Bearish Shooting Star --- LOW Reliability

The shooting star is a small real body characterized by a long upper shadow, which gaps away from the prior real body.

The Shooting Star tells us that the market opened near its low, then prices strongly rallied up and finally prices moved down to close near the opening price. In other words, the rally of the day was not sustained.

A confirmation on the third day is required to be sure that the uptrend has reversed. The confirmation may be in the form of a black candlestick, a large gap down or a lower close on the next trading day.

 

In the above example, you could see that a shooting star was formed 2 trading days ago, but failed, the current shooting star is stronger as the real body is much smaller.

BEAR TRAP ---- continued rally

A bear trap is a false signal that the rising trend of a stock or index has reversed when it has not.

The result is that shorters are trapped, and are forced to cover their positions at higher prices.

Bearish Dark Cloud Cover

 

Another Bearish Reversal Pattern.

The Bearish Dark Cloud Cover pattern is a two-candlestick pattern signaling a top reversal after an uptrend or, at times, at the top of a congestion band. (as shown in the LVS chart) We see a strong white real body in the first day. The second day opens strongly above the previous day high (it is above the top of the upper shadow). However, market closes near the low of the day and well within the prior day’s white body at the end of the day.

Today, LVS made such a pattern.

Bearish Hanging Man

The hanging man is a bearish reversal pattern. It signals a market top or a resistance level. Since it is seen after an advance, a Bearish Hanging Man Pattern signals that selling pressure is starting to increase. The low of the long lower shadow indicates that the sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of this selling pressure after a rally is a serious warning signal.

Today, Freeport Mcmoran (FCX) made such a candle.

The candlestick shown is almost like a dragon fly doji, just that it has a rather larger head or candle body

Market Psychology Cycle

You might have most probably seen this picture somewhere.

The image is self explanatory.

Curretly, the DOW has exploded almost 900 points from its low a few days back. We might be at the Euphoria stage.

HIGH WAVE – Bearish Reversal, Medium

One candlestick pattern per day. Learn candlestick slowly together with the market.

 

The High wave is a bearish reversal candle, but it requires confirmation.

Reliability - Medium

Easy as 123 system. One of the best trading strategy.

The 123 system is a breakout system. Basically, we number the highs and lows of the stock.

In an uptrend, we label 1 as the first low, 2 as the high and 3 as the second low.

3 has to be higher than 1 in an uptrend.

When the stock rebound at 3 and breaks through the 2 level, then we go long. It is that simple!

Why this works? Read through the Psychology of Support Resistance again. Basically, when the stock rebounded at 3 and hit level 2, the 3 group of people decided to cancel sell orders and break through it, and resistance has now turn into support.

The Psychology of Support and Resistance

Tradedragon focuses on Support and Resistance. Here’s why.

There are 3 market players. LONGS, SHORTS and the UNCOMMITTED.

LONGS have already committed to buying and owning shares, SHORTS have already shorted shares, and the uncommitted are those who are waiting to enter the market.

Assume that the market bounce on a support area. Longs are excited, and regretted not having bought more. If the market dips near the support again, they will buy more. Short realized that they are wrong, so if the market dips to that area, they will want out. The uncommitted decides to buy on the support to make a gain on the trade.

All 3 groups have decided to enter the market on the long side. “Buying the dip”. Naturally, if prices decline near that support, these people will buy again and thus push prices up.

The BUY orders create this support level.

The higher the volume near the support, the more significant it becomes as it means that more people have a vested interest in that area.

 

Now when the market goes below the support, the opposite happens. All the groups change their positions. Longs realized their mistake, Shorts are excited and want to short more , and uncommitted traders decide to short the market.

So what were buy orders at first, became sell orders. This is why SUPPORT becomes RESISTANCE.

 

This is why chart patterns work. They are due to the psychology of the market participants and their reactions to market events.

Charting and technical analysis are studies of reactions of traders.