Why Recognize MACD Contrarian Indicator Patterns? - Candlestick Patterns Explained by TechniTrader®

Sideways Candlestick Pattern Breakout Direction

Oftentimes, traders may be confused with conflicting indicator patterns. Contrarian patterns between indicators and between Price and stock Volume-based Indicators are very common these days. In the stock chart example below, the stock gapped up on earnings news and shifted to a sideways candlestick pattern that compressed. Then, it slipped slightly but quickly rebounded, and it began another compression pattern. See the stock chart below.

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Comparative analysis and Relational Technical Analysis™ are required for a stock chart like this; otherwise, the interpretation of just candlesticks or just a couple of indicators will be incorrect.

Understanding what the contrarian indicator patterns represent in terms of near-term price action is crucial for higher profitability and strong stock picks in the current Stock Market.

A common area of difficulty for most traders is the various sideways candlestick patterns that are becoming more and more common in the new Market Structure, which is reshaping how Retail Traders will trade over the next decade.

There are massive changes going on behind the scenes of the Stock Market that only Professional Traders are privileged to know. This leaves most Retail Traders in the dark and can often create more risk and lower profits for them.

Short-term trading analysis is entirely different than long-term investing analysis. The training in this article is for short-term trading and not long-term investing.

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The stock chart example above shows contrarian indicator patterns. I have added MACD as an indicator since many of you really like it. It is a momentum Price and Time Indicator which was originally designed for long-term investing and modified for short-term trading. MACD is in a “floating” pattern, which is common for the sideways action in the stock chart example above.

The Accum/Dist indicator was climbing steadily during the sideways action. The ChiOsc Volume Oscillator indicator is holding steady, which is normal during Dark Pool Quiet Accumulation. So, both of these indicators are telling you that although price is sideways, Dark Pool Quiet Accumulation has been present in this sideways action. In addition, how price is behaving also confirms accumulation.

Every indicator has limitations, and all of them fail to properly indicate under certain trading and price conditions. Sideways candlestick patterns are particularly sensitive to Price and Time Indicators, which can inaccurately depict the sideways candlestick pattern breakout direction.

Knowing what Market Conditions are optimal for your preferred indicators is important. Recognizing a failed or false signal is even more important; otherwise, you will be buying or selling short at the wrong time. Understanding contrarian indicator patterns takes your trading to a professional level.

Stock Volume and Time or Hybrid Indicators tend to do a much better job of indicating the sideways candlestick pattern breakout direction.

Summary

Since the markets are moving sideways more often than ever before, Retail Traders must learn how to read the sideways candlestick patterns properly AND learn which indicators will perform best for each type of sideways candlestick pattern magnitude and duration.

Some traders prefer learning candlesticks, while others prefer to learn one or two indicators. The highly successful traders learn to use both. Technical Analysis is a reflection of fundamental and financial values based on which Stock Market Participant Group is dominating and controlling price at that time.

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If you have not yet begun to trade or invest, go to Introduction: Learn How to Trade Stocks – Free Video Lesson to get started.

Learn the steps to trade like a pro with this introductory mini course. You will learn what it takes to create a Professional Trading Plan that can help you achieve your trading goals: How to Create a Professional Trading Plan

Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com

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