How to Predict which way the Market will go 1-2 days in the future, or techincal Indicators
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a buy signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal and you should trade accordingly.
Its a really good idea to look at the weekly chart for the MACD before making a trade. While the daily chart is the one you will be mostly consulting, you dont want to go against the market trend in the long direction. For example, if you are only going to be in for a few days, just stick with the daily. But if you are trading ETFs and writing covered calls that go by a month by month basis, youll want to also check the weekly in case a reversal is immenent that will go against your trade.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on December 15th. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
Lets look at the beginning of this chart, Sept 8th. The way you read this chart is this:
Go to where it says Sept 8th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says sept 8. You can see there is a line that comes straight up from the 8 through a pink bar right above it. See the pink long bar immediately above the 8? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Now look at the dates again, look at Sept 8th. See how there is a faint grey line that goes straight up from
the 8th (of sept) that goes straight up through the red histogram bar I just decribed? And then even when the histogram volume bar ends (at about 600 Million) the light grey line keeps going up. Follow it all the way up...see how it goes right up into the word that says 'Volume', or more exactly into the u in the word 'volume'? Well that word volume isnt supposed to be there in the chart itself, but it would have gone up into a candlestick like in the other candlesicks that are on this chart. For example. Look at October 13. Follow it right up into the white candlesick above it. That candlestick represents the price of the qqqq stock for that day...its open price and its closing price. See right next to that white candlestick the next trading day, oct 14 is a red candlestick? And the day next to that, Oct 15th is another red candlestick, but a little bit lower. This is three trading days in a row. Each day has it corresponding candlestick above it showing the price of the open and close.
This same fient grey line that goes through everything also follows straight up into the RSI and straight down into the MACD likewise signifying that one day in the points of all the graphs.
What do I mean? Lets put it all together. Lets check out November 24th. You can see that on the 24th there was a jump up from the previous day. The candlestick says the market opened at about 27 (see where the bottom of the candlestick is, and trace it to the right along the price numbers on the right side of the panel graph, or the x axis) because thats where the bottom of the white candle is. Now look at the top of that white candle, you can see it is near the top at about 28 and a half. By the way, if the candle is red, you read it the opposite. The TOP of the red candle is where the opening price is and the BOTTOM of the candle is the closing price. Again its the reverse of this for a white candle.
What this generally means is a white candle is a bullish signal, indicating strength and the stock market going up, and red candles are generally bearish, or signals that the stock market or that stock is going down.
Technical Indicators
There are several technical indicators out there that I use that tell me if the market is oversold or undersold. Basically what these indicators do is act like street signs, or roadmaps as to which way the market will likely go. Here are three indicators that I use and you will be using. You can find these indicators on the website stockcharts.com.
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a sell signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal!!! So whatever way the market had been going and the black line and the red line touch each other in the space of less than 1month, perferrably in less than 3 weeks, you will plan for the market to begin going the other way and trade accordingly.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on April 25th.. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
One thing....if you see that the RSI is going in one direction, and the stock is going in another direction, this is something called divergence. Almost always this means that the stock is going to turn around and suddenly follow the direction that the RSI has been travelling in. Below is an example of Divergence...
Sometimes the RSI alone isnt even enough. A stock will be roaring up and the RSI will be maxed out on the cieling and will hang at the top like smoke in a room. Sure, the RSI says overbought and time to sell but you have to check out the other indicators as well. For example, if the MACD at the same time says you are in a strong uptrend, the stock can keep going up with the RSI maxed out on the ceiling for another week or two. Ive see it. Or if a stock just keeps dropping, the RSI can stay on the floor for quite a while. The point is that the RSI is a general guide to if a stock is overbought or oversold, but the MACD is pretty much the final word along with the candlesticks. But if a stock is trending hard in one direction, do not make the mistake of picking some of it up or shorting some of it just because the RSI is maxed at 70+ or below 30. You have to check the other indicators for the big picture.
