Trix (technical analysis)
Trix is a technical analysis oscillator developed in the 1980s by Jack Hutson, editor of Technical Analysis of Stocks and Commodities magazine. It shows the slope of a triple-smoothed exponential moving average; the name Trix is from "triple exponential." Trix is calculated with a given N-day period as follows: Smooth prices using an N-day exponential moving average. Smooth that series using another N-day EMA. Smooth a third time, using a further N-day EMA. Calculate the percentage difference between today's and yesterday's value in that final smoothed series. Like any moving average, the triple EMA is just a smoothing of price data and, therefore, is trend-following. A rising or falling line is an uptrend or downtrend and Trix shows the slope of that line, so it's positive for a steady uptrend, negative for a downtrend, a crossing through zero is a trend-change, i.e. a peak or trough in the underlying average. The triple-smoothed EMA is different from a plain EMA. In a plain EMA the latest few days dominate and the EMA follows recent prices quite closely.
The following graph shows the weightings for an N=10 triple EMA: Note that the distribution's mode will lie with pN-2's weight, i.e. in the graph above p8 carries the highest weighting. An N of 1 is invalid; the easiest way to calculate the triple EMA based on successive values is just to apply the EMA three times, creating single- double- triple-smoothed series. The triple EMA can be expressed directly in terms of the prices as below, with p 0 today's close, p 1 yesterday's, etc. and with f = 1 − 2 N + 1 = N − 1 N + 1: T r i p l e E M A 0 = 3 The coefficients are the triangle numbers, n/2. In theory, the sum is infinite, using all past data, but as f is less than 1 the powers f n become smaller as the series progresses, they decrease faster than the coefficients increase, so beyond a certain point the terms are negligible
Hanging man (candlestick pattern)
A hanging man is a type of bearish reversal pattern, made up of just one candle, found in an uptrend of price charts of financial assets. It has a long lower wick and a short body at the top of the candlestick with little or no upper wick. In order for a candle to be a valid hanging man most traders say the lower wick must be two times greater than the size of the body portion of the candle, the body of the candle must be at the upper end of the trading range. Hammer — Hanging man pattern found in a downtrend Video and chart examples of hanging man pattern Hanging man pattern at onlinetradingconcepts.com Hanging man definition at investopedia.com Hanging Man Information at candlecharts.com
A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, secondary for short time frames. Traders attempt to identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time. A trend can only be determined in hindsight; the terms "bull market" and "bear market" describe upward and downward market trends and can be used to describe either the market as a whole or specific sectors and securities. The names correspond to the fact that a bull attacks by lifting its horns upward, while a bear strikes with its claws in a downward motion. A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of larger bear markets. In a secular bull market the prevailing trend is upward-moving.
The United States stock market was described as being in a secular bull market from about 1983 to 2000, with brief upsets including the crash of 1987 and the market collapse of 2000–2002 triggered by the dot-com bubble. In a secular bear market, the prevailing trend is downward-moving. An example of a secular bear market occurred in gold between January 1980 to June 1999, culminating with the Brown Bottom. During this period the market gold price fell from a high of $850/oz to a low of $253/oz. A primary trend lasts for a year or more. A bull market is a period of rising prices; the start of a bull market is marked by widespread pessimism. This point is when the "crowd" is the most "bearish"; the feeling of despondency changes to hope, "optimism", euphoria, as the bull runs its course. This leads the economic cycle, for example in a full recession, or earlier. An analysis of Morningstar, Inc. stock market data from 1926 to 2014 found that a typical bull market "lasted 8.5 years with an average cumulative total return of 458%", while annualized gains for bull markets range from 14.9% to 34.1%.
India's Bombay Stock Exchange Index, BSE SENSEX, had a major bull market trend for about five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points, more than a 600% return in 5 years. Notable bull markets marked the 1925–1929, 1953–1957 and the 1993–1997 periods when the U. S. and many other stock markets rose. A bear market is a general decline in the stock market over a period of time, it is a transition from high investor optimism to widespread investor pessimism. According to The Vanguard Group, "While there's no agreed-upon definition of a bear market, one accepted measure is a price decline of 20% or more over at least a two-month period."A smaller decline of 10 to 20% is considered a correction. Once a market enters correction or bear market territory, it isn't considered to have exited that territory until a new high is reached. An analysis of Morningstar, Inc. stock market data from 1926 to 2014 found that a typical bear market "lasted 1.3 years with an average cumulative loss of −41%", while annualized declines for bear markets range from −19.7% to −47%.
