Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Recommended Posts

The prior Chart of the Week (COTW) dated May 20th was titled "Ripe for Breakout Failures." In it, I showed you a couple of breakout failures and I gave you a few stocks to watch including the S&P 500 ETF symbol SPY. Break-out failures (BOF) are all over the place now and are obvious to even the most novice chart reader. Pristine students, and hopefully you as a reader of these COTW lessons were prepared for the moves lower that have occurred since that time. Many of the daily Break-Out Failures (BOF) have now formed monthly Topping Tails (TT) in May, so let's look at a few and the differences in how they have formed.

 

A Topping Tail (TT) is a signal that buying (demand) was not strong enough to overcome selling (supply) at the high of the range, so prices fell. This can often signal that the end of a long-term uptrend is at hand when the TT forms on the monthly time frame. However, the truth is that we really never know when an uptrend is no longer an uptrend until it doesn't meet the definition of one; higher highs (HH) and higher lows (HL). That being said, with the signal of a monthly TT, those educated in the proper use of multiple time frames analysis can find excellent "swing-trading" and "day-trading" opportunities.

 

Let's look at some different chart patterns with monthly TTs.

 

Before we review the charts, here is some food for thought for those of you are not Pristine Students, yet and are in search for the truth when it comes to understanding technical analysis. I said above that the definition of an uptrend no longer being in effect is a simple way of knowing that an uptrend no longer exists. It's that simple, but virtually every commercial we see to open an "online trading" account (they seem to be endless) and from those that tell you they can teach you how to use technical analysis will show you a break of an uptrend trend line, a moving average, a retracement level or any of the other technical trend tools used to do it. Also added are some of the hundreds indicators that come with an endless combination of settings. All of these are often meaningless as a guide to a trend break and are outright misleading. Sometimes, it may even look like they got it right because the definition was violated at the time (e.g. the break below a prior low)

 

Why do so many use these indicators? I assume it's because that is what they were taught and they never seriously questioned why those indicators fail as a guide so often. Why do the brokers wanting you to open an account with them show these? First, most actually know nothing about the technical analysis tools in the platforms they offer. To them more is better compared to than what the competition may have. They also want you to believe software can make you money. An educated, disciplined investor or trader - with a plan - can make money with any charting software. Let's continue.

 

GetChart.aspx?PlayID=73491

 

The TTs in the above charts all formed after what we refer to as a "fluid move" higher. Fluid moves have continuous higher high (HH) and higher low (HL) candles and these preceded the TT. This type of price move is the strongest possible and displays the most certainty about the buyers' view on the stock. This is the type of trend you want to buy on the pullback in anticipation of a higher swing low to be followed by a higher high in the trend. Realize that the lower time frames will not look good to the untrained eye at the time the monthly swing low is forming. That is when the knowledge of how to use multiple time frames will benefit you most. Without it, you'll miss a big part of the move.

 

GetChart.aspx?PlayID=73492

 

Here price have spent time moving sideways before the TT formed, so there is a larger area of supply (caught buyers) above. These can also form a higher swing low on a pullback, but these highs tend to be more difficult to overcome. The uptrend has not been violated on any of these, so keep them on your watch list.

 

GetChart.aspx?PlayID=73493

 

The TTs within a range tend to continue the erratic price action that has been happening. Red Hat (RHT) has the largest TT compared to its most recent price ranges. For that reason, it has higher odds of testing the bottom of the range. Notice that BRCM has an opposing Bottoming Tail (BT) that is significantly larger than the TT. This suggests that BRCM is least likely to move to the bottom of the range. YUM Brands (YUM) is more neutral since its TT is inside the range of the prior candles. YUM could be a breakout play higher if it stays at the top of the range during a market correction (i.e. relative strength).

 

GetChart.aspx?PlayID=73494

 

GetChart.aspx?PlayID=73495

 

These two TTs have formed after a breakout above their resistance areas and failed to hold onto the move higher. A breakout above resistance followed by prices falling back to the breakout point historically will result in more selling. Everyone that bought the breakout as well as points inside that TT candle are now holding a loss and are likely to sell on any further weakness. United Parcel Service (UPS) is likely to see more selling pressure than BEAM if it moves below the prior candle's low, which was a BT candle. The reason for that is because of how it moved up from the 2012 low (star). UPS moved up in a "fluid" arrangement of HH - HL candles whereas BEAM move up, but within a sideways to upward motion.

