Reading Market Psychology Between the Lines

//Reading Market Psychology Between the Lines

Hawk’s Scan Sentry Report February 27

In this post I want to share with you how I read between the lines when I look at a price chart. There are many ways people have found to draw trendlines.  I will show you what I have found to be the most effective method. In order to draw an up-trendline, first identify the most recent valley on the price chart and then identify the next most recent valley of the same magnitude whose nadir is lower than the most recent nadir. If there is no lower valley over the lookback period, then the up-trendline is a horizontal line at the lowest low. The opposite is true for down-trendlines.

Trendlines represent significant points of support and resistance, not just for aesthetic reasons on a chart but because they truly show us the price points where significant buy/sell decisions are made. Often you will notice that price will oscillate back and forth across a trendline for several bars. That’s because this is often the “line in the sand” where the traders find their trading opportunities. You see, the slope of the trendline represents the ‘average speed’ at which a stock is moving, the higher the slope the higher the speed. When the price crosses the trendline it means that the price may no longer move at the same speed or even in the same direction. This offers opportunities for entering or exiting a trade and is often the battlefield where the tug-of-war between the bulls and the bears takes place.

There are several distinctly different types of trend-line signals. A cross above a down-trendline is a bullish breakout which signifies ‘hope’ for the future of the stock.            A subsequent cross back below that line is a failed test of  the breakout and represents insufficient energy from the bulls. This could be a bearish pullback opportunity. A cross below an up-trendline is considered a bearish breakout and represents pessimism toward the future price; however a cross back above that up-trendline is seen as a bullish pullback opportunity… These signals are very useful and become even more effective when divergence analysis is included to qualify the signals.

Here are a few stocks that I’m looking at this week which  show trendline signals. I’ll demonstrate one of each type. If you have any questions about any of the other tools shown on the charts below please follow this link .

_____Longs_____

Bullish Breakout – FTE

(Note the cross of the value of the previous peak in the Radar1 Fear/Greed Indicator preceded by a  Bullish pivot divergence . Also, note the recent bullish indications of The Triple Trender and Radar 3 Trend Strength Index).

Bullish Pullback –LHO

(In addition to the trendline pullback, we have a Trend Exhaustion1 signal and a Pullback 23 signal. Nice pullback into the long-term Trender as well ).

_____Shorts_____

Bearish Breakout – SWY

(This breakout signal was preceded by a nice bearish divergence in the Radar 1 Fear/Greed indicator and the Radar2 Price Leader. We also now have all three Trenders bearish and the first bar of a bearish Radar 3 Trend Strength indication).

Bearish Pullback – GPC

(This shows a failed test of the horizontal downtrend line at the same value as the uptrend line. All three Triple Trenders just went short, the Radar3 Trend Strength indicator just went short, and we have a bearish divergence in the Radar1 Fear/Greed indicator).

Here is an example of the scanner I use to find the trendline signals.

May the trend be with you,

Hawk

Jan Arps’ Traders’ Toolbox is not an investment advisory service nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Examples presented on this site are for educational purposes only.  It should not be assumed that the methods, techniques, or indicators presented in these examples will be profitable or that they will not result in losses. There is a high degree of risk in trading.  Readers using this information are solely responsible for their actions and trade at their own risk. Readers should always check with their licensed financial advisor .

2018-01-08T07:58:05+00:00February 27th, 2012|Hawk's Picks|