A bear market followed the Wall Street Crash of 1929 and erased 89% of the Dow Jones Industrial Average's market capitalization by July 1932, marking the start of the Great Depression. After regaining nearly 50% of its losses, a longer bear market from 1937 to 1942 occurred in which the market was again cut in half. Another long-term bear market occurred from about 1973 to 1982, encompassing the 1970s energy crisis and the high unemployment of the early 1980s, yet another bear market occurred between March 2000 and October 2002. Recent examples occurred between October 2007 and March 2009, as a result of the financial crisis of 2007–2008. See 2015 Chinese stock market crash. A market top is not a dramatic event; the market has reached the highest point that it will, for some time. It is identified retrospectively, as market participants are not aware of it at the time it happens, thus prices subsequently fall, either or more rapidly. William J. O'Neil and company report that since the 1950s a market top is characterized by three to five distribution days in a major market index occurring within a short period of time.
Distribution is a decline in price with higher volume than the preceding session. The peak of the dot-com bubble occurred on March 24, 2000; the index closed at 4,704.73. The Nasdaq peaked at 5,132.50 and the S&P 500 at 1525.20. A recent peak for the broad U. S. market was October 9, 2007. The S&P 500 index closed at 1,565 and the Nasdaq at 2861.50. A market bottom is a trend reversal, the end of a market downturn, the beginning of an upward moving trend, it is difficult to identify a bottom while it is occurring. The upturn following a decline is short-lived and prices might resume their decline; this would bring a loss for the investor who purchased stock during a misperceived or "false" market bottom. Baron Roth
Broadening top is technical analysis chart pattern describing trends of stocks, commodities and other assets. Broadening Top formation appears much more at tops than at bottoms, its formation has bearish implications. It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the stage. Price keeps on swinging unpredictably and one can't be sure where the next swing will end. Regarding the shares volume, it is irregular and leaves no clue to the direction of the next move. In the broadening top formation five minor reversals are followed by a substantial decline. In the figure above, price of the share reverses five times, reversal point d is made at a lower point than reversal point b and reversal point c and e occur successively higher than reversal point a. One can't be sure of the trend unless price breaks down the lower of the two points and keeps on falling.
In the figure below, Broading Top is confirmed. Candlestick pattern Double top and double bottom Gap Head and shoulders top and bottom Island reversal Triple top and triple bottom Wedge pattern Acquisitions and takeovers terminology
Gap (chart pattern)
A gap is defined as an unfilled space or interval. On a technical analysis chart, a gap represents an area. On the Japanese candlestick chart, a window is interpreted as a gap. In an upward trend, a gap is produced when the highest price of one day is lower than the lowest price of the following day. Conversely, in a downward trend, a gap occurs when the lowest price of any one day is higher than the highest price of the next day. For example, the price of a share reaches a high of $30.00 on Wednesday, opens at $31.20 on Thursday, falls down to $31.00 in the early hour, moves straight up again to $31.45, no trading occurs in between $30.00 and $31.00 area. This no-trading zone appears on the chart as a gap. Gaps can play an important role. There are four types of gaps, excluding the gap that occurs as a result of a stock going ex-dividend; each type has its own distinctive implication so it is important to be able to distinguish between them. Breakaway gap -- occurs; when the price is breaking away from a triangle with a gap it can be implied that change in sentiment is strong and coming move will be powerful.
One must keep an eye on the volume. If it is heavy after the gap is formed there is a good chance that market does not return to fill the gap; when the price is breaking away on a low volume, there is a possibility that the gap will be filled before prices resume their trend. Common gap – known as an area gap, pattern gap, or temporary gap, tend to occur when trading is bound between support and resistance level on a short span of time and market price is moving sideways. One can see them in price congestion area; the price moves back or goes up in order to fill the gaps in the coming days. If the gap is filled, they offer little forecasting significance. Exhaustion gap – signals the end of a move; these gaps are associated with a straight-line advance or decline. A reversal day can help to differentiate between the Measuring gap and the Exhaustion gap; when it is formed at the top with heavy volume, there is significant chance that the market is exhausted and prevailing trend is at halt, ordinarily followed by some other area pattern development.
