Sideways Candlestick Price Action with MACD
Often times traders
may be confused with conflicting indicator patterns. Contrarian patterns
between Indicators, and between Price action and Volume based indicators are
very common these days.
Understanding what
the contrarian indicator patterns represent in terms of near-term price action,
is crucial for higher profitability and strong stock picks in the current Stock
Market.
A common area of
difficulty for most traders is the various sideways patterns that are becoming
more and more common in the new Market Structure, which is reshaping how Retail
Traders will trade over the next decade.
There are massive
changes going on behind the scenes of the Stock Market that only Professionals
are privileged to know. This leaves most Retail Traders in the dark,
and can often create more risk and lower profits for them.
Short-term trading
analysis is entirely different than long-term investing analysis. The training
in this article is for short-term trading, and not long-term investing.
The company for the
stock chart example below is going to report earnings soon, and the price action
is sideways.
The stock gapped up
on earnings news, and shifted to a sideways pattern that compressed. Then it
slipped slightly but quickly rebounded, and has begun another compression
pattern recently.
Comparative and
Relational Analysis™ is required for a stock chart like this, otherwise the
interpretation of just candlesticks or just a couple of indicators will be
incorrect.
This chart example
shows contrarian indicator patterns. I have added MACD as an indicator since
many of you really like it. It is a momentum Price and Time Indicator, which
was originally designed for long-term investing and modified for short-term
trading. It is declining and currently in a “floating” pattern, which is common
for the price action occurring at this time.
The Accum/Dist
Indicator has been climbing steadily during the sideways action. The ChiOsc
Volume Oscillator Indicator has been holding steady, which is normal during
Quiet Accumulation. So both of these indicators are telling you that although
price is sideways, Quiet Accumulation has been present in this sideways action.
In addition how price is behaving, also confirms accumulation.
Summary
Every indicator has
limitations, and all fail to properly indicate under certain trading and price
conditions. Sideways patterns are particularly sensitive to Price and Time
Indicators, which can inaccurately depict the breakout direction.
Knowing what
conditions are optimal for your preferred indicators is important. Recognizing
a failed or false signal is even more important, otherwise you will be buying
or selling short at the wrong time. Understanding contrarian indicator patterns
takes your trading to a professional level.
Volume and Time or
Hybrid Indicators, tend to do a much better job of indicating breakout
direction.
Since the markets are
moving sideways more often than ever before, Retail Traders must learn how to
read the sideways candlestick patterns properly AND learn which indicators will
perform best for that sideways pattern magnitude and duration.
Some traders prefer
learning candlesticks, while some prefer to learn one or two indicators. The
highly successful traders learn to use both. Technical Analysis is a reflection
of fundamental and financial values, based on which Market Participant Group is
dominating and controlling price at that time.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.
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