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Strategies & Market Trends : Technical Analysis- Indicators & Systems

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To: John K who wrote (459)	3/16/1997 4:15:00 PM
From: SteelBlueIce	of 3325

Hi John, Very good questions. When a stock is 'respecting' a trendline, you will notice that when minor corrections take place sending prices back towards the trend line, volume generally dries up. When prices 'bounce' and resume their uptrend, volume generally picks up again. Volume is lower because--- the traders wanting to hop on notice the trendline and wait for it, the long term investors aren't doing anything and the shorts aren't ready to cover. When the common reference point is hit, the demand for the stock increases pushing the stock up. When a trend line is broken with heavy volume it usually means that the trendline may be losing it's hold on conatining the action. A succesful test of a trendline usually starts the day lower, hits the trendline and sometimes even goes below it and then closes the day at or near it's highs. That day's bar is usually longer than the average bar and volume is heavier. A good stop would then be a little lower than that days low. The reason- anything lower than that and the trend can break. The stop will generally be much less than the standard 10%. GE is a very good example of a failure in the making. It broke the uptrend line recently and then rallied back but peaked below it's previous high. It may just need to rise at a lower angle so I am keeping my eye on some support it has at 95. It may or may not bounce there but it's a good place to look at it again. Actually, my point about GE was that it behaved rather differently this time as it approached it's trendline compared to other times. Some times you catch them and sometimes you don't. If you stick to your guns, mistakes won't be huge. Looking at an oscillator may help if you can spot divergences to price. For instance you may notice that for the entire uptrend rsi has been above 55. If at the bottom of a channel rsi is at 48, the trend may be weakening. It really pays to look for clues like that, all stocks have their quirks. I do not use Gann at all but I do use Fib retracements which are quite easy. You are just measuring the amount that a correction is giving back. It can be done in your head or with a calculator. Regards, Jerry

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