 

You're most likely thinking, "but UPS was the stronger move up, so why would it be likely to see more selling pressure?" That's an excellent question. The answer is because fluid price moves like seen in UPS leave little to no support reference points for traders to use as new buy points if prices pull back. In addition, the BOF in UPS was preceded by a continuation buy signal. BEAM on the other hand has many overlapping candles that display a higher level of uncertainty.

 

Another way of understanding the traders' expectations within these patterns is this: The UPS price move up (fast and fluid) is virtually a sure thing (trade) to continue its move higher. The BEAM move up (slow and overlapping) should move higher, but a stall would not be a big surprise since that is how it has been moving all along. The TT candle in both has changed that to different degrees. Buyers of UPS are shocked to see its continuation of the prior strong move result in a TT.

 

Pristine Tip: Technical Analysis of current price movement and the patterns that preceded it is a representation of the thoughts, beliefs and expectations of all those that created the chart. This includes independent traders, investors, hedge fund managers, money managers, those running auto-trading computers, etc.

 

GetChart.aspx?PlayID=73495

 

Lastly, the TT candles in these stocks are also in the process of making lower highs. A move under the respective TT candles lows will begin to establish those lower highs. Each stock fell relatively hard in 2012. Notice the large red candles and the weak recovery in 2013. Clearly, these stocks have shown relative weakness and have higher odds of falling to their prior lows, and potentially below them to make lower lows.

 

The month of May has produced many Topping Tails (TT) candles that have signaled increased selling pressure. As you have read and viewed, the knowledge of a TT without an understanding of the price action that preceded it is close to no knowledge at all. Having some knowledge may be even worse than no knowledge at all, since you are likely to use that information incorrectly and potentially lose a lot of money. Isn't that what we all do when starting out?

 

As you can see, TT candles can and do come with many different arrangements of patterns and the reaction to that TT will be different based on those different patterns. In addition, there are other technical factors to consider like volume, prior support and resistance, market environment at the time, sector rotation, multiple time frame analysis, relative strength or weakness, market internals and more. At Pristine, we teach all of these and most importantly how to combine their information together to find high probability investing, swing-trading and day-trading opportunities.

 

 

All the best,

 

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Similar Content

    • By inthemoneystocks
      One of the most important reasons why traders take big losses is because they often fail to recognize when a trade has gone wrong. You see, stopping out of a trade is probably the biggest fault of traders and investors. Often, this happens to young and inexperienced traders and investors, but I know many veteran traders and investors that struggle with this as well. Early in my own career I struggled with stopping out of a bad trade myself, so I can sympathize with this problem. 

      The problem with taking a loss is really two fold. First, the trader has to admit that he is wrong. As you all know, as human beings we all hate to be wrong. The ego simply gets in the way and we all want to always be right all the time. The first secret in this business is to check the ego at the door. The market does not care about your the color of your skin, religion or anything else. It will move in the direction of the money and that is the bottom line. Once a trader or investor goes into what I call 'hope mode' the trade is over. I'm sure everyone has been in this position at one time or another. Simply put there is no room for ego or hope in the stock market. The market is always right and there is no reason to fight it. 

      Here is the second problem with taking a loss, it hurts. Pain and pleasure are the two reasons why humans do anything at all. As a human being, we are always looking to have pleasure and avoid pain. Well, losing money is painful and many people would rather simply hold a losing equity than lock in a small loss and move on. I cannot tell you how often I see a trader hold a losing trade only to see the position move further out of the money. Many years ago I watched a day trader blow up a $200,000 account in a single day averaging in on a bad day trade. To this day I can remember the look on his face as his money vanished in thin air. Believe it or not, this trader could have exited the position with a $500.00 loss, but instead he kept averaging in and fighting the position until he was wiped out. As a rule, once you have your full position you should never average in on a trade. At that point, it is critical to know where your max loss is going to be and stop out if that level is breached.

      Now when should we stop out? The answer to this question is not that simple, but here is what I personally do. I always place my stop loss below an important breakout or pivot on the chart. You see, prior breakout or pivot levels are usually defended when retested. After all, this is usually an area where institutional traders and investors got involved, that is why there is a pivot low or high on the chart to begin with. If that level is breached on a closing basis then I will move out of the position. So If I took a trade based on a daily chart pattern then I will usually check the daily and weekly chart levels. If there is a major pivot on the weekly chart then I will use a week chart close as my stop out level. While this method may not be perfect, it has saved me from much bigger losses when I have been wrong.



