Lecture 5 (short term patterns) Flashcards
Does short term patterns refer to one day patterns??
NO, it refers to “short term” as in a small amount of bars and candlesticks forming the pattern
What is the reason for studying short term patterns
-anticipate sudden moves
-take advantage of a period when prices have reached their extremes
What is a SETUP
It is when certain known factors needed to establish a pattern have occurred and the trader is waiting for the action signal to occur
What happens if the pattern formation (signal) does not abide by the rules?
We ignore it, it is not a setup
When are short term reversal considered
only necessary when prices are at some sort of support or resistance level, or trend line
Short term patterns can be used to see what other kinds of patterns
reversal and continuation patterns
What is the principle data shown in short term patterns
Open, close, high, low
what can be said about how frequently a complex pattern can be seen
the more complex the pattern is, the less frequently it will occur
What are gaps, when do they occur
-they are actual gaps in the chart (hole)
-occur when either when the low for the current bar is above the high of the previous bar
-occur when high for the current bar is lower than the low of the previous bar
What does the gap (hole/void) represent
It represents a price range where no stock changes hands
What are gaps referred as in candlestick graph
windows
What are the 4 types of gaps
-opening gap
-breakaway gap
-runaway gap
-exhaustion gap
when do opening gaps (common gaps) occur
-occur when the opening price for the day is outside the range of the previous day
-supply and demand in-balance at beginning of the day, from one day to the next
Do opening gaps usually get filled?
Yes, usually within 30 mins
What can be said if the gap doesn’t close within 30mins
Chances are that the trend will continue in the direction of the gap
What are breakaway gaps? when do they occur?
-Breakaway gaps are the first gap tp appear on the chart and are the most profitable
-They occur at the beginning of a new trend
What are upward gaps in breakaway gaps usually accompanied with
with heavy volume
Are downward gaps in a breakaway gaps usually accompanies with heavy volume?
Not necessarily
What can be said about analyzing trends using gaps in general
That the trend is believed to be in force (place) until the gap is filled
In order to make sure that a gap is not a false gap, what needs to be done
We want a breakaway gap to establish a new high, for at least the past 20 days, and for the subsequent retracement not to fill the gap
Should we short in upward trending breakaway gaps? Why?
NO, because tends to increase in value
What are runaway gaps (measuring gaps)? when do they occur?
-They are gaps that occur along the trend
-Runaway gaps are usually larger gaps than breakaway gaps
-Usually occur at halfway of the price run (trend)
Can there be more than one runaway gap on a chart?
Yes
What exhaustion gaps? When do they occur?
-Exhaustion gaps occur at the end of a trend but are not recognized at the time since they have the same characteristics as a runaway gap