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Michael C. Thomsett is a widely published options author. His "Getting Started in Options" (Wiley, 9th edition) has sold over 300,000 copies. He also is author of "Options Trading for the Conservative Investor" and "The Options Trading Body of Knowledge" (both FT Press); and "Options for... More
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  • Timing Entry And Exit With Trendlines 0 comments
    Feb 15, 2013 7:00 PM
    analyzes,businesses,charts,cropped images,cropped pictures,diagrams,forecasting,forecasts,graphs,growths,icons,markets,measurements,measures,measuring,PNG,profits,stock markets,successes,transparent background,trends

    Candlesticks - once a mysterious Eastern technique - have become mainstream technical tools, indispensable in today's rapid and complex market. But these are not just different expressions of price movement; specific candlestick formations serve as valuable confirmation tools for more traditional Western technical indicators.

    For example, one well-known pattern used by technicians is the trendline. This is a straight line tracing rising support in an uptrend, or falling resistance in a downtrend. Technicians have observed that the trend begins to end once the trendline stops, meaning price moves below the rising support line or above the falling resistance line. This signals impending reversal.

    Once prices fall below the rising support, or rise above the falling resistance level, the current trendline ends. This is a sign that the current short-trend is ending or at least pausing. As easy as this is to spot, though, it is always desirable to have a secondary confirmation of the apparent reversal. This is where some basic candlestick formation come in handy.

    Using just the trendlines as a basic technical tool, you can identify many easily spotted trends. However, to confirm these trends, candlestick formations provide very valuable additional tools. Candlesticks come in many shapes and sizes. By themselves, they do not offer an alternative system for technical analysis; but they do work as excellent confirmation tools for what you discover in traditional Western price patterns. Used together, the Western and Eastern patterns and signs vastly improve technical analysis, helping you to spot reversal early. Nothing gives you a 100% system, but using candlesticks for confirmation improves your timing and helps you get a jump on price changes.

    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at to learn more.

    I also offer a weekly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. All it requires is your e-mail address. Join at Weekly Newsletter I look forward to having you as a subscriber.

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