TechniTrader Beginner "Interpreting Sideways Candlestick Patterns"

Lists of Tips to Identify Sideways Patterns and their Differences


Most traders do well during Uptrending markets when there is either Moderately Trending action, momentum runs, or velocity runs. However the preponderance of Traders struggle during Sideways Trends. This is true whether the Trader is trading Stocks, Exchange Traded Funds ETFS, E-minis, or Options. There are hundreds of strategies that have been developed for sideways action, but still Technical and Retail Traders have meager gains or chronic losses during Sideways Market Conditions.

This is an important trend to master as the markets now trend sideways more than 60% of the time, often in patterns that are not recognized as sideways. 

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Here is a list of tips to help with identifying and interpreting Sideways Candlestick Patterns:

 1. Bottoming Formations are predominantly sideways.

 2. Topping Formations are also mostly sideways.

 3. Platform Market Conditions are lengthy sideways action in a tight formation that whipsaws Swing and Day Traders out of potentially good entries.

 4. Consolidations are common when Professional Traders are actively trading.

 5. Compression Patterns are frequently over looked by Traders.

 6. Trading Ranges are also sideways, but are often mistaken for momentum runs.
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Here is a list of tips for interpreting Sideways Candlestick Patterns differences:

 1. Amplitude of Oscillation. All sideways action is a form of Oscillation

 2. Magnitude of individual candlestick size.

 3. Dimension of the typical time duration of the sideways pattern based on magnitude and amplitude.

 4. Typical location of that particular sideways pattern whether it forms in the short term, intermediate term, or long term trend.

 5. Trendline patterns that the sideways patterns create.

 6. They are the most reliable candlestick patterns for Day, Swing, or Position Trading entries.

 7. The type of Support or Resistance that sideways patterns create which defines the risk of the trade.

 8. The amount of acceleration, velocity, or the price action as that particular sideways pattern completes.

 9. The direction the stock will take as it breaks out of that particular sideways candlestick pattern.

 10. The indicators to use for that particular sideways action for optimal entries and exits and maximum profit gain potential. Stock Leading Indicators are excellent for confirmation of best entries.

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Below is a chart example in using a weekly view showing the type of analysis that all Traders need to be capable of doing within seconds of seeing a chart.

chart example of using a weekly view with a short term bottom formation - technitrader

This chart has a short term Bottom Formation that is sideways called a “Basing Bottom” which is one of the newer bottoms that form on the Short Term Trend. The compression out of this bottom creates moderate momentum. Compressions occur after each run of an average of 3 days. Candlestick pattern entries are based on resting day action with a “Shift of Sentiment™” on the Accumulation/Distribution indicator. Volume defines High Frequency Trading HFT activity, however Professional Traders are in control of price in this chart example.

Basing Bottoms often have compression patterns that follow the completion of the base bottom. This kind of bottom has short-term momentum or velocity runs, that pause and rest at or below weak resistance out of that bottom.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

©2016-2017 Decisions Unlimited, Inc. dba TechniTrader.  All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only. 

TechniTrader Beginners How to Use TC2000 Balance of Power Indicator Properly

List of Tips To Get Started Using Balance of Power Indicator

TC2000 Users have a huge advantage over Traders who do not use this charting program. Unfortunately most TC2000 Users are not taking full advantage of tools embedded in this charting software program. One of the many tools that are unique to TC2000 is the Balance of Power Indicator. This indicator continues to evolve and change as the Market Structure changes, making it one of the most powerful indicators ever written.

Regardless of whether you use MACD, ADX, Bollinger Bands, RSI, or other popular indicators, adding Balance of Power to what you use will change how you interpret charts, analyze stocks, and select stocks to trade. The Balance of Power Indicator was designed for the modern automated markets. Watch a webinar about how to use this powerful leading indicator.

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Balance of Power is a leading indicator IF you learn to read it properly. Here is a list of tips to help you get started:

1. Just assuming red means distribution and green means accumulation, is an oversimplification of this sensitive and extremely powerful indicator. It is one of the longest formulas every written with 3.5 pages of algorithms. The Stock Market has splintered into 72 venues with some lit and some dark, and 9 Market Participant Groups. Therefore red versus green analysis is just the beginning. Traders need to know which Market Participant Group forms that particular red or green pattern.

2. The length of the indicator bars MATTERS. How long the bars are tells you which Market Participant Group is buying or selling, and that reveals important information in relation to how Price and Volume are behaving. As an example blasting long red Balance of Power bars in a Bottoming Formation is not giant Buy Side Institutions using Dark Pools, instead it is Smaller Funds using Volume Weighted Average Priced VWAP triggers.

3. Where in the Trend it turns green or red MATTERS. Different Market Participant Groups buy and sell at different locations in the Trend, based on their access to pertinent information. Some Market Participant Groups have access BEFORE the rest of the groups hear about it. So those groups are buying or selling ahead of the others.

4. To properly interpret this indicator you must use not only the Balance of Power indicator, but also Volume Bars and Price Patterns in combination. Using all three together is called Relational Analysis and the stock chart creates a viable picture that makes sense.

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The chart example below shows the Relational Analysis which gives the Balance of Power indicator logical and sensible interpretation, that Traders can use to enter a stock before huge gaps and runs.

TC2000 chart example of rounding bottom formation - technitrader

This chart has a rounding Bottom Formation, which is common for Dark Pool Quiet Accumulation. Bottoms of this kind take several months to complete, and can have gaps or sudden runs that provide excellent profits for Swing and Day Traders.

The Relational Analysis of Balance of Power, Volume Bars, and Price Patterns tell us early on what is happening, way ahead of the gap due to High Frequency Trading HFT filling the queues pre-market on the day of the gap. The Dark Pools are quietly accumulating while Smaller Funds who use VWAP trigger orders are still dumping the stock, unaware that they are selling into a Dark Pool Buy Zone™ price range.

What tells us this is a Dark Pool Buy Zone, is that the extremely long red bars of VWAP Smaller Funds selling does not drive Price down. Instead the indicator bars turn gray and are very short suddenly and intermittently, as Dark Pools go head to head against the VWAP orders and buy incrementally over time.

Volume spikes high above the Exponential Moving Average EMA only when HFTs trigger again, attempting to sell the stock down but failing to move it beyond the lows of the Buy Zone. Then as Smaller Funds selling evaporates, the Shift of Sentiment™ forms as indicated by the red and green arrows. This is a trader’s signal that a Momentum Run is imminent. HFTs gap the stock up on high Volume and high green Balance of Power bars. Smaller Funds chase them, as their VWAP orders always trigger after an HFT huge Volume spike.

Summary

Learning how to use the Balance of Power indicator properly is not hard but it requires an understanding of the relationship between the Indicator Patterns, Price Patterns, Volume Bars, Trend, and Market Conditions.

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Followers of this blog my request a specific topic for an article by emailing info@technitrader.com

Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

©2016 Decisions Unlimited, Inc. dba TechniTrader.  All rights reserved. 
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.