Chart Examples from the Week of June 11th through the 15th
This is the chart on GS from Friday, June 15th. The three highlighted boxes show the double tails (bulls attempting to move the price higher before the bears quickly force the price down). Many of the books tell you that the tails need to be two times the body; however it seems in many of the real time examples the tails just need to be significant as shown in the following chart. The risk reward ratios in this example ranged from 3 to 1 to 10 to 1. Again, this is a very volatile stock. On an absolute basis, you were risking 40 cents in some cases to make 1.20.
This is the chart from XL on Friday, June 15th. I didn’t actually trade this one and I know that many of you did. I thought it was a good example of a morning star reversal (first box)
and a triple tail (second box). Many of you were short this at the top and were shaken out by the third candle tail. I actually think that candle was made by our stop orders. One way in which the candle trading differs from scalping is that we usually abandoned trading a stock after we took a loss. Because many of the candle moves are confirmed with sometimes two and three reversal patterns,
it’s important to keep watching the trade after you get stopped out. Many times if the overall market trend (S&P futures) are still trending with you, it’s possible for the stock to be a “laggard” to the overall market and breakdown later on.
This is the chart from NMX on Friday, June 15th. This was an example of a stock that I took a
loss first and hit my stop loss. If you notice in the first box, you see a sharp red candle followed by a doji pattern. The doji formed at about 142.25. The price began to spike up after the doji and I bought 142.33 placing my stop order at
142.13. Considering the top of the move previous was 143.25, I felt like I was risking 20 cents to make 1 point. The futures took a little hit and I was stopped out at 142.10 (23 cent loss).
In the second box was the second morning star that I identified three periods later. The doji closed at around 141.50. In the next period the price started to spike and I bought 141.63 and placed my stop loss at 141.43. This time the trade worked although since the price had trouble getting through the figure I limited out and took 142.00. The price spiked to 142.50 although the actual exit was around 142.25.
These are charts from Monday, June 13th. The top chart is RIG
and the bottom chart is the S&P 500 futures. The red crosshair on both charts is the 1:30 to 1:35 candle so you can see how the stock price reacted to a spike in the futures. The chart pattern on the RIG chart is sometimes called a frying pan. You will notice about 10 doji patterns in a row denoting extreme indecision. If you look at the futures chart, the next period following the red crosshairs was a very significant spike up, yet RIG failed to move. RIG was lagging the overall market. I had bought
99.90 with my stop loss at 99.75. I was in this trade for about an hour before it finally moved. Unlike scalping where we cover most of the trades that don’t move right away, we need to be more patient with the candles and wait for the stop loss as many of the trades lag the S&P 500 futures.
This is the chart from MCO on Monday, June 11th. The red vertical crosshair is showing the
same time as the previous example (1:30). The chart pattern is also a frying pan example. Even though MCO and RIG are in completely different industry groups, both stocks reacted the same to the S&P futures. MCO’s move was much more dramatic than RIG’s was, but both prices lagged the futures and showed multiple doji before they moved. Any time you see periods of indecision (multiple doji) expect a sharp move in the direction of the futures.
This is the chart from ACF on Thursday, June 14th. I liked this one because of three different and distinct reversal patterns on the same day. Starting from the left, the first box is an example of multiple engulfing patterns. The second and third green bars in the box engulf the two red bars before spiking higher. The second box is an example of a morning star continuation, with the long red bar, doji, long green bar. This one didn’t move right away, but if you had put your stop at the beneath the bottom of the doji pattern you wouldn’t have been stopped out. The third box is a pretty clear example of a double tail short. Your stop would have been at about 29.45. It would have taken some patience but this pattern didn’t show a green bar until about 28.70 with the true end of the move at the hammer reversal pattern at around 28.00. -MM
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