Compression Candlestick Pattern Indicator Analysis

Quantity Indicators Allow for Early Stock Entry

All indicators have limitations and Market Conditions, where the indicator fails or does not provide a true positive or negative pattern, or is simply unable to keep up with the speed of momentum price or volume activity.

Bollinger Bands® are no exception. Bollinger Bands and the various other indicators written by John Bollinger CFA, CMT are excellent indicators, however all indicators have times when they lag behind price.

This is especially true of indicators based solely on price and time data only, and do not include quantity in the formulation. Price and Time Indicators are the bulk of indicators available to Retail Technical Traders. Therefore it is important to always include Quantity and Time Indicators for chart analysis, and the Hybrid Indicators which contain all 3 data streams in the formula.

Average True Range ATR is also a Price and Time Indicator, but is an indicator designed specifically to expose volatility. Historical volatility exposes Options pricing volatility levels, and ATR can provide additional interpretation and analysis of the current price behavior.

Price behavior that is controlled and tightly contained within a set price with smaller candlesticks, is common after a High Frequency Trader two day run. High Frequency Traders generally run a stock in the first few minutes of the market open, and rarely have two days in a row.

Both chart examples in this article are the same stock. See chart example #1 below.

Adding Quantity Indicators to the analysis allowed for an early entry into this stock, ahead of the High Frequency Trader action. Chart example #2 has Volume, Money Flow Index MFI, and Accum/Dist Indicators.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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