Now looking at the screen shot above, go to where it says Nov 17th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says Nov 17th. You can see there is a line that comes straight up from the 17th through a pink bar right above it. See the pink bar immediately above the 17th? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Heres the big overall picture. The chart in the middle with the candlesticks, the MACD below it and the RSI chart above it all go fowards in time at the same rate all together. Sort of like an EKG or EEG. Pick any day on the main middle chart, each represented by a candlestick and look straight up and or down at its exact correlating point and that day or candlestick you picked to look at will match up with that point on the MACD or the RSI, straight up and down at that exact vertical point. Let me make it simpler. If you printed that page with the stockprices candlesticks and the Macd and the RSI if you layed a ruler on the page straight up and down, so that the top of the ruler would be at 12 oclock and the bottom of the ruler would be at 6 oclock.
Candlesticks
A rice trader in Japan in the late 1600s started to see patterns in opening and closing prices in relation to the future price of the price of rice. When he started to chart this, he found patterns developing over and over again. He used these price patterns to chart or forcast what was going to happen in the next several days. After a while, he was making a fortune and began to refine his system. Candlesticks today are a result of this traders system.
The underlying basics for candlesticks are market forces that are repeatable based on crowd pychology, stock strengh and price, and strength and weakness in the stock and market as a whole.
There are several patterns that I will get into here that are a great way to spot check your stock and see with a fairly high degree of probablity what the stock will do in the next three days. But first, more on candles themselves.
A stock opens at a certain price, and closes at a certain price and in between that open and close price, does what it does throughout the day. This information constructs a candlestick.
If the price is lower than the open,or if the price is lower during the day thatn the open, the candlestick is red. If the price closes higher than the open, or during the day is higher than the open, the candlestick is white. The shape that the candle is in, if it has a short body with a long or short tail or what combination of candles compromise the last 2-3 days tells us what the stock is likely to do in the upcoming next few days.
Throw a baseball straight up into air. As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground. Now imagine yourself drilling into a piece of wood. You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood. When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move. When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation. Consolidation is one of the most important signals that a stock is about to begin a new move. The move can be a continuation in the same direction, or it can be a reversal in the opposite direction. The area of consolidation represents a battle zone where the bears are at war with the bulls. The outcome of the battle often defines the direction of the next move. As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning.
During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle. As these winners emerge, there is often a scramble of traders jumping in with the winning team. The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning. There are four different consolidation patterns experienced by stocks. They are 1) Bearish Continuation, 2) Bullish Continuation, 3) Bearish Reversal, 4) Bullish Reversal.
Tommorrow: About these types of Candlesticks.
And as always, if you were here to see what the market is gonna do in the next several days, look above at the traffic light button on the nav bar at the top of the page.
Cheers,
Tradinginsider
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a buy signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal and you should trade accordingly.
Its a really good idea to look at the weekly chart for the MACD before making a trade. While the daily chart is the one you will be mostly consulting, you dont want to go against the market trend in the long direction. For example, if you are only going to be in for a few days, just stick with the daily. But if you are trading ETFs and writing covered calls that go by a month by month basis, youll want to also check the weekly in case a reversal is immenent that will go against your trade.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on December 15th. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
Lets look at the beginning of this chart, Sept 8th. The way you read this chart is this:
Go to where it says Sept 8th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says sept 8. You can see there is a line that comes straight up from the 8 through a pink bar right above it. See the pink long bar immediately above the 8? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Now look at the dates again, look at Sept 8th. See how there is a faint grey line that goes straight up from
This same fient grey line that goes through everything also follows straight up into the RSI and straight down into the MACD likewise signifying that one day in the points of all the graphs.
What do I mean? Lets put it all together. Lets check out November 24th. You can see that on the 24th there was a jump up from the previous day. The candlestick says the market opened at about 27 (see where the bottom of the candlestick is, and trace it to the right along the price numbers on the right side of the panel graph, or the x axis) because thats where the bottom of the white candle is. Now look at the top of that white candle, you can see it is near the top at about 28 and a half. By the way, if the candle is red, you read it the opposite. The TOP of the red candle is where the opening price is and the BOTTOM of the candle is the closing price. Again its the reverse of this for a white candle.
What this generally means is a white candle is a bullish signal, indicating strength and the stock market going up, and red candles are generally bearish, or signals that the stock market or that stock is going down.
