit (remember we said you get the benefit of owning the stock without actually buying it). If the stock goes nowhere, the calls will expire worthless and you will lose your entire investment. What is a Your max profit is theoretically unlimited because the stock can rally indefinitely, and your max loss is locked in derivative? place as your initial capital outlay.

The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Covered Calls
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Buying covered calls typically entails selling out-of-the-money call options on stocks that you own. The Thinking This strategy is employed when you are the proud owner of a stock that you do not wish to sell but would like to earn “residual” income from. You sell out-of-the-money calls, and as long as the stock doesn't rally above the strike price, you keep the premium collected when you sold the calls and you remain in possession of the stock. Then you can do it again. Example You have been a long time stockholder of 1000 shares of DIS and wish to hold for many more years. DIS is currently trading at 24.4, and while you are bullish, you don't think the stock will rally too much in the next few weeks. Sell (10) 27.5 calls that expire next month for $0.90 ($900).

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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As long as the stock closes below 27.5 on expiration day, you keep the $900 and the stock. But if the stock rallies above 27.5, the call options will be in-the-money, and you will have a decision to make. You will need to Trader Makes either buy the calls back and therefore make less money or possibly incur a loss, or you can simply let the $18 Billion stock get “called” from you.

California trader makes $18 Billion Remember, when you buy a call, you have the right to buy the stock at a given price. But when you sell a call, in a single year! you are essentially granting someone else the right to buy your stock at a given price. There is very little risk Find out How

involved because if the stock drops, you keep the premium, and you were planning on keeping the stock www.VirtualinvestingClub anyway. The possible drawback is, if the stock rallies beyond the strike price, you don't get to participate in the price appreciation. The image below summarizes the trade with a P/L Diagram. The max gain is calculated assuming you bought Made Easy the stock at 24.4 and it was called from you at 27.5. You'd make 3.10 on the stock and 0.90 on the option for a Gains of 300-700 total of 4 points. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Bull Call Spread
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Do Not Trade in NIFTY Unless You Read General Description this, Double Your Entering a bull call spread position entails buying a call option (preferably in-the-money) and selling an out-of- Investment within the-money call option. 6 Months.
The Thinking This strategy is employed when you are generally bullish but don't think the stock will rally too much. Essentially you are buying calls because you think the underlying issue will rally, but since you don't think it will Options rally too much, you sell an out-of-the-money call to lower your risk by locking in your max loss at a lower price. strategies
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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

Virtually Eliminate Slippage Trade Example with SmartOrder Let's say DELL is trading @ 26.85. You are bullish and think the stock will rally a few points, but you don't think Technology

it will catapult higher. You buy the 25 (in-the-money) calls for $2.95 and sell the 30 (out-of-the-money) calls for www.vankartrading.com $0.50. Selling the calls reduces your risk because you max loss is locked in place at a lower price than if you had only bought the calls. In exchange for wanting lower risk, you forego whatever profits you would have enjoyed if the stock rallies above 30. Your max profit occurs at 30; above 30 the long and short call positions will cancel each other out. You max loss is locked in place at the onset. It is the amount you paid for the 25 calls minus the premium collected from selling the 30's. The image below summarizes the trade with a P/L Diagram.

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Bull Put Spread
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a bull put spread position typically entails selling in-the-money puts and buying out-of-the-money puts. The Thinking This strategy is employed when you are bullish and like the idea of selling puts (rather than buying calls) but would also like a little downside protection just in case the underlying issue drops.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

What is a derivative? Example Answer all your Let's say KO is trading @ 54.14 and you think it will rally. You like the idea of selling puts rather than buying stock market calls so you sell the 55 puts for $2.55. This is the naked put strategy , but you want a little downside protection questions with just in case the stock declines. You then buy the 50 puts for $0.85. First Step.
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Your max profit is locked in place at the onset and occurs above 55. That's where all puts will expire worthless and your profit is the premium collected from your short put position minus the cost of the long puts. You max loss occurs at 50. This is where the long put position will expire worthless and the short put position will be worth $5. You will then either have to buy back your short puts at a greater price than what you paid, or the stock will be “put” to you (i.e. you will be forced to buy it) at $55.0. Below 55, your long and short positions cancel each other out. The image below summarizes the trade with a P/L Diagram.

