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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: Rick who wrote (8173)	3/26/1998 3:20:00 PM
From: Chip Anderson	Respond to of 12039

Hi Rick, It's going to take me a couple of posts to answer all of these questions! Let me start by clarifying what a "Key Reversal Day" is - that's what the second guy in that Red Herring article was concerned about. There are three kinds of Key Reversals that various people have identified. The pattern only considers the price action of the previous two days. These are listed in order of "reliability": 1.) The reversal day's high is higher than yesterday's high and its close is lower than yesterday's close. 2.) The reversal day's high is higher than yesterday's high, its low is lower than yesterday's low, and the close is lower than yesterday's close - but higher than yesterday's low. 3.) The reversal day's high is higher than yesterday's high, its low is lower than yesterday's low, and the close is lower than yesterday's close - and its lower than yesterday's low. Side note: This is very similar to what Candlestick chartists call a "Bearish Engulfing Pattern" and they also consider it a reversal sign. Yesterday's Dow chart shows that we fit into the #1 pattern, but not #2 or #3. FWIW, in "Technical Analysis of Stocks & Commodities" magazine (Vol 7, Issue 10) a trading system was developed based on these patterns. The results were very disappointing with many false signals generated and many true reversals missed. Hope this helps. When I get more time - I'll post more info about what some "ideal" reversals look like. In the mean time, you might want to check out some book recommendations in the Bookstore section of my site. Chip coolhistory.com