BEARISH FLAG PATTERN � Part 2: Important Characteristics

Go back to Part 1: Bearish Flag Formation.Important Characteristics of Bearish Flag PatternShape of Bearish Flag:1) Flagpole:For Bearish Flag pattern to be more reliable, there should be a very sharp / steep price decrease (almost vertical, and may contain gaps) on heavy volume that makes the �Flagpole� part of the pattern.Without a steep price decrease, the pattern might be less reliable and riskier.2) Flag:A Flag part of the pattern is formed when the price movement is contained within two parallel lines, representing a brief consolidation after the sharp decline.This consolidation forms a small rectangle that frequently slopes against the preceding trend (i.e. the trend of the Flagpole part).Therefore, in case of Bearish Flag, since the preceding trend is down, the rectangle flag often...

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BEARISH FLAG PATTERN � Part 1: Formation

Bearish Flag is a short term bearish continuation pattern that occurs during a downtrend, indicating a pause / small consolidation before continuing its downward moves.This pattern normally appears following a sharp price decrease on high volume.The Formation of Bearish FlagBearish Flag Pattern is usually preceded by a very steep (almost vertical) decrease in price on heavy volume. This steep price decrease makes the �Flagpole� of the pattern.The sharp decline in price may occur due to negative market sentiments toward unfavorable events / developments, such as negative earning surprises, downward guidance, fraud / court cases, etc.After the...

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Chart Patterns

Since we�ve discussed some of the common chart patterns, as usual, to be more organized, I�d like to put the links of all posts on this topic below, and place the link to this post on the top left corner for easier future reference.Click the following links to read each of the posts:1) Technical Analysis � Definition & Assumptions2) Chart Patterns � IntroductionCONTINUATION PATTERNS:3) ASCENDING TRIANGLE PATTERN* Part 1: Ascending Triangle Formation* Part 2: Ascending Triangle Important Characteristics 4) DESCENDING TRIANGLE PATTERN* Part 1: Descending Triangle Formation* Part 2: Descending Triangle Important Characteristics5) SYMMETRICAL TRIANGLE* Part 1: Symmetrical Triangle Formation* Part 2: Symmetrical Triangle Important Characteristics6) BULLISH FLAG PATTERN* Part 1: Bullish Flag...

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BULLISH FLAG PATTERN � Part 2: Important Characteristics

Go back to Part 1: Bullish Flag Formation.Important Characteristics of Bullish Flag PatternShape of Bullish Flag:1) Flagpole:For Bullish Flag pattern to be more reliable, there should be a very sharp / steep price increase (almost vertical, and may contain gaps) on heavy volume that makes the �Flagpole� part of the pattern.Without a steep price increase, the pattern might be less reliable and riskier.2) Flag:A Flag part of the pattern is formed when the price movement is contained within two parallel lines, representing a brief consolidation after the sharp increase.This consolidation forms a small rectangle that frequently slopes against the preceding trend (i.e. the trend of the Flagpole part).Therefore, in case of Bullish Flag, since the preceding trend is up, the rectangle flag often slightly...

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Reading Links

Daily Options Report: Implied V. HistoricalOne Option: How Do I Know If I Get A Good Deal On An Options Purchase?Options Guy: Long Calendar Spreads - Part 1.Options Trading The Smart Way: Calendar Spreads Ideas on DISHAfraid To Trade: Most Perfect Downtrend ExampleStock Bandit: Consider Risk First, Then RewardA Trade A Day: Merge Time Frames to Make More Mo...

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BULLISH FLAG PATTERN � Part 1: Formation

Bullish Flag is a short term bullish continuation pattern that occurs during an uptrend, indicating a pause / small consolidation before continuing the uptrend.This pattern normally appears following a sharp price increase on high volume.The Formation of Bullish FlagBullish Flag Pattern is usually preceded by a very steep (almost vertical) increase in price on heavy volume. This steep price increase makes the �Flagpole� of the pattern.The sharp rise in price may occur due to positive market sentiments toward favorable events / developments, such as positive earnings surprises, new product launch, etc.After the sharp increase, the price movement...

