Saturday, February 24, 2007
Trading Education
Tutorial
Hell's Triangle
The classic Descending Triangle illustrates the
painful rollover from bull to bear market better than any other pattern. But
why does it work with such deadly accuracy? Most traders don't understand how
or why patterns predict outcomes. Some even believe these important tools rely
on mysticism or convenient curve fitting. The simple truth is more powerful:
congestion patterns in technical analysis reflect the impact of crowd
psychology on changes in price and momentum.
Shock and fear quickly follow the first reversal marking a triangle's major
top. But many shareholders remain true believers and expect their profits will
return when selling dissipates. They continue to hold positions as hope slowly
replaces better judgement. The selloff then carries further than anticipated
and their discomfort increases. Just as pain begins to escalate, the correction
suddenly ends and the stock firmly bounces.
For many longs, this late buying reinforces a dangerous bias that they were
right all along. Renewed confidence even prompts some to add to positions. But
smarter players have a change of heart and view this new rally as a chance to
get out. As they quietly exit, the strong bounce loses momentum and the stock
once again turns and fails. Those still riding the issue now watch the low of
the first reversal with much apprehension...
Read
More...
Trading Education
Tutorial
Reward:Risk Ratio
Assessing a Trades Potential
When looking at a stock to buy, we look to various tools and
techniques to help us assess the probability of its upward movement. However,
will it go up is not the only question to ask - we also need to analyze the
chart to see how far it is likely to go up and also how much of a loss we are
willing to take to allow it to reach it's profit potential. The potential
profit of a trade divided by the potential loss of trade is known as the
Reward:Risk Ratio.
Read More...
NASDAQ Chart of the Day
WFMI
took a solid breakaway gap to the upside with big volume, which is highly
bullish. Look for continued strength above 48.00.
Daily Trading Signals
NYSE Chart of the Day
WEC is holding just beneath key resistance at 48.60, which has held
since December. Watch this level closely, as a break or bounce could spark key
movement looking forward.
Daily Trading Signals
Daily Market Commentary
Updated Thursday, 2/22 for Friday's market.
|
Key DOW Levels for 2/23
|
|
UP
|
Above 12,800
|
|
DN
|
Below 12,650
|
Break at 12,700...
- Dow pulls back from morning advance, drops through key support.
The index held its ground above 12,650, which could indicate a potential bounce
tomorrow.
- The NASDAQ and S&P each sold off steadily throughout the morning, but the
NASDAQ led a nice move higher to close the day. The tech-heavy index may spark
a broader market reversal tomorrow.
Summary
The Dow closed the day near the lows of the session after dropping sharply to
begin the day. The index is holding beneath the 12,700 level, but could
continue to honor this zone as a major fulcrum. Watch for continued overall
strength above 12,600, unless this level is taken out.
Read More...
