Technical Analysis - Menu

1. Technical Analysis - Elliott Wave, Gann and Chart Patterns

2. Elliott Wave Introduction

3. Secrets of Price Bars

4. Fibonacci Number Sequence

5. Market Cycles and Fibonacci

Secrets of Price Bars

Often, the shape of an individual price bar will give a signal that a reversal in trend is taking place. If this occurs at a forecast or targeted price, then it can add weight to my trading decision.

As opposed to many of the chart patterns discussed in the sections on Elliott Wave and Gann, these one or two-day (bar) reversal patterns do not require a lot of interpretation. However, they do not work every time and I use individual bar shapes to reinforce my Elliott/Gann patterns and add weight to reversals at my target prices.

These bar shapes are loosely based on Japanese Candlestick analysis – some of them I discovered in my own work, years before I learned that Japanese Candlesticks used similar ideas. I find the reversal bars work best on daily bar charts, although they can often be seen on weekly and intra-day charts, too. (On monthly charts, some of the shapes are more rare.)

XXXX Bars

ONLY AVAILABLE TO COURSE PURCHASERS

Inverted XXXX Bar

ONLY AVAILABLE TO COURSE PURCHASERS

Key Reversals

A Key Reversal is a widely used technical analysis tool that signals a change in trend. A Key Reversal at the top of an up-trend is recognised with prices surging to new highs (usually significantly higher than the previous trading day), only to reverse lower and close below the previous bar’s low and near the low of the day.

A Key Reversal at the bottom of a decline is recognised with prices first collapsing to new lows (usually significantly lower), followed by a recovery to above the previous bar’s high and closing up on the day.

Both the phenomena signal an immediate reversal of trend.

figure293c.gif (4106 bytes)

Figure 295: Key Reversal where prices spike lower than the low of the previous day and close higher than the high of the previous day. This is a strong sign of a bottom.

 

figure293d.gif (7304 bytes)

Figure 296: Key Reversal where prices spike significantly higher than the high of the previous day and close lower than the low of the previous day. This is a strong sign of a top.

 

Shooting Star

Another one-day reversal shape is known as a Shooting Star, Gravestone Doji or Dragonfly Doji in Japanese Candlestick analysis. This bar is similar to a Key Reversal in that – at a market top – a Shooting Star usually surges up to make a higher high than the previous bar’s high, followed by a reversal to close near the extreme low point of the trading day….

But unlike a Key Reversals, a Shooting Star does not have to close below the previous bar’s close to have validity.

(I.e. the principle is the same but the Japanese have a different name for this slight difference.)

At a market bottom, a Shooting Star will collapse to lows under the lows of the previous bar, and then recover to close near the bar’s high. But unlike a Key Reversal, the bar does not have to make a higher high than the previous bar’s high.

All that is necessary to verify the Shooting Star’s forecasting significance is that the height of the bar is of significant, reasonable height.

 

Tweezers

Another pattern that serves advance notice of a change in trend is technically a two-bar reversal, known as a Tweezers Top or Tweezers Bottom. This pattern, also based on Japanese Candlestick analysis, occurs when two consecutive trading bars produce identical high points (at the top of a bull trend) or identical lows (at the bottom of a bear trend).

The market does not have to close at the highs/lows (although it can) but the two extreme highs/lows have to be back-to-back with identical (give or take a few ticks) highs/lows to one another.

Unlike a Key Reversal, the Tweezers Top rarely forecasts a major change in trend - only a correction - but this can still be a significant retracement of the previous market trend. (Look for retracements to the magic 38%, 50%, 62% areas.)

 

While all these patterns are not everyday occurrences, keeping an eye out for them will greatly enhance your ability in spotting turning points in advance of an actual change in market direction.

All the above bar shapes, with their spikes to new highs and lows followed by closes in the opposite direction, reliably forecast changes in trend, and therefore constitute an important facet of turning point analysis. However, they do not forecast the amplitude of the trend-reversal, only that there will be some type of reversal.

That is where I use Elliott Wave counts, Gann techniques and Fibonacci percentages to forecast target prices.

Here are some examples: (Only Available to Course Purchasers.)

 

Gaps

Gaps are one of the most easily recognisable technical indicators. A gap is simply an empty spot formed on a price chart when prices do not overlap the previous bar’s price action. This is a useful concept to keep in mind because it helps to explain some of their technical consequences. Sometimes market psychology changes overnight or over a weekend and that change in psychology can force prices to open and stay above or below the previous day’s range.

Gaps on daily and intra-day charts are most reliable. They can appear on longer-term charts such as weekly charts, but are rare. Gaps on monthly futures charts are very rare because they generally are constructed to avoid gaps caused by contract changeover.

THE REST OF THIS ARTICLE IS ONLY AVAILABLE TO THOSE WHO PURCHASE OUR TRADING COURSE

 
 
Disclaimer: There is risk of loss trading futures.
The information presented in this site is for informational purposes only. Investment in futures involves a high degree of risk, your investment may fall as well as rise, you may lose all your original investment and you may also have to pay more on the original amount invested. Consult your broker or advisor prior to making any investment decisions. Past or simulated performance is not a guide to future performance. Copyright 1999-2016 Futures-Investor.co.uk. All rights reserved.
Futures-Investor, Old Mill House, Rockfield, Monmouth, NP25 5QE. Tel: +44 (0) 1600 715 039 Email philriou@futures-investor.co.uk