An Exhaustion gap should not be read as a major reversal. Measuring Gap – known as a runaway gap, formed in the half way of a price move, it is not associated with the congestion area, it is more to occur in the middle of rapid advance or decline. It can be used to measure how much further ahead a move will go. Runaway gaps are not filled for a considerable period of time, it is quite possible that confusion between measuring gap and exhaustion gap can cause an investor to position himself incorrectly and to miss significant gains during the last half of a major uptrend. Keeping an eye on the volume can help to find the clue between measuring gap and exhaustion gap. Noticeable heavy volume accompanies the arrival of exhaustion gap; some market speculators "Fade" the gap on the opening of a market. This means for example that if the S&P 500 closed the day before at 1150 and opens today at 1160, they will short the market expecting this "upgap" to close. A "downgap" would mean today opens at, for example, 1140, the speculator buys the market at the open expecting the "downgap to close".
The probability of this happening on any given day is depending on the market. Once the probability of "gap fill" on any given day or technical position is established the best setups for this trade can be identified; some days have such a low probability of the gap filling that speculators will trade in the direction of the gap. Gap Video.
Support and resistance
In stock market technical analysis and resistance are certain predetermined levels of the price of a security at which it is thought that the price will tend to stop and reverse. These levels are denoted by multiple touches of price without a breakthrough of the level. A support level is a level; this means that the price is more to "bounce" off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is to continue falling until meeting another support level. A resistance level is the opposite of a support level, it is. Again, this means that the price is more to "bounce" off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is to continue rising until meeting another resistance level. Proactive support and resistance methods are "predictive" in that they outline areas where price has not been, they are based upon current price action that, through analysis, has been shown to be predictive of future price action.
Proactive support and resistance methods include Measured Moves, Swing Ratio Projection/Confluence, Calculated Pivots, Volatility Based and Moving averages, VWAP, Market Profile. Reactive support and resistance are the opposite: they are formed directly as a result of price action or volume behaviour, they include Volume Profile, Price Swing lows/highs, Initial Balance, Open Gaps, certain Candle Patterns and OHLC. A price histogram is useful in showing. Psychological levels near round numbers serve as support and resistance. Support and resistance levels can be identified by trend lines; some traders believe in using pivot point calculations. The more a support/resistance level is "tested", the more significance is given to that specific level. If a price breaks past a support level, that support level becomes a new resistance level; the opposite is true as well. Psychological Support and Resistance levels form an important part of a trader's technical analysis; as price reaches a value ending in 50 or 00, people see these levels as a strong potential for interruption in the current movement.
The price may hit the line and reverse, it could hover around the level as Bulls and Bears fought for supremacy, or it may punch straight through. A trader should always exercise caution when approaching 00 levels in general, 50 levels if it has acted as Support or Resistance; this is an example of support switching roles with resistance, vice versa: If a stock price is moving between support and resistance levels a basic investment strategy used by traders, is to buy a stock at support and sell at resistance short at resistance and cover the short at support as per the following example: When judging entry and exit investment timing using support or resistance levels, it is important to choose a chart based on a price interval period that aligns with your trading strategy timeframe. Short term traders tend to use charts such as 1 minute. Longer term traders use price charts based on hourly, weekly or monthly interval periods. Traders use shorter term interval charts when making a final decisions on when to invest, such as the following example based on 1 week of historical data with price plotted every 15 minutes.
In this example, the early signs that the stock was coming out of a downtrend was when it started to form support at $30.48 and started to form higher highs and higher lows. This signals a change from negative to positive trending. Top Trend line Bottom Price discovery Representativeness heuristic Fibonacci retracement John Murphy, Technical Analysis of the Financial Markets, ISBN 978-0-7352-0066-1 Stephen Petrivy, xBinOp.com. Technical Analysis – Supports and Resistances