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SYMMETRICAL TRIANGLE PATTERN � Part 2: Important Characteristics

Go back to Part 1: Symmetrical Triangle Formation.Important Characteristics of Symmetrical Triangle PatternExisting Trend:There should be an established existing trend (either uptrend or downtrend) in order for the pattern to qualify as a continuation pattern.Shape of Symmetrical Triangle:* There should be at least 4 reversal points to draw two converging lines, i.e. two successively lower peak (high) points forming a downward sloping upper line and two successively higher trough (low) points forming an upward sloping lower line, which converge if both line were extended right.* There should be some distance between the two peaks as well as the two troughsIn other words, prices should increase and hit the descending upper line then decline for at least twice (forming at least two peaks). Prices...

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Reading Links

Daily Options Report: Volatility Chart Du Jour, BIDU and More BIDUTrader Feed: Seven (Questionable) Things I Hear From TradersKevin�s Market Blog: Reverse Divergence...What Is It?Afraid To Trade: Idealized Trades During a Trend DayTrader Psychology: Good Boy!VIX and More: A Dozen Things My Trading Accounts Are Thankful For This YearD.R. Barton, Jr.: Learning from My Own MistakeOptions Trading Daybook: Review of My Options Trading Mista...

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SYMMETRICAL TRIANGLE PATTERN � Part 1: Formation

Symmetrical Triangle is a neutral pattern that normally forms during a trend (either uptrend or downtrend) as a continuation / consolidation pattern. The breakout usually occurs in the same direction as the existing trend.The Formation of Symmetrical Triangle PatternSymmetrical Triangle Pattern contains at least two lower highs (peaks) and two higher lows (troughs). When the peak as well as trough points are connected by separate lines and then extended to the right, they would respectively form a descending upper line and an ascending lower line, creating a pattern that looks like a symmetrical triangle.In this case, the descending upper line...

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DESCENDING TRIANGLE PATTERN � Part 2: Important Characteristics

Go back to Part 1: Descending Triangle Formation.Important Characteristics of Descending TriangleExisting Trend:There should be an established existing trend (normally downtrend) in order for the pattern to qualify as a continuation patternShape of Descending Triangle:* There should be at least two equal troughs (lows) forming a horizontal lower line, and two successively lower peaks (highs) forming a descending upper line that converges on the lower line as it slopes downward (If both lines were extended right).* There should be some distance between the two peaks as well as the two troughs.In other words, prices should increase and hit the downward sloping upper line then decline for at least twice (forming at least two peaks). Prices should drop and hit the lower line then bounce up for...

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DESCENDING TRIANGLE PATTERN � Part 1: Formation

Descending Triangle is a bearish pattern that normally forms in the midst of a downtrend as a continuation / consolidation pattern.However, sometimes this pattern may also be found at the top of an uptrend, signaling a potential reversal of trend.The Formation of Descending TriangleDescending Triangle has a decreasing (downward sloping) upper line and a flat / horizontal lower line, forming a pattern that looks like a flat-bottom triangle.In this case, the decreasing upper line acts as resistance, whereas the horizontal lower line as support.This pattern occurs because the lows (troughs) are maintaining at about the same price levels, whereas...

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ASCENDING TRIANGLE PATTERN � Part 2: Important Characteristics

Go back to Part 1: Ascending Triangle FormationImportant Characteristics of Ascending Triangle PatternExisting Trend:There should be an established existing trend (normally uptrend) in order for the pattern to qualify as a continuation pattern.Shape of Ascending Triangle:* There should be at least two equal peaks (highs) forming a horizontal upper line, and two successively higher troughs (lows) forming an ascending lower line that converges on the upper line as it slopes upward.* There should be some distance between the two peaks as well as the two troughs.In other words, prices should increase and hit the upper line then decline for at least twice (forming at least two peaks). Prices should drop and hit the upward sloping lower line then bounce up for at least twice (forming at least two...