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Call Back Spread
Risk: low Reward: potentially high

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a call back spread typically entails selling in-the-money calls and buying a greater number of out-ofthe-money calls.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking This strategy is employed when you are bullish on a volatile stock but want to lower your risk. You buy calls because you are bullish, but then you sell a lower strike price call to lower your risk. This offsets your loss if the Do Not Trade stock moves lower. The drawback comes if the stock fails to move or rallies big. One of your long calls will be in NIFTY canceled out by your short call, so your profit potential is lowered. Unless You Read Example Let's say IP is trading @ 43.46 and you think it will rally. Buy (2) 45 calls for $1.05 and then sell (1) 40 call for $4.00. Your credit from initiating the trade is $190. If the stock closes below 40, all calls will expire worthless and you keep the $190.0. Your greatest loss occurs at 45. The long 45 calls will expire worthless and the 40 calls which you sold for 4 will need to be bought back at 5. Above 45, you will only make money on one of the long calls because the other one will be canceled out by your short call. The image below summarizes the trade with a P/L Diagram.

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Naked Put
Risk: high Reward: limited General Description Entering a naked put position entails selling puts (most likely in-the-money).

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking This strategy is employed when you are very bullish. If the stock rallies above the strike price you keep the entire premium, but you have huge risk to the downside if the stock drops. You would then have to either buy the puts back at a much higher price or the stock would get “put” to you, and you would show an immediate loss. Example Let's say IBM is trading @ $82.83 and you think a big rally is coming soon. You sell the 80 put options for $5.10.

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Your max profit is the premium collected from selling the puts. As long as the stock closes above 80, you keep the entire premium. Simple as that. Your breakeven point is 74.9 – at that price the 80 puts will be worth $5.10 (80.0 – 74.9). Below 74.9 you will lose money at the same rate as if you owned the stock. You will then have to Nifty Trading buy the puts at a much higher price or let the stock be “put” to you at $80/share and show an immediate loss. Made Easy Between 74.9 and 80 you will have a profit but less than the max. The image below summarizes the trade with a P/L Diagram.

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The Collar
Risk: limited Reward: limited

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Online Share Trading Trade shares online with no General Description The collar entails buying an out-of-the-money put and selling an out-of-the-money call of a stock you own and fees free charts, Free Demo want to hold. Account
The Thinking You own a stock and would like to hold it but would like to protect yourself to the downside. Essentially you are buying a put to protect yourself in case the stock drops, and you sell a call to help pay for the put. The put will Nifty Trading protect you on the downside, but if the stock rallies you won't participate beyond the strike price of the call. Made Easy Example Let's say you are the proud owner of 100 shares of NTAP which is currently trading @ 12.84. You plan on holding the stock but think it may fall in the short term. Buy the (1) 10 put for $0.60 ($60.0) and sell the (1) 15 call for $0.80 ($80.0). The call you sold pays for the put (i.e. the call pays for downside protection). If the stock drops below 10 you will lose, but at least your loss will be minimized by the put option. If the stock rallies, you will make money on the long stock position, but above 15 the long stock position will be canceled out by the short call position. The image below summarizes the trade with a P/L Diagram.
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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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Long Straddle
Risk: medium Reward: high

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a long straddle entails buying at-the-money calls and puts at the same strike price.

The Thinking ApnaNifty.com You are not bullish or bearish but you do think a big move is coming soon. If the stock rallies huge, the puts will expire worthless and you will profit from the calls. If the stock drops big, the opposite will be true. But you need a big move; if the underlying stock just sits there, both the calls and puts will rapidly deteriorate in value. Example Let's say MMM is trading @ 95. You buy the 95 calls and the 95 puts for $7 each for a total cost of $14. For you to make money, the stock must either drop below 81 (95-14) or rally above 109 (95+14). If the stock closes anywhere between 81 and 109 you will lose money with your max loss occurring at 95. So again, you need a big move one way or the other. The image below summarizes the trade with a P/L Diagram.

