TECHNICAL ANALYSIS TECHNIQUES RECOMMENDED BY SEXTON READS THE CHARTS.COM FOR TRADING!
Sexton Reads The Charts.com recommends that traders use the following two techniques for trading:-
18 day and 5 day Simple Moving Averages Crossovers
CLICK HERE FOR A CHART OF THE S & P 500 INDEX FROM YAHOO FINANCE SHOWING 18 DAY AND 5 DAY SIMPLE MOVING AVERAGES.
A buy signal is given whenever the 5 day simple moving average (sma) crosses over the 18 day simple moving average on the upside (i.e. the 5 day goes from being below the 18 day, to being above the 18 day).
A sell signal is given whenever the 5 day simple moving average crosses under the 18 day simple moving average on the downside (i.e. the 5 day goes from being above the 18 day, to being below the 18 day).
Note: The 18 day simple moving average (rather than the more commonly used 20 day simple moving average) is preferred as it is recommended in Grant Noble’s seminal work ‘The Traders Edge’ for predicting short term movements.
CLICK HERE FOR A CANDLESTICK CHART OF THE S & P 500 INDEX FROM YAHOO FINANCE.
A candlestick chart shows the opening price, closing price, highest price and lowest price for each day for the shares or index.
If the price goes up that day, the candle is green (or white).
If the price goes down that day, the candle is red (or black).
There are some key patterns that have a good success rate in predicting short term movements in the share price or index.
I have highlighted these in the above candlestick chart and have provided a further explanation below:-
The Bearish Three Line Strike
This indicates that a reversal of trend (from upward to downward) is about to take place. The index (or share price) has risen on three consecutive days, but on the fourth day it falls sharply and completely wipes out the total gain made in the previous three days. This is a bearish signal indicating that the index (or share price) is likely to fall further.
Three Green Crows Reversal Pattern
This indicates that the recent reversal of trend is likely to continue with a lot of momentum. The index has risen for three consecutive days, and has ‘gapped up’ at the open on each day. The ‘gap up’ means that the index opened at a higher level than it closed at on the previous day. This is a very bullish signal indicating that the index is likely to rise further.
This is a top of trend signal which indicates that the index is about to go into a downward trend. It consists of a strong up day followed by a gap and a very small trading range on the following day (called a ‘doji’), followed by a gap downward and a down day.
This is a top of the trend signal which indicates that the index is about to go into a downward trend. It occurs on one day. On that day, the index opens and closes very close to the top of the trading range.
Bearish Engulfing Candle
This indicates that the index is likely to continue to fall. It consists of an up day followed by a down day, where the open and close of the down day greatly exceed the open and close of the up day. In other words, the down day ‘engulfs’ the up day.
Two Green Gapping
This indicates that the index is likely to continue to rise. It consists of two up days with a gap between them.
Dark Cloud Cover
This indicates that the index is likely to fall. It consists of three days; an up day, followed by a lesser down day (which gives up part of the gain of the up day), followed by a second down day which wipes out the remainder of the gain of the up day and more.
Candlestick chart signals do not indicate how far the index or share price will move, nor for how long. Therefore traders will usually remain long or short until a reversal signal occurs, either on the candlestick chart or under standard technical analysis such as encountering a resistance or support level.