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Reading Links

Daily Options Report: More PinsDaily Options Report: Expiration StationDaily Options Report: Whatever Happened To....VIX Options?Daily Options Report: New Volatility IndexTrader Feed: Gauging the Extent of Market Moves and an Indicator UpdateTrader Feed: A Look at Some Stock Market Indicators and What They're SayingTrader Feed: Six Positive Trading BehaviorsStock Bandit: Overcoming Trading DisastersStock Bandit: Safety Nets for TradingAfraid To Trade: Five Quick Facts about Moving AveragesAfraid To Trade: Perfect Flag ExampleA Trade A Day: Trading Bull and Bear Tr...

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ASCENDING TRIANGLE PATTERN � Part 1: Formation

Ascending Triangle is a bullish pattern that normally forms in the midst of an uptrend as a continuation / consolidation pattern.However, sometimes this pattern may also be found at the bottom of a downtrend, signaling a potential reversal of trend.The Formation of Ascending TriangleAscending Triangle has a flat / horizontal upper line and an ascending (upward sloping) lower line, forming a pattern that looks like a flat-top triangle.In this case, the horizontal upper line acts as resistance, whereas the rising lower line as support.This pattern occurs because the highs (peaks) are maintaining at about the same price levels, whereas the lows...

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Chart Patterns � Introduction

What Is Chart Patterns?Chart Patterns provide a complete, concise pictorial documentation of all buying and selling (supply and demand) forces.Chart Patterns allow investors / traders to analyze the battle between bulls (buyers) & bears (sellers) and help determine who win the battle, so that they can position themselves accordingly.Why Chart Patterns Can Help In Trading / Investing?Because price patterns form as a result of market psychology.Although a chart only presents stock prices & volume, it actually reflects human behavior, psychology and reactions towards the forces of supply vs. demand.For example:A consolidation pattern (sideways movement) does not develop because the pattern is controlling price movement.A consolidation pattern develops because there is no enough belief...

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Technical Analysis � Definition & Assumptions

Many investors / traders use Technical Analysis to help them in their entry & exit strategies. Ideally, Technical Analysis should be used hand in hand with Fundamental Analysis, as the two methods have their own pros & cons.However, some people argue that for short term trading (e.g. day trading, 1 � 5 days swing trading), Fundamental Analysis may not be as critical as that for longer term trading / investing.The following would discuss further what Technical Analysis is and its basic assumptions.What Is Technical Analysis?Technical Analysis is a method used to attempt to predict future stock prices based on historical prices and stock chart patterns / trends.Technical analysis uses no information about the actual business or financial performance of the underlying company.Technical...

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Example On How Implied Volatility (IV) Affects Option�s Price Significantly

As discussed earlier, in options trading, Implied Volatility (IV) has a considerable impact on an option�s price. An option�s price can go up or down due to changes in IV, although there is no change in the stock price. Some times, for instance, we also find a stock price has increased, yet the Call option of the stock did not increased, but it dropped instead.Now, let�s see a simple example on how IV affects an option�s price considerably.In the prior post, it�s shown that IV will normally begin to rise starting from a few weeks before the announcement day. And once the announcement is out, the IV will drop significantly.The fact that the IV will drop considerably right after the announcement is extremely important to note, particularly when you�re trading options by buying straight call...

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Reading Links

Trader Feed: Pivot Level Support and Resistance: How Often Do We Hit Those Price Targets?Trader Feed: Opening Price Gaps and Reversions to Average Trading Prices: More Intraday Stock Market PatternsVan K. Tharp: People Think It�s All About Prediction But It Is NOT!Van K. Tharp: Self-Sabotage RevealedA Trade A Day: How I Use Trading VolumeKevin's Market Blog: The Head And Shoulders Reversal PatternHave a great weekend ahead!...