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Short Straddle
Risk: high Reward: medium

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a short straddle entails selling at-the-money calls and puts at the same strike price.

The Thinking ApnaNifty.com You are not bullish or bearish and you feel fairly certain the stock will not move much from its current position. You sell calls and puts and will keep most of the premium as long as the underlying issue trades sideways. But if the stock takes off in either direction your risk is huge because you have no protection. Example Let's say IBM is trading @ 80. You sell the 80 calls and puts for $6 each for a total cost of 12. If the stock closes at 80, both legs of the straddle will expire worthless and you keep the premium collected from both. To profit the stock must either close above 68 (80-12) or below 92 (80+12). But if the stock falls below 68 your naked put position will increase in value point for point as the stock falls, and if the stock rallies above 92 your naked call position will increase in value point for point as the stock rallies. So you need the stock to stay pretty close to home. The image below summarizes the trade with a P/L Diagram.

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Bearish Patterns
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Long Strangle
Risk: medium Reward: very high General Description Entering a long strangle entails buying out-of-the-money calls and puts.

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

The Thinking www.SuperDerivatives.co You are not bullish or bearish but you do think a big move is coming soon. If the stock rallies huge, the puts will expire worthless, and you could profit from the calls. If the stock drops, the opposite will be true. But you need a big move; if the underlying stock just sits there, both the calls and puts will rapidly deteriorate in value. Example Let's say PG is trading @ 65 and you think a big move is coming. You buy the 70 calls for 3.9 and the 60 puts puts for 4.1 for a total debit of 8.0. If the stock rallies above above 78, the puts will expire worthless, but your calls will more than make up for it, and you'll profit on the entire trade. If the stock drops below 52, the calls will expire worthless, but your puts will more than make up for it, and you'll turn a profit. So, like the long straddle, you must get a big move in one direction or the other or else your calls and puts will deteriorate in value and you'll incur a loss on the trade.. The image below summarizes the trade with a P/L Diagram.

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Short Strangle
Risk: high Reward: limited General Description Entering a short strangle entails selling out-of-the-money calls and puts.

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking You are not bullish or bearish and you feel fairly certain the stock will not move much from its current position. You sell calls and puts (essentially you are using a naked call and naked put position at the same time) and will keep most of the premium as long as the underlying issue trades sideways. But if the stock takes off in either direction your risk is huge because you have no protection. Example Let's say OMC is trading @ 65, and you sell the 70 calls for 2.4 and sell the 60 puts for 2.6 for a total credit of 5.0. If the stock closes anywhere between 60 and 70, both legs of the strangle will expire worthless and you keep the premium collected from both. But if the stock closes below 55 (calls expires worthless and naked put incurs a loss) or above 75 (puts expire worthless but naked call incurs a loss) you will lose money and your loss gets grows for every tick beyond the 55-75 range the stock moves. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Long Butterfly
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a long butterfly entails buying 1 call at a lower strike price, selling 2 calls at a middle strike price, and buying 1 call at a higher strike price. The middle strike is midway between the higher and lower strikes. Essentially the long butterfly is a combination of the bull call spread and bear call spread. The Thinking You are not bullish or bearish and you feel fairly certain the stock will not move much from its current position. Because you think the stock will trade sideways you sell calls. If the stock doesn't move the calls would deteriorate in price and you would make money. But at this point you are naked and have huge exposure to the upside, so you buy the calls at the lower and higher strike prices. This limits your reward because you are locking in your max profit at a lower price, but it also limits your risk in case the stock rallies. This strategy is not recommended by those who trade small position sizes because commissions will kill you. This strategy is best used by those looking to make small amount of money multiplied by a large position size.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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Example Let's say CAT is trading @ 65, and you buy (1) 60 call for 5.5 and (1) 70 call for 0.50, and you sell (2) 65 calls Trader Makes $4 Billion for 2.25 for a net debit of 1.5.. Max profit occurs when the stock closes at 65 – the short calls expire worthless; you keep the entire premium; the long 60 call gets sold for a for a small profit; and the long 70 call expires worthless. Your max loss is locked in place at the onset and will occur if the stock closes below 60 (all calls expire worthless) or above 70 (long and short calls will all cancel each other out). The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

