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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: sean sanders who wrote (19259)	7/2/1999 8:19:00 PM
From: Casaubon	Read Replies (1) \| Respond to of 99985

I have not yet concluded reading Morris. I have read Japanese Candlestick Charting Techniques, by Steve Nison. It is very good reading. In fact, I think a trader will enjoy the insights he brings to trend analysis and formations, and the importance of candles in that analysis. In my opinion, many people use individual candle shapes very loosely. Nison seems to have more stringent rules for validating a particular candlestick. For instance, he says the following with respect to hanging man lines: 1. The real body is at the upper end of the trading range. The color of the real body is not important. 2. A long lower shadow should be twice the height of the real body. 3. It should have no, or very short, upper shadow. Thus, many times traders may mistake a hanging man for, say, a harami line that has a similar appearance to the hammer. Rule #1 is very important, in my opinion. Incorrect assignment of a "hanging man" may lead to many false signals. One of the best discussions in the book revolves around springs and thrusts, which are very useful for calling bottoms and tops respectively. Nison tries to empasize the use of multiple indicators to back up the value of individual candle assignment. And in my opinion, the identification of the current formation is very important for the proper assignment of validity to an individual candle. Thus, if one observes a hanging man like candle more centered to the previous candle (rather than the extreme top), in the midst of a bullish formation, while stochastics are portending continuation of ascending prices, then the candle probably isn't a hanging man. On the other hand, if a bullish run is tapering off on lower volume, and new highs are not being confirmed by higher stochastices and RSI, and a hanging man occurs at the top of the previous candle, it should be a strong warning of a top. Of course, that does not in itself constitute a sell signal. It may however signal a good entry point for writing calls. It depends on your style. if I see a hanging man I used to give that pattern lots of weight because (as suggested) wait for confermation and I really wouldn't want to confirm with a large black candle Nison emphasizes confirmation. He uses candles and trend analysis to define entry and exit points. Thus he probably would not use a hanging man to initiate sells (unless there was a myriad of supporting TA and FA for such action). and what is a sideways trend a sideways trend is a channel where the highs and lows are contained to two price levels. Any "trend" is necessarily defined by a minimum of four data points, two high and two low. Also, it is customary, in an up trend or a down trend, to wait for a fifth data point to "confirm" the trend. (Technical Analysis of the Financial Markets, by John J. Murphy) In such a short time frame as 2 weeks there always seems to be an up in down; unless almost no movement. I have no experience analyzing that time frame. My guess would be that microtrends do exist, but I don't know if I want to try to chase them down, as it sounds stressful to daytrade. I would probably define myself as a position trader. Good luck! PS I am very inexperienced but learning quickly, so do not confuse what I have read and related to you as personal experience or knowledge.