A trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas. Darvas' trading technique involved buying into stocks that were trading at new 52-week highs with correspondingly high volumes.A Darvas box is created when the price of a stock rises above the previous 52-week high, but then falls back to a price not far from that high. If the price falls too much, it can be a signal of a false breakout, otherwise the lower price is used as the bottom of the box and the high as the top. In 1956, Darvas was able to turn an investment of $10,000 into $2 million over an 18-month period. While traveling for his dancing, Darvas would obtain copies of The Wall Street Journal and Barron's, but he would only look at the stock prices to make his decisions. It has been said that Darvas was less happy about the profits that he made than he was about the ease and peace of mind that he got from implementing his system.Skeptics of Darvas' technique attribute his success to the fact that he was trading in a very bullish market. They also say that returns comparable to the ones he saw can't be attained if this technique is used in a bear market.
In candlestick charting, a pattern where a black candlestick follows a long white candlestick. It can be an indication of a future bearish trend. Essentially, the large black candle is forming a "dark cloud" over the preceding bullish trend. The dark cloud must have a closing price that is: 1) within the price range of the previous day, but 2) below the mid-point between open and closing prices of the previous day.
The theory used when many investors have taken a short position in a stock. It is based on the idea that the price of the stock must eventually go up because those short positions must eventually be covered by actual purchases of the stock. As investors rush to cover short positions to stop losses, the price of the stock will rise sharply. Technical analysts project price trends in the market based on trading volume and demand. Some consider it a bullish move if the short positions in a stock are twice as high as the number of shares traded daily. If you have a hunch that investors in short positions will soon need to cover those positions to minimize losses, then you should buy the stock to make a profit during the run up.
A bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support. Traders watch for a move below support, as it suggests that downward momentum is building. once the breakdown occurs, traders enter into short positions and aggressively push the price of the asset lower. The chart below is an example of a descending triangle: This is a very popular tool among traders because it clearly shows that the demand for an asset is weakening, and when the price breaks below the lower support, it is a clear indication that downside momentum is likely to continue or become stronger. Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time. The most common price targets are generally set to equal the entry price minus the vertical height between the two trendlines. A descending triangle is the bearish counterpart of an ascending triangle.
A pattern in charts where each peak in price is lower then the previous peak in price. The pattern signals a bearish trend in the security.The above is an example of descending tops. If the current peak in the price is higher then the previous peak in a descending top environment, the trend is broken and this is a bullish signal.
A descending channel or downtrend is the price action contained between two downward sloping parallel lines. Lower pivot highs and lower pivot lows are a bearish signal. In a downtrend, a trade might be entered at the trendline and exited at the channel line. A lower low below a descending channel can signal continuation. A higher high above the low of an ascending channel can signal trend change. Price channels show trend direction. The slope of the channel shows momentum. Here is a simple technical edge: start the down trendline using two lower pivot highs and stay short below the trendline.
Chart patterns in which the quote for the underlying investment moves in a similar pattern to the letter "W" (double bottom) or "M" (double top). Double top and bottom analysis is used in technical analysis to explain movements in a security or other investment, and can be used as part of a trading strategy to exploit recurring patterns. Double top and bottom patterns typically evolve over a longer period of time than a day, and do not always present an ideal visual of a pattern because the shifts in prices don't necessarily resemble a clear "M" or "W". When reviewing the chart pattern, it is important for investors to note that the peaks and troughs do not have to reach the same points in order for the "M" or "W" pattern to appear.
1. A contrarian investment strategy used to trade against the prevailing trend. "Fading the market" is typically very high risk, requiring the trader to have a high risk tolerance. A fade trader would sell when a price is rising and buy when it's falling. Also known as "fading". 2. In a dealer market, it is the failure of a dealer to honor a quote when a customer or another dealer wants to trade. 1. An example of fading would include buying on a dip in price and selling when the price rallies. Often it's a rather volatile strategy, but one which offers the potential for significant short-term gains. It requires little in the way of complicated analysis but the risk that trend continues is always present.2. For example, if a better bid is posted on another exchange for a security and a market maker is unwilling or unable to match it for a client order, the market maker may offer to trade with the other market maker (with the better price). The market maker offering the better price must accept the offer and trade at the price offered or adjust the bid price.
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