The Condor
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description The condor is a butterfly stretched over 4 strike prices instead of 3. Entering a condor entails selling calls at two consecutive strike prices (this forms the “body”) and then buying a call above and below the body. The condor is a combination of a bull call spread and a bear call spread. The Thinking You are not bullish or bearish and you feel fairly certain the stock will not move much from its current position. As with the butterfly, this strategy is not recommended by those who trade small position sizes because commissions will kill you. This strategy is best used by those looking to make small amount of money multiplied by a large position size. Example Let's say IBM is trading @ 75, and you sell the 75 and 80 calls for 2.5 and 1.0, and you buy the 70 and 85 calls for 6.0 and 0.50 for net debit of 3.0. If the stock closes at 75, the 75, 80 and 85 calls expire worthless and the 70 calls would be worth 5.0.The 5point gain vs. the 3-point debit to initiate the trade gives you a profit of 2.0. If the stock closes at 80, the 80 and 85 calls would expire worthless, and the 5 point loss in the short 75 call position would be canceled out with the 10 point gain of the 70 calls, so your net is still 5.0 and your profit is still 2.0. This is your max gain. It occurs anywhere between 75 and 80. Your profit declines above 80 and below 75 with the max loss occurring above 85 and below 70, but your max loss is locked in as the initial cost of the trade. The image below summarizes the trade with a P/L Diagram.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Long Puts
Risk: limited Reward: very big

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a long put position simply entails buying put options…preferably ones that are in-the-money.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking If you are very bearish a stock, you can short the stock or buy a put option which grants you the right to sell the stock at a predetermined fixed price. But what you gain in leverage you lose with time. Whereas a short stock position can theoretically be held indefinitely, options have an expiration date. So the stock doesn't just need to Real-Time Share drop like you expect, it needs to do it within a specified period of time.

Quotes Free share prices, Example online trading. Let's say CSCO is trading @ 16.07, and you think it will suffer a big drop in the next few weeks. You could North American and short 1000 shares for $16,070, but instead you buy (10) 15 put options for $0.55 ($550) that expire next month European shares.
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If the stock drops to 14.45, you will break even. For every point below 14.45, you will profit $1,000, so a huge collapse would bring you a huge profit (remember we said you get the benefit of being short without actually being short). If the stock closes above 15, the puts will expire worthless, and you will lose your entire investment. A closing price between 14.45 and 15.0 will get you some, but not all of your money back. Your max profit occurs if the stock drops to 0; your max loss is locked in place as your initial capital outlay. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Naked Calls
Risk: high Reward: limited General Description Entering a naked call position entails selling calls.

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

The Thinking This strategy is employed when you are very bearish. If the stock closes below the strike price on expiration day, you keep the entire premium. But if the stock rallies, you have unlimited loss potential to the upside because by selling calls you are granting someone else the right to “call” the stock from you at a predetermined price (the strike price). So if the stock rallies and the option buyer exercises the call, you will be forced to buy the stock in the open market at a high price and then immediately turn around and sell the stock at the lower strike price. Obviously naked calls carry very high risk, and most traders will not be approved by their broker to enter such a position. Example Let's say IBM is trading @ 83.10. You sell the 90 calls for $1.35. If the stock closes below 90 on expiration day you keep the entire premium and your max profit scenario will be realized. A stock price between 90.0 and 91.35 (90.0 + 1.35) will get you some, but not all of your money back. Above 91.35, your loss grows as the stock moves up. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Put Back Spread
Risk: low Reward: moderate

