technical analysis

Support & Resistance

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Support and Resistance are two of the most closely watched and utilized technical indicators. Although difficult at times, identification of these key indicators is an essential ingredient to succesful technical analysis and even being aware of their existence and location can greatly improve your forecasting and analyzing abilities. Both are price levels at which either supply or demand for a security is often perceived greater than the other and this in turn can affect the movement of that security. Support: is the price level at which demand is thought to be great enough to prevent the price from declining any further because as … Read more

Coles and Hawkins, MIDAS Technical Analysis

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Coles and Hawkins, MIDAS Technical Analysis Anyone who trades using technical analysis would do well to read MIDAS Technical Analysis: A VWAP Approach to Trading and Investing in Today’s Markets (Bloomberg/Wiley, 2011) by Andrew Coles and David G. Hawkins. It’s not that the MIDAS method, pioneered by Paul Levine in 1995, is the holy grail. I recommend the book because the authors have done such a thorough job of explaining and, after extensive research, expanding on the notion of volume-weighted support and resistance curves. In the process they touch on a wide range of technical approaches to the market, some … Read more

Divergence- the best technical indicator

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Divergence A divergence is a move in the price of an asset not confirmed by a comparable move in the applied technical indicator. For example, a bullish divergence exists when a market reaches a new low without the indicator reaching a corresponding new low. Conversely, a bearish divergence exists when a market reaches a new high without the indicator reaching a corresponding new high. In my opinion, divergence is the most predictive of all the indicators. It will be early more often than not. Early can be very painful. A popular stock market tidbit of wisdom reads like this: “What’s … Read more

Technical Analysis that Works

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  “You see I can predict this stock went down!”   I’ve read a great deal on technical analysis and spent a great deal more time testing various indicators, programs, backtesting, and attending seminars on the subject.  At first I thought I would write a piece with a top down view and summarize the major indicators in use today.  I’ve hesitated and even anguished over doing that for a couple of reasons:  But first let’s set the discussion by quoting Wikipedia’s succinct definition: “Technical analysis is a financial term used to denote a security analysis discipline for forecasting the direction … Read more

13 Stock Chart Patterns That You Can’t Afford To Forget

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By Kirk Du Plessis Chart patterns play a critical role in usefulness technical analysis. Chart patterns are a result of human nature and trading psychology. If you can learn to recognize patterns early you can also learn to profit from breakouts and reversals. As you all know I’m a big fan of technical analysis and chart patterns are very powerful for any trader. Why Are They So Important? Simply put, chart patterns are just a series of price action that occurs in a stocks trading. These can happen on any time frame really; monthly, weekly, daily and intra-day. The great … Read more

Stock Price Gaps – Why They Happen And How To Trade Them

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By Kirk Du Plessis

Beginning traders were probably shocked the first time they experienced a stock price gap. I guess even the most experienced traders still get taken back when there is an unexpected stock price gap in a stock they are trading. Either way I wanted to cover once again why they happen and what you can do (if anything) to trade them.

It Happens When The Market Is Closed

Nearly all stock price gaps happen in pre market trading or during after hours trading. Call them Black Swans if you want since they seemingly come when you least expect it.

Generally speaking gaps are rare for the normal stock. Most mutual funds, ETF’s, and other illiquid assets actually gap more frequently which make the gaps less important.

How The Actual Price Gap Is Created

A price gap is created when a stock closes at say $91.50 (as AAPL did below) for the day which is at 4:00 PM EST and then the next day opens dramatically higher or lower than it’s previous closing price of $91.50.

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One piece of news trumps charts

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Some chartists believe that all known events are already reflected in the price patterns in the chart. They spend a lot of time trying to divine MA crossovers, MACD, Stochastics, Resistance Support lines and many more technical indicators. I too believe strongly in technical analysis but of course equally strongly that one piece of news trumps charts. This chart of Dolby is a a perfect example of this. The company looked like it was poised for a bounce. It was oversold, the RSI was diverging clearly heading in a positive direction while the price action was settling out. Then came … Read more