TechniTrader teaches "Extraordinarily Long Indecision Day Candles"

List of Why these Candlestick Patterns Occur

The Indecision Day Candle is a day where neither the sellers nor the buyers took total control of price, and moved it strongly in one direction. Indecision days are mostly very small bodied candles, with small wicks and tails that are longer than the body. They often form in consolidations, or during periods of sideways action. 

However they also occur as a severe anomaly during extreme sell-offs that rebound in the same day, due to the new circuit breakers the Securities and Exchange Commission SEC has installed in the automated market place that slow down selling during a fast paced selling spree.

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The circuit breakers replaced the Uptick Rule a decade ago, but still are under adjustments and modifications because severe one day sell-offs are a rare event in the market.

The stock chart below is marked with a red arrow on to show an example of an Extraordinarily Long Indecision Day Candle.
chart with red arrow showing an extraordinarily large indecision day candle - technitrader

Extraordinarily Long Indecision Day Candles can be problematic for Technical Traders to know how price will behave next. These create extreme patterns in Price and Time Indicators such as MACD, Stochastic, and Bollinger Bands® as well as other highly popular indicators making the interpretation skewed in reaction to the severe price pattern.

Here is a list of guidelines for dealing with severe sell down Market Conditions action that create numerous Extraordinarily Long Indecision Day Candles, which distort price so much that Price and Time Indicators are not giving a proper signal:

1. The Extraordinarily Long Indecision Day Candle is caused by a Market Event or Global Event, and therefore does not represent the trend on that day.

2. If the stock has already been trending down, then the rebound within the indecision day can be huge on that day. However most of the time the following day will be a down day, continuing the original trend.

3. If the stock is in an uptrend, the Extraordinarily Long Indecision Day Candle will be followed most often by gap up that sells down creating a black candle. During the following days the stock will slowly sort out the selling and return to the uptrend.

4. If the stock was in a Topping Formation that had not completed prior to the severe indecision day candle, then the following day the stock may move down without a gap up at open. Then volatile action up and down with larger than normal candles, tends to follow the topping completion before a true Downtrend develops.

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Summary

Extraordinarily Long Indecision Day Candles temporarily alter the trend, and it can take weeks to pattern out the price action and return the trend to its true direction. During that period of time the stock may run up on what appears to be a reversal pattern, only to hit mild resistance and fall steeply. 

When trading after an Extraordinarily Long Indecision Day Candles caused by a major global event or shock to the stock market, it is important to not trust the Price and Time based indicators. Instead watch Volume, Volume Oscillators, Accumulation and Distribution Indicators, and Large Lot versus Small Lot Indicators to determine the short-term direction the stock will take before the anomaly is patterned out of price.

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Trade Wisely,

Martha Stokes CMT


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


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