        Nicholas Santiago
    • By trading4life
      Hello, My name is trading4life.
      I just joined this forum.
  • Topics

  • Posts

    • Chart Update of the Small Companies Index, Which is not much paid attention to in this Tech and Pharma created Bounce Back and Hoping for Beyond Note the Divergence between Daily Prices and MACD in sub chart In current environment Investors may feel fear of missing out; Hesitation and Expectation both comes into play. Refer to PDF attached It will make you think and more often than not make you commit or omit untimely. As soon as any BIAS or false expectation builds up its time to lock in profits or exit or COP (Consciously Out Position) yourself out.  Here is something I wrote some time back 4 Nov 2008 (You may have stood in the que to vote, Obama ah!) Enjoy Minoo Psychological_Factors_in_Shaping_Investor_Expectat.pdf
    • “When the people find that they can vote themselves money that will herald the end of the republic.” Benjamin Franklin Since we always file stacks of paper forms by mail, our $2400 check was late coming.  It finally arrived on Monday so my wife and I are in high cotton ... for the six days it covers our minimum daily expenses, that is... In my opinion, all those checks are wasted money, but now most people want to receive  even more free money - not realizing that “whenever a new dollar is introduced into the system, it erodes the value of all dollars that currently exist.  Usually this is a relatively slow process, but now our politicians have gone absolutely nuts and very painful inflation is on the way.”  Free money aint free.  That check is borrowed from and owed back to 'the devil'.  I'm just sayin'           ...                 “If we don't listen to that scream—and if we don't respond to it—we may well wind up sitting amidst our own rubble, looking for the truck that hit us—or the bomb that pulverized us. Get the license number of whatever it was that destroyed the dream. And I think we will find that the vehicle was registered in our own name.”  Rod Serling   https://www.rutherford.org/publications_resources/john_whiteheads_commentary/the_slippery_slope_to_despotism_paved_with_lockdowns_raids_and_forced_vaccinations         ... Instead of just one $1200 time, did you know that certain parties can get a refill every night ????
    • how many corps in the SP500, NQ100, etc indexes "worth less than zero"?  ie they have negative net tangible assets ??  thx.  just askin'
    • Good news!  (and greatly under-reported, btw) -- Flu(s) and pneumonia(s) may have been eradicated.  No deaths from either in months and months.  Thanks god.
    • GOLD SUFFERS MILD DECLINE FOLLOWING GROWING US-CHINA TENSIONS Gold (XAU/USD) dipped in the early Asia trading session on Monday as growing US-China tensions continue to influence demand on the safe-haven asset. Gold futures shed about 0.47% reaching a low of $1,724 just a few hours ago. The precious metal failed to hold on to its gains from last week’s session. Stocks, which are generally expected to move in the opposite direction of gold, were trapped in a bout of uncertainty with Chinese stocks suffering serious losses at the open of the session. According to reports, investors’ risk sentiment declined following China’s decision to formally table national security laws for Hong Kong and Macau as the National People’s Congress opened on Friday. This announcement caused citizens of Hong Kong to take to the streets in protest on Sunday. The protesters were met with heavy resistance from the police who fired water cannons to disperse them. The tension between the world powers escalated after Chinese Foreign Minister, Wang Yi, said on Sunday night that the US was nearing a ”new Cold War” with China following President Trump’s threat of ‘strong action’ should the proposed law be enacted. This threat was followed by the US Commerce Department blacklisting 33 Chinese entities on Friday. XAUUSD – Daily Chart Gold (XAU) Value Forecast — May 25 XAU/USD Major Bias: Bullish Supply Levels: $1,745, $1,763, and $1,797 Demand Levels: $1,722, $1,717, and $1,700 The XAU/USD was met with a soft decline to the $1,720’s level as projected last week. Gold has resumed on its upwards move to the anticipated $1,740 level. However, gold has to stay above $1,722 to confirm its bullish momentum. A break below that level could send the price down to $1,700 – $1,695 levels rapidly. Overall such reality seems very unlikely for gold in the time being.   Source: https://learn2.trade 
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.