Analyzing Downtrend Price Action
During a Downtrend price does not just go down, instead it often has brief periods where it moves up. Determining whether it is just a Bounce, Rebound, or if it is a true Reversal requires Spatial Pattern Recognition Skills™ to read the chart properly.
Everyone learns the basics of candlesticks as this is currently the most popular chart style to use. However, just learning the Japanese continuation or reversal patterns is where a Technical Trader starts. If a trader wants to become a proficient Semi-Professional or Professional income earning Trader, then they must learn more than just these basics.
The chart example below shows the different candlestick chart patterns of Bounces, Rebounds, and Reversals.
How to identify Candlestick Chart Pattern Bounces, Rebounds, or Reversals requires recognizing the three types of upside price action in a Downtrend. Each type is different for several reasons which include the following:
1. Which Market Participant Groups are in control of price at the time:
a. Professional Traders who Sell Short
b. Retail Investors or Retail Traders typically using guru recommendations
c. High Frequency Trading Firms trading to move price
d. Dark Pools aka the giant Buy Side Institutions who are long-term Investors, buying on behalf of their Mutual Fund Holders
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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