Indeed, it is often possible to have oblique lines appear, on which the stock bumps (resistance) or rebounds (support), as shown by both graphs opposite. The predictive interest of trend lines lies in the ability to thus determine targets on the up and down sides and to optimise one’s timing.
It is even possible to identify parallel combinations of these lines, forming channels, heading up or down (cf. graphs). The price thus comes bumping under the upper part of the channel and landing on its lower part.
These trends are often extremely strong and express the memory of markets, as channels can be valid simultaneously on the short and long terms. The power of these trends explains that, whenever they come to an end (we say that the channel is “broken”, often down for an upward channel and up for a downward channel), a strong volatility occurs, which can lead the stock to enter a reverse trend. This situation can be preceded by the evolution of the stock in intermediary zones or channels of the channel, thus suggesting that the tendency is about to be invalidated (cf. graph).
Though it is quite difficult, when there are no obvious signs (horizontal resistance, intermediary channel, …), to forecast the moment the price will exit the channel, it is still possible to estimate the extent of the following move. The occurring principle is simple: just move the channel width where the price exited the channel in the exit direction.
Channels can also be found in a horizontal configuration; then they are called “range”. These figures indicate a little enthusiastic market concerning the variation direction of the stock or the index.
This latter is then evolving around a horizontal mid level. Whenever these ranges are broken (and it is then less obvious to determine the new direction compared to the case of a tendency channel), the target is defined as other channels, by moving the channel width at the exit point in the direction the stock took.
No comments:
Post a Comment