For now, ignore the red candles and focus only on the white and black candles that form the left sides of each drawing.
You may have noticed that a lot of “spikers” have gone up too far too fast. These are the stocks that become perfect short candidates for a 1-3 day hold. You may have noticed some of the patterns (above) before, but I’ll give you some examples and what to look out for.
Evening Stars are one of the most reliable reversal patterns available. The failure rate is extremely low and I can’t remember the last time I had a major problem with them. What’s happening is that as each day passes during the rally, the open-close range gets smaller meaning that the buying is starting to slow down. The “cross”, called the doji, at the top signals that the rally has entirely stalled and there is some confusing among both bulls and bears as to which direction the stock should go. This doji day is critical because what happens the next day will most likely continue in the direction of the winner.
Because the rally stalled, it means that the bears have taken some control away from the bulls and there is a very high chance that the stock could drop the very next day. If that does occur, that’s called the evening star and that consists of a long white candle, the doji in the middle, and a down day. Just because a stock dropped to confirm this pattern does not mean that it’s too late to short. Most of the times, this is only the beginning.
Shooting Stars are one of my favorite patterns. They remind me of a comet (or shooting star) falling down to Earth and that’s exactly how the Japanese rice futures traders named this pattern. It’s an ominous sign that a stock (or rice) will drop very, very soon. (more…)
There’s a lot of talk around the markets and in Washington about China’s currency policy. What many want to know is whether the US Treasury will name China as a currency manipulator. Perhaps a more important question is, should China be named as a currency manipulator? And if it were named as such, what actions could the US take? In recent days the Chinese and the US administration have taken shots in the press at each other. The US is hinting that China is manipulating its currency to boost its economy. The Chinese is firing back saying that the US “should not politicize the remnimbi exchange rate issue.”
One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading.