Dow Jones e o padrão de candles de sexta (Chip Anderson)
1 Mensagem
|Página 1 de 1
Dow Jones e o padrão de candles de sexta (Chip Anderson)
Hello Fellow ChartWatchers!
This week, a tantalizing glimpse of a relatively rare (and very bullish) Candlestick pattern appeared on the Dow Jones Industrial Average chart. Similar looking patterns also appeared on the S&P 500 and NYSE Composite charts. I thought I'd spend a little time exploring this pattern and in doing so, point out some very common mistakes that people make when trying to use candlesticks.
The pattern I'm referring to called the "Rising Three Methods" pattern. It's one of 18 different candlestick patterns that members use in their technical scans on StockCharts.com. In his book "Candlestick Charting Explained", our own Greg Morris describes the Rising Three Methods pattern like this:
A long white candlestick is formed in an uptrend. After this long day, a group of small-bodied candlesticks occur which show some resistance to the previous trend. These reaction days are generally black, but most importantly, their bodies all fall within the high-low range of the first long white day. Remember that the high-low range includes the shadows. The final candlestick (normally the fifth day) opens above the close of the previous reaction day and the closes at a new high.
The picture of the pattern in Greg's book looks very similar to what's on the far right side of that Dow chart - two tall white candles sandwiching three descending black candles. Later, Greg describes the investor psychology behind this pattern:
The Three Methods pattern is considered a rest from trading or a rest from battle. In modern terminology, the market is just taking a break. The psychology behind a move like this is that some doubt creeps in about the ability of the trend to continue. This doubt increases as the small-range reaction days take place. However, once the bulls see that a new low cannot be made, the bullishness is resumed and new highs are set quickly.
Wow, this sounds great! "New highs are set quickly"! Ka-ching! Gotta love that forecast baby!
Unfortunately, things aren't that simple. Technical Analysis requires careful analysis, lots of practice and the ability to detach your emotions from your work. Careful readers should have already spotted at least three major differences between the current Dow chart and the Rising Three Methods pattern that Greg is describing.
We are already in trouble in the first sentence of the pattern's description - "...in an uptrend". Prior to Monday's big gain, the Dow was most certainly not in an uptrend. We get many support questions asking why a particular stock is not included in this or that candlestick scan result set. Many times it is because the pattern requires that the stock already be in an uptrend (or downtrend) prior to the pattern's appearance.
"...their bodies all fall within the high-low range of the first long white day." Unfortunately, Thursday's candle has a body (i.e., the wide part) that falls below the bottom of Monday's lower shadow (i.e. the thin line coming out of the bottom). Strike Two.
The final candlestick...closes at a new high. Didn't happen. Not even close. Strike Three.
Even if the Dow matched the pattern's description exactly however, it would still be wrong to assign the pattern to the current Dow chart. The differences between the Dow's current situation and the investor psychology behind the pattern could not be more striking. Greg is describing what amounts to a pause in a big bull market, a great chance to get in on a stock that has already taken off. Right now, the Dow is pulling back from yet another failed breakout in a Bear market. The kind of high-volume, greed-driven mass psychology that Greg describes is really non-existent right now. We're in a place where the Rising Three Methods pattern simply cannot exist.
And that's my key point - even though Candle stick pattern are easy to spot, they cannot be interpreted in a vacuum. The bigger picture must always be considered and the mass psychology behind each pattern must be understood. Novice chart watchers can get into serious trouble if they don't grasp that fact - especially when everyone is desperately hoping for signs of a turnaround.
Happy Holidays everyone!
http://stockcharts.com/commentary/archives/cww20021222h.html
This week, a tantalizing glimpse of a relatively rare (and very bullish) Candlestick pattern appeared on the Dow Jones Industrial Average chart. Similar looking patterns also appeared on the S&P 500 and NYSE Composite charts. I thought I'd spend a little time exploring this pattern and in doing so, point out some very common mistakes that people make when trying to use candlesticks.
The pattern I'm referring to called the "Rising Three Methods" pattern. It's one of 18 different candlestick patterns that members use in their technical scans on StockCharts.com. In his book "Candlestick Charting Explained", our own Greg Morris describes the Rising Three Methods pattern like this:
A long white candlestick is formed in an uptrend. After this long day, a group of small-bodied candlesticks occur which show some resistance to the previous trend. These reaction days are generally black, but most importantly, their bodies all fall within the high-low range of the first long white day. Remember that the high-low range includes the shadows. The final candlestick (normally the fifth day) opens above the close of the previous reaction day and the closes at a new high.
The picture of the pattern in Greg's book looks very similar to what's on the far right side of that Dow chart - two tall white candles sandwiching three descending black candles. Later, Greg describes the investor psychology behind this pattern:
The Three Methods pattern is considered a rest from trading or a rest from battle. In modern terminology, the market is just taking a break. The psychology behind a move like this is that some doubt creeps in about the ability of the trend to continue. This doubt increases as the small-range reaction days take place. However, once the bulls see that a new low cannot be made, the bullishness is resumed and new highs are set quickly.
Wow, this sounds great! "New highs are set quickly"! Ka-ching! Gotta love that forecast baby!
Unfortunately, things aren't that simple. Technical Analysis requires careful analysis, lots of practice and the ability to detach your emotions from your work. Careful readers should have already spotted at least three major differences between the current Dow chart and the Rising Three Methods pattern that Greg is describing.
We are already in trouble in the first sentence of the pattern's description - "...in an uptrend". Prior to Monday's big gain, the Dow was most certainly not in an uptrend. We get many support questions asking why a particular stock is not included in this or that candlestick scan result set. Many times it is because the pattern requires that the stock already be in an uptrend (or downtrend) prior to the pattern's appearance.
"...their bodies all fall within the high-low range of the first long white day." Unfortunately, Thursday's candle has a body (i.e., the wide part) that falls below the bottom of Monday's lower shadow (i.e. the thin line coming out of the bottom). Strike Two.
The final candlestick...closes at a new high. Didn't happen. Not even close. Strike Three.
Even if the Dow matched the pattern's description exactly however, it would still be wrong to assign the pattern to the current Dow chart. The differences between the Dow's current situation and the investor psychology behind the pattern could not be more striking. Greg is describing what amounts to a pause in a big bull market, a great chance to get in on a stock that has already taken off. Right now, the Dow is pulling back from yet another failed breakout in a Bear market. The kind of high-volume, greed-driven mass psychology that Greg describes is really non-existent right now. We're in a place where the Rising Three Methods pattern simply cannot exist.
And that's my key point - even though Candle stick pattern are easy to spot, they cannot be interpreted in a vacuum. The bigger picture must always be considered and the mass psychology behind each pattern must be understood. Novice chart watchers can get into serious trouble if they don't grasp that fact - especially when everyone is desperately hoping for signs of a turnaround.
Happy Holidays everyone!
http://stockcharts.com/commentary/archives/cww20021222h.html
- Anexos
-
- cww20021222-1.png (6 KiB) Visualizado 631 vezes
- Mensagens: 235
- Registado: 5/11/2002 12:54
- Localização: Lisboa
1 Mensagem
|Página 1 de 1
Quem está ligado:
Utilizadores a ver este Fórum: IX Hispana e 60 visitantes