Should read:
"...LESS significant than an inside day after a closer to average daily range day?"
Classic Geometric Patterns and Narrow Range Setups
- Thread starter inandlong
- Start date
Should read:
"...LESS significant than an inside day after a closer to average daily range day?"
Quote from inandlong:
Not so new any more newtoet! You're closing in on a year as a registered member.
This is an excellent chart to highlight not only the NRID pattern but also divergence between indicator and price. The low price and low volume of the stock will make it interesting to watch.
By no means does divergence mean the stock is going to tank. A review of the Dow and the Nasdaq from 1998-2000 will show you that. But there are many traders, myself included, who believe that divergence is one of the most powerful setups around. I especially like them when they coincide with price crossing a moving average. And I really really like them when the MACD is about to cross the zero line at the same time the price crosses the MA... if it does. Notice the indicator settings are somewhat industry standard. Nothing exotic here.
The chart shows that as price has climbed higher, the indicators have failed to confirm the rise. Specifically look at price peaks in April, mid-June, and mid-July and compare those peaks to the indicators. This divergence between price and indicator, ie., higher price highs versus lower indicator highs, has been a bread and butter setup for me and for many other traders.
I'd look to short the stock when it closes below the 50 sma. My initial stoploss is a close above the 50. The low price and volume of this stock will keep me from participating in a move however. But that's me. I have no idea how stocks priced at this level with lower volume respond.
Thnaks for the great contribution newtoet!
Thanks, and thanks for the input.
I don't trade using divergences, but it is always interesting seeing someone else's analysis.
For me, I will trade this either way as it will provide a low risk setup. 1.) A break of the 50DMA would signal a good short. 2.) But, I lean towards a rally off the 50DMA and a return to the recent highs - then we will see where we go from there.
Thanks for giving me other things to consider.
Maybe it shouldn't, but it does to me system'. Caveat: everything I do is empirically observed and not statistically.
Although, if the inside day is only 35% or so of the ATR, then it becomes more significant. I am looking for compression. In fact, one of the scans I am playing with now... and have before.... is filtering for days that are a certain percentage of the ATR. Actually I use the ADR, but except for the stock that has gapped substantially fairly recently, they are similar.But more specifically to your question, the NRID setup I am looking for is similar to the one preceding the big green bar three green bars back on your chart. For several days there was somewhat of a sideways move with some narrowing ranges. Ultimately there was a very narrow range inside day. Although that big green day was a reversal day I suspect. I'd bet without looking at the smaller time frames that the price opened and sold off a bit before reversing and rallying for the day. This would have created a small loss and a large win.
similar to inandlong i screen for % ATR with less than 60% being of interest on an actively traded stock. i also compare the % ATR relative to what the market did that day... if it's christmas eve or thanksgiving friday 90% of stocks r going to be narrow range days because the mkt probably had a narrow range day.
Here is the X chart once again following today's conference call. This chart has the hourly volume on it. Again, I am just regurgitating what I have read and subsequently experienced.... there is no secret to anything I am posting.
X broke down earlier in the day without a surge in volume... the break down failed. The volume associated with the two rally bars was not exactly surging either.... maybe a short squeeze?
It is not uncommon for price to break from a pattern and retreat back to the pattern before resuming the move. However, there are volume characteristics "classically" associated with a valid pattern break. There should be significantly surging volume on the break followed by decreasing volume with the pullback. This chart doesn't appear that way. Also don't forget.... that last hour's volume is only thirty minutes worth.
From this information then, I should conclude that the break out is false and the price should retreat further still.
Comments?
X broke down earlier in the day without a surge in volume... the break down failed. The volume associated with the two rally bars was not exactly surging either.... maybe a short squeeze?
It is not uncommon for price to break from a pattern and retreat back to the pattern before resuming the move. However, there are volume characteristics "classically" associated with a valid pattern break. There should be significantly surging volume on the break followed by decreasing volume with the pullback. This chart doesn't appear that way. Also don't forget.... that last hour's volume is only thirty minutes worth.
From this information then, I should conclude that the break out is false and the price should retreat further still.
Comments?