Investing in Philippines: stock reversal

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Showing posts with label stock reversal. Show all posts
Showing posts with label stock reversal. Show all posts

Tuesday, September 6, 2011

Technical side: Chart Patters what are they?

source: http://www.chartpatterns.com/


Here is what Investopedia.com has to say about patterns:

In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also known as "trading pattern".

So generally chart patterns are formations made by connecting some points of the stock's movement for a period of time. With this definition one chartist may see a different chart pattern from another chartist if they have different time period and different movements as a connecting point.

Chart patterns can be made whether one uses a Candlestick chart, a Bar Chart, or a simple Closing Price Chart. These patterns are not exact and accurate answer to everyone's question if a stock is a buy or a sell but mainly it guides one to at least know what is the probable price action of the stock in the next couple of days base on historical price movement.

Patterns can be classified as Bullish pr Bearish chart patterns. 

source:http://www.torycapital.com

Bullish chart patterns are patterns that signify an upward trend meaning price action is predicted to go up because sellers are pushing the price up and buyers are willing to buy at a higher price believing that stock price are still going up due to an expected market recovery or boom in the economy.

Bearish chart patterns are the opposite of a bullish market. A bearish pattern signify an expected decline in prices brought about by fear of economic downfall or an expected poor economy. Such fear spur panic to investors thus sellers sell down to grab as much profit they can take before market gets stuck. Buyers on the other hand bargain hunt thus they bid for lower prices.

Patterns as well can be viewed as a Reversal or Continuation.

Source: http://tradegartleypattern.blogspot.com/

Reversal patterns indicate a opposite action from what has already been happening in the stock's price. If the stock has been on a downtrend for sometime a reversal pattern will indicate an expected upward thus investors anticipate such reversal and thus buy more of the stock to capitalize on the stocks lower price.
Continuation pattern on the other hand indicates that the stock price will be expected to go up further. With this expectation investors will buy more to ride with the stocks seemingly continuing rise.

Thursday, August 11, 2011

Technical Side: Doji

What is a Doji?

Doji is a candle formation which occurs when the opening and closing price of the stock is the same or nearly the same. See examples below




Why is the Doji an important candle formation?

Doji are important because they are indicator of market indecision. Buyers and Sellers end up at the same price after trading. With this concept Doji becomes a turning point in the stock's trend. 

The usual assumption is that when a Doji is formed at the bottom of the stock meaning when the stocks trend is downward and a Doji is formed at the end it could mean a reversal which in this case is an upward. A Doji at the top or peak of the trend might also indicate a reversal but this time it is a downward trend.

source:http://stocata.org/

source: http://stocata.org/


A doji with long wick or shadows and the opening and closing is in the middle is also called Rickshaw man. 

http://www.forexbrace.com

This is the doji that clearly signify indecision. Trading range is wide as indicated by the long wick or tail. The stock opened at the middle and close at the middle meaning neither buyer or seller is willing to advance or lower price thus ending in the same price. 


http://www.forexbrace.com

Gravestone doji as it says is the bearish doji. This doji signify that  sellers who wanted to sell their holdings tried to trade at a high thus forming a long wick but in the end price is pulled down by buyers but never below the opening price.


A dragonfly doji is the reverse of the gravestone. The scenario is that buyers drove the price down but sellers fought back thus push back the price up but only up to the extent of the opening. 

With these general doji types one should also make sure that such formation must be confirmed by either the previous candles and volume. As I mentioned the general assumption is that a doji found at the bottom indicates an upward reversal while if found at top a downward reversal. Also doji form patterns with other candles. These combination of candle formations make a pattern and may indicate a bullish or bearish trend.










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