A proactive trading strategy in which a trader takes profits by closing out of a short position or buying into a long position. This strategy is used when the price of the asset being traded is still falling but is expected to reverse and move against the trader. This is the opposite of "selling into strength". For example, let's say that a trader believes that ABC stock will fall below $5 to $4.50 before rising above $5. Therefore, the trader would buy into the weakening stock price at a price below $5 and wait until the falling trend reverses and the price rises before selling and taking a profit. A short seller may also buy weakness by closing out his or her position. This would be done by buying into a falling stock with the anticipation that the stock price will soon reverse and start to rise. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is /confirm/ied, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself greater room for error. As the saying goes, "missed money is better than lost money".
A type of candlestick pattern that is used by traders to signal a reversal in the current trend. This pattern is formed by three distinct candlesticks that show the following characteristics:1. The first bar is a large red candlestick located within a defined downtrend.2. The second bar is a doji candle (open equal to the close) that gaps below the close of the first bar.3. The last bar is a large white candle that opens above the second bar and is used to show the change in trader sentiment.As you can see from the chart below, the pattern is a charting signal that the downtrend is about to reverse. The bullish abandoned baby is a rare, but reliable, candlestick pattern that is useful in determining changes to a dominant downtrend. The accuracy of the reversal signal is greatly improved when it is used in conjunction with other technical indicators such as the MACD and RSI to confirm the reversal.
A pattern that occurs during high volatility, when a security shows great movement with little direction. The formation is identified by a series of higher pivot highs and lower pivot lows. A trendline drawn over the pivot highs and under the pivot lows frames out the widening pattern. It looks like a megaphone and, in fact, it is also known by that name. As the two trendlines diverge from the apex, the pattern resembles a reverse version of a symmetrical triangle. This pattern is considered quite rare, but is useful in helping technicians to identify swing trades, rather than a trend trades.
A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support. This chart shows a stock that has historically encountered a lot of resistance near $37, but notice how it heads sharply higher following the breakout. In practice, a breakout is most commonly used to refer to a situation where the price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback Most traders use chart patterns and other technical tools such as trendlines to identify possible candidates that are likely to break through a support/resistance level. A breakout is the bullish counterpart to a breakdown.
An oscillator created by subtracting a 10-day EMA from a 3-day EMA of the accumulation/distribution line. This indicator is named after its creator, Marc Chaikin.
1. The occurrence of two or more indicators corresponding with one another and thereby corroborating the predicted trend. 2. The written acknowledgment provided by a broker indicating that a trade has been completed. This includes details such as the date, price, commission, fees and settlement terms of the trade. 1. A confirmation strengthens the implication of technical indicators. When a confirmation occurs, traders become more confident that the predicted trend will occur. If there is no /confirm/iation, there is divergence. 2. Confirmation slips are usually mailed out within one week of the trade date.
An indicator or chart pattern that provides evidence that the initial trading alert in question is indicative of an actual trading opportunity. Traders look to other technical indicators to confirm their expected prediction so that they can have as many technical factors working in their favor as possible. This increases the probability of making a highly successful trade. For example, a trader who witnesses a short-term moving average cross above a longer-term moving average would predict that the upward momentum over the coming weeks is likely to increase. Before this trader decides to place an order for the security he or she may want to look to other indicators as confirmation of the initial prediction. This chart confirmation is used to increase the conviction of the trader, and it generally becomes more influential when three or more indicators are predicting the same type of movement.
A price gap found on a price chart for an asset. These gaps are brought about by normal market forces and, as the name implies, are very common. They are represented graphically by a non-linear jump or drop from one point on the chart to another point. In general, there is no major event that precedes this type of gap. Common gaps generally get filled relatively quickly (usually within a couple of days) when compared to other types of gaps. Common gaps are also known as "area gaps" or "trading gaps".