TechniTrader teaches "Topping Stock Price Action" by Martha Stokes CMT

Candlestick Patterns that Reveal Potential Tops

   

One of the more challenging aspects of being a Technical or Retail Trader in today’s automated market is that the candlestick chart patterns of Technical Analysis are changing. In particular Topping Stock Price Action is often the most problematic as Traders are not aware of the changing dynamics of tops.

As new types of professional orders, new trading venues, and more Market Participant Groups all trading for different reasons with different share lots sizes and capital resources, how candlestick patterns form and in particular how Tops form are undergoing massive changes.

 

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It used to be that the Head and Shoulders H&S Topping Formation occurred quite often, which is usually best seen on a long-term chart such as weekly or monthly view. Now true textbook perfect H&S patterns are rare. Those that do form are not classic H&S Tops but deviations and distortions of that once easy to recognize pattern. M tops are also not as common and are often distorted, which alters how price behaves after the Top completes.
An example of the distortion found in the market today is that often times H&S Tops do not fall the length of the head, but find support slightly below the low of the right shoulder.

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On the short-term trend for Topping stock price action, there are new formations that are often missed by Traders who have yet to learn all the new ones including Flat Tops, Sheer Cliff Tops, and many more.

The candlestick chart example below shows an inverse Asymmetrical Triangle Top Formation on the short-term trend.

metastock chart showing topping candlestick price action - TechniTrader 
This is one of the most dangerous Tops for Traders who use Buy-on-the-Dip or Limit Order entries. Professionals abandoned Limit Orders quite a while ago. They are using alternative orders to control their entries, which avoid the huge risk of entering on a low and discovering the entry is not a Dip but a Downtrend.

The risk factor of the Asymmetrical Triangle is that most Traders are not thinking of this pattern as a Reversal Pattern. Many are not even aware that a triangle can expand rather than contract.

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The candlestick chart pattern can also compress within the Asymmetrical Triangle Top Formation. This makes it even tougher for Technical Traders who are unfamiliar with these kinds of sudden accelerated Top Formations, which can gap and run with high velocity.

TechniTrader Students are taught these new types of candlestick Topping Stock Price Action formations, and they also have the advantage of special Indicators that confirm the stock is under heavy Institutional large lot selling.

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Summary

The chart example shows Quiet Rotation™ from Buy Side Institutions underway intermittently for several months prior to the Downtrend. The current price action is controlled by the Professional Trader Market Participant Group which includes the Independent, Floor, Desk, and Proprietary Traders. 

The downside pressure is revealed by the TechniTrader Volume Accumulation TTVA and TechniTrader Quiet Accumulation TTQA indicators, long before this stock falls at an extreme Angle of Descent™ as seen just above and below the bottom red line.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a MetaStock chart, courtesy of Innovative Market Analysis, LLC dba MetaStock


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDS with every course.

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