Technical Indicators
There are several technical indicators out there that I use that tell me if the market is oversold or undersold. Basically what these indicators do is act like street signs, or roadmaps as to which way the market will likely go. Here are three indicators that I use and you will be using. You can find these indicators on the website stockcharts.com.
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a sell signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal!!! So whatever way the market had been going and the black line and the red line touch each other in the space of less than 1month, perferrably in less than 3 weeks, you will plan for the market to begin going the other way and trade accordingly.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on April 25th.. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
One thing....if you see that the RSI is going in one direction, and the stock is going in another direction, this is something called divergence. Almost always this means that the stock is going to turn around and suddenly follow the direction that the RSI has been travelling in. Below is an example of Divergence...
Sometimes the RSI alone isnt even enough. A stock will be roaring up and the RSI will be maxed out on the cieling and will hang at the top like smoke in a room. Sure, the RSI says overbought and time to sell but you have to check out the other indicators as well. For example, if the MACD at the same time says you are in a strong uptrend, the stock can keep going up with the RSI maxed out on the ceiling for another week or two. Ive see it. Or if a stock just keeps dropping, the RSI can stay on the floor for quite a while. The point is that the RSI is a general guide to if a stock is overbought or oversold, but the MACD is pretty much the final word along with the candlesticks. But if a stock is trending hard in one direction, do not make the mistake of picking some of it up or shorting some of it just because the RSI is maxed at 70+ or below 30. You have to check the other indicators for the big picture.
Now looking at the screen shot above, go to where it says Nov 17th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says Nov 17th. You can see there is a line that comes straight up from the 17th through a pink bar right above it. See the pink bar immediately above the 17th? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Heres the big overall picture. The chart in the middle with the candlesticks, the MACD below it and the RSI chart above it all go fowards in time at the same rate all together. Sort of like an EKG or EEG. Pick any day on the main middle chart, each represented by a candlestick and look straight up and or down at its exact correlating point and that day or candlestick you picked to look at will match up with that point on the MACD or the RSI, straight up and down at that exact vertical point. Let me make it simpler. If you printed that page with the stockprices candlesticks and the Macd and the RSI if you layed a ruler on the page straight up and down, so that the top of the ruler would be at 12 oclock and the bottom of the ruler would be at 6 oclock.
Candlesticks
A rice trader in Japan in the late 1600s started to see patterns in opening and closing prices in relation to the future price of the price of rice. When he started to chart this, he found patterns developing over and over again. He used these price patterns to chart or forcast what was going to happen in the next several days. After a while, he was making a fortune and began to refine his system. Candlesticks today are a result of this traders system.
The underlying basics for candlesticks are market forces that are repeatable based on crowd pychology, stock strengh and price, and strength and weakness in the stock and market as a whole.
There are several patterns that I will get into here that are a great way to spot check your stock and see with a fairly high degree of probablity what the stock will do in the next three days. But first, more on candles themselves.
A stock opens at a certain price, and closes at a certain price and in between that open and close price, does what it does throughout the day. This information constructs a candlestick.
If the price is lower than the open,or if the price is lower during the day thatn the open, the candlestick is red. If the price closes higher than the open, or during the day is higher than the open, the candlestick is white. The shape that the candle is in, if it has a short body with a long or short tail or what combination of candles compromise the last 2-3 days tells us what the stock is likely to do in the upcoming next few days.
Throw a baseball straight up into air. As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground. Now imagine yourself drilling into a piece of wood. You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood. When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move. When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation. Consolidation is one of the most important signals that a stock is about to begin a new move. The move can be a continuation in the same direction, or it can be a reversal in the opposite direction. The area of consolidation represents a battle zone where the bears are at war with the bulls. The outcome of the battle often defines the direction of the next move. As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning.
During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle. As these winners emerge, there is often a scramble of traders jumping in with the winning team. The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning. There are four different consolidation patterns experienced by stocks. They are 1) Bearish Continuation, 2) Bullish Continuation, 3) Bearish Reversal, 4) Bullish Reversal.
Tommorrow: About these types of Candlesticks.
And as always, if you were here to see what the market is gonna do in the next several days, look above at the traffic light button on the nav bar at the top of the page.
Cheers,
Tradinginsider
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