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The Behavior of Implied Volatility (IV) & Historical Volatility (HV) Before & After Earnings Announcement

As mentioned before, Implied Volatility (IV) does factor in future important events / news which are expected to move the option�s price considerably within the next 30 trading days (e.g. earnings announcement, FDA approvals, etc.).For some regular events, such as earnings announcement, which typically take place on a quarterly basis, we could see some common behavior before & after the announcement.Generally, IV would normally start to increase since a few weeks before the announcement day.Once the announcement is out, the IV will usually drop significantly.On the other hand, the Historical Volatility (HV) may rise drastically should there...

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INVERTED HAMMER vs. SHOOTING STAR

Both Inverted Hammer and Shooting Star have the same shape, i.e. candlesticks with long upper shadows and small real bodies.The upper shadow should be at least 2 times longer than the body.There should be no lower shadow, or a very small lower shadow.The color of the body is not important, although a white body has slightly more bullish implications and a red / black body has slightly more bearish implications.Inverted Hammer and Shooting Star are reversal patterns which comprised of one candle only.Whether a pattern is bearish or bullish reversal, it depends on whether it is formed at the end of a downtrend (Inverted Hammer) or an uptrend (Shooting...

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Reading Links

Adam from Daily Options Report: Gamma ThoughtsAdam from Daily Options Report: More On GammaAfraid To Trade: Six Tips to Assess the Significance of Price PatternsAfraid To Trade: Amazon Teaches Us the Three Types of GapsKirk Report: Seasonal TrendA Trade A Day: How To Trade HammersStock Bandit: When Good Trades Go BadSimply Options Trading: Is the Trend Changing?Enjoy your weekends! :)Related Posts:* Option Greeks: GAMMA* Major Candlestick Patterns: HAMMER vs. HANGING ...

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HAMMER vs. HANGING MAN

Both Hammer and Hanging Man have the same shape, i.e. candlesticks with long lower shadows and small real bodies.The lower shadow should be at least 2 times longer than the body.There should be no upper shadow, or a very small upper shadow.The color of the body is not important, although a white body has slightly more bullish implications and a red / black body has slightly more bearish implications.Hammer and Hanging Man are reversal patterns which comprised of one candle only.Whether a pattern is bearish or bullish reversal, it depends on whether it is formed at the end of a downtrend (Hammer) or an uptrend (Hanging Man).Note:The grey candle...

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PIERCING LINE vs. DARK CLOUD COVER

Both Piercing Line & Dark Cloud Cover are 2-day reversal patterns.Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Piercing Line) or an uptrend (Dark Cloud Cover).PIERCING LINE (BULLISH)Piercing Line is a bottom reversal pattern / bullish reversal pattern.It could be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.This is a 2-candle pattern which can signal a possible turning point:The 1st day is long black/red candle.The 2nd day is a long white body candle that opens sharply lower, below the trading range of the previous day, but the...

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Book Review: When The Market Moves, Will You Be Ready?

I just finished reading a book: When the Market Moves, Will You Be Ready?, authored by Peter Navarro.Peter Navarro is the author of "If It's Raining in Brazil, Buy Starbucks", one of the famous books on Sector Rotation.I found this book to be very well written. It is clear, concise and easy to understand, even for beginners.Basically, the book introduces a top-down, step-by-step approach of investing, from the basic of fundamental analysis, technical analysis to risk management, money management, trade management, and execution.Here are the main points what the book is all about:There are 4 stages of Macrowave investing:Stage 1: To analyze the...

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HARAMI CROSS BULLISH vs. BEARISH

Harami Cross Bullish & Harami Cross Bearish resemble Harami Bullish & Harami Bearish.Harami Cross can be seen as the variation of Harami pattern.The difference between Harami & Harami Cross is that for Harami Cross, the 2nd candle is a Doji.Basically, Harami Cross Bullish & Harami Cross Bearish consist of 2 candles:The first day is characterized by a long body candle, followed by a Doji candlestick that is completely contained within the range of the previous day's body.With the appearance of a Doji, these patterns imply market indecision, signaling a possible change of trend.Harami Cross pattern is usually seen as having higher...

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