Bar charts
Speculation is anticipation. Market action discounts coming events before they happen. The function of price is to integrate supply-demand relationships. Since the beginning of time, man has been largely controlled by fear and greed. When a student of market action allows these emotions to influence his or her market response, many opportunities in the market are lost. These two emotions must be resisted. Confidence and courage are required to overcome fear and greed. Courage is inborn. Confidence if gained by study, study, and mure study.
Figure «A» represents one day's price action. The horizontal bar to the left represents the opening and the bar to the right is the close. The dashed line is the 50% point on the day's price range. This one day's action tells you:
- The opening was above the halfway point and above the close.
- The close was in the lower part of the price range.
From these two factors you might conclude that the market should sell lower the next day. as the available evidence indicates a heavy market.
Figure «B» shows the same day; the previous day's action is also shown. We now know that the entire day's price action is above the previous day's action and. also, it closed above the previous day's range. These factors would be considered bullish and might warrant a purchase instead of a sell on a lower opening the next day.
In another example, suppose the action of the two days is as shown in Figure «C». This indicates momentum building up for a down move, and it may be a candidate for a short sell, depending on other conditions.
This typo of discussion could continue under various assumed conditions and with many days added. The main idea here is to encourage thinking about supply/demand and dominant force or trend.
HOW TO USE SHORT-TERM PATTERNS FOR PROFIT. Part 1
The primary key to successful use of single-day patterns is that they are only used when other market factors support the one bar indication of a movement. This simple idea will not work in isolation. That is why the big picture was presented first. To use these short-term patterns successfully, you must be cognizant of the overall market picture. Two basic ideas are suggested:
1. Trade only in the direction of the trend when the market is in the run up or run down stage.
2. When in congestion, buy when the market is in the support zone and sell when the market is in the resistance zone. Remember that these short-term patterns are generally valid for no more than 3 to 5 bars. When trading with short-term patterns, it is wise to have a target and exit order in the market, unless, you are using this as an entry technique for a bigger movement. Otherwise, another reversal pattern may set up and quickly erase any profit that may have been taken.
Closing Price Graph
A closing price graph is very necessary in proper market analysis. The closing price is the most important one of the day. This represents the final sentiment after the total day's activities. At a later time, a close becomes a support or resis- FIGURE Closing price charts, tance point. The more closing prices there are in a zone on the chart, the more important this level becomes as an area of support or resistance. There are two types as shown in Figure In Figure <A>, a vertical line is continuous until a price closes in the opposite direction. Figure <B> plots each day's closing price on alternate vertical lines.
Pivot Points and Swings
A top pivot point is the highest price in a movement prior to penetration of the low of the top bar. A bottom pivot point is the lowest price in a movement prior to penetration of the high of the low bar. A top pivot point becomes a resistance point. A bottom pivot point becomes a support point. The movement from one pivot point to the next is called a swing.
Trend Direction
Trend is up as long as new price highs and higher price lows are being made. It changes from up to down when the last low prior to the new high is broken .