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

Increase Monthly Income. $250K+ Realistic General Description Entering a put back spread typically entails selling a put at a higher strike price and buying a greater number of Income. Create Multiple Streams puts at a lower strike price. Of Income Online.
The Thinking This strategy is employed when a big down moved is expected in a volatile stock but you want to lower your risk. You buy puts because you are bearish, but then you sell a higher strike price put to lower your risk. This lowers your max loss in place at a lower price. The drawback comes in the stock collapses. One of your long puts will be canceled out by your short put, so you profit potential is lowered. Example Let's say INTC is trading @ 30.06 and you think the stock will drop. Buy (2) 30 puts for 1.25 and then sell (1) 32.5 put for 2.70. Your net credit from initiating the trade is 0.20.
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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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If the stock closes above 32.5, all puts will expire worthless and you keep the $20. Your greatest loss is $230 and occurs at 30. This is where the long 30 puts will expire worthless (a $250 loss) and your 32.5 put will be Trader Makes worth $20 (sold it for 2.7 and bought it back 2.5). Below 30 you will start getting some of your money back and $18 Billion below 27.7 your profit increases to a max when the stock drops to zero. But you will only make money on one California trader of the long puts because the other one will be canceled out by your short put. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Bear Call Spread
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a bear call spread position typically entails selling at-the-money calls and buying out-of-the-money calls. The Thinking This strategy is employed when you are generally bearish but want a little upside protection. Essentially you are selling naked calls but then protecting yourself by buying out-of-the-money calls just in case the stock rallies. Example Let's say QQQQ is trading @ 30.11. You are bearish and think the stock will fall, but want some upside protection just in case it doesn't. Sell the 30 calls (you are naked); then buy the 32 calls for some upside protection.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

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If the stock drops below 30 as you expect all calls (long and short) will expire worthless and you will profit because the premium collected from selling the 30 calls was greater than what you paid for the 32 calls. Your $4 Billion Wiz max loss occurs at 32 where the 30 calls will have to be bought back at a higher price than what you paid and Kid 32 calls expire worthless. Above 32, the long and short calls will cancel each other out. The image below summarizes the trade with a P/L Diagram.

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Bullish Patterns
Long Calls Covered Calls Bull Call Spread Bull Put Spread Call Back Spread Naked Put

Bear Put Spread
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Entering a bear put spread typically entails buying in-the-money puts and selling out-of-the-money puts.

The Thinking www.gcitrading.com This strategy is employed when you are bearish but don't think the stock will crash. Essentially you are buying puts as you normally would in a long put play, but since you don't think the stock will crash, you sell out-of-themoney puts for a little extra cash.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

Options strategies Example Virtually Eliminate Let's say MO is trading at @ 56.89, and you buy the 60 puts for 3.5 (because you think the stock will move Slippage Trade down) and then sell the 50 puts for 0.50 (because you don't think the stock will fall below this level). If the stock with SmartOrder falls as you expect, you will make money on the 60 puts, and as long as the stock stays above 50, you keep Technology
the entire premium for selling the 50 puts. Your max profit occurs at 50 and below; this is where the long and short positions cancel each other out. Your max loss occurs above 60 – all puts will expire worthless and your loss will be the initial capital necessary to enter the position. The image below summarizes the trade with a P/L Diagram.
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Covered Put
Risk: low Reward: low

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Neutral Patterns
The Collar Long Straddle Short Straddle Long Strangle Short Strangle Long Butterfly Long Condor

General Description Buying covered puts typically entails selling out-of-the-money put options on stocks that you are short. The Thinking This strategy is employed when you are short and plan to stay short but you'd like to earn “residual income” from your position. You sell out-of-the-money puts and will keep the entire premium as long as the stock closes above the strike price. If the stock does close below the strike price the stock will be “put” to you and then your long and short positions will essentially cancel each other out.

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Bearish Patterns
Long Puts Naked Calls Put Back Spread Bear Call Spread Bear Put Spread Covered Put

Online Share Trading Trade shares online with no Example You are short 1000 shares of DELL @ 38 and plan on holding because you think the stock has a long ways to fees free charts, Free Demo go on the downside. But while you are waiting, you'd like to earn a little “residual income” from your holding. Account You sell the (10) 32.5 puts.
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As long as the stock closes above 32.5, the puts expire worthless and you keep the entire premium collected. But if the stock closes below 32.5, the stock will be “put” to you. You will then be long and short the same stock, and they will cancel each other out. You have no risk. If the stock rallies, you keep the premium and remain short (you were planning on staying short anyways). The drawback comes if the stock falls below the strike price – you will not participate in any price drop below 32.5. The image below summarizes the trade with a P/L Diagram.

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