20 May 2014
Moses Stock Corner – Thought and Notes of Trading – Price Action up again, should I buy or Sell?
When Price Action Goes Up Again, Buy or Sell? No Right No Wrong?!
No Right No Wrong! When you make money from the stock market. It is all relative, as there isn’t any absolute value any stock. It is all relative, relative to something. The buyer will continue to buy when the buyers still perceive it is a good value, a good time to buy, a good buy (catch and do not want to miss the opportunity).
For sure, when a stock price went up yesterday and goes up again today, it is because there were buyers yesterday and are more buyers today. Of course the buyers are willing to pay for a higher price to grab the stock available at the market at this moment (today).
When a price dips, this means the buyers think the price is now expensive and stop buying. The buyers now could turn sellers. In other words, more sellers than buyers.
As a trader, you decide. Good buy or not. You are responsible for your own action; buy or sell, buy the asset you want or sell the asset you have. You need a chart that you can look left and think right, a stock chart produced by tool like AmiBroker charting software. You look at the past price actions, volumes. You analyse the price action and volume up and down, the moving average, the strength to plan your trading strategy.
In a rally market, the price rise, then pullback, then another rise again. At some point, the price actions may form a double top pattern.
What’s double top pattern mean?
Same High: The price action reach certain level, the buyers get less and the price action dip. However, the buyers return again, start buying again. The price action begin to move up, but at the same level again the buyers lost interest (or confident) and the price action dip again. You will see two mountains of the same high. In trading, we may say the price action test and re-test the same level.
Higher High: Another double top pattern, after certain level the price action dipped. When the buyers turn the market even more bullish and the price action push across the last high. However, the bullish was short stay, the buyers lost confident and start to sell to take profit. The price action goes below the last high. In trading, we may say this as bull trap. Those buyers enter after the last high get caught when the price action dip across the last high.
Lower High: Last double top pattern is after the certain level the price action dipped, but when the buyers regain their confident and start to buy again. The confidence is lower than the last high, in other words, the next high is lower than the previous one.
These double top patterns are 1) same high, 2) higher than the last high, and 3) lower than the last high. Double top patterns are early warning for possible reversal. Double top is like a traffic light gives you warming of possible price action stop rising and start to change direction. Double top chart pattern is a reversal pattern. You as a trader, you need to learn how to recognise the pattern and make your trade decision. Use your whole brain thinking; left (logical) and right (graphical, pattern).
Are these Double Top Chart Patterns?
Are These Double Top? Test Retest, Bull Trap, Lower High
Is trading easy? Is there a holy grail?
Trading has never been easy like many think. When the price goes up buy, when the price dip sell, in fact this is a very good trading strategy This is what trading is all about, but many traders could achieve this. Please do not think trading is that simple. When the price went up and you decide to join the rally, but the buyers disappear no one support the push the price higher. Or, when the price dipped and you decide to sell, but suddenly many buyers rally the market again. Sigh! You may find you always start in the wrong direction.
Trading is a very intensive and all rounded profession. It is never simple. Those who tell you trading is simple are likely never trade the real money. Trading needs to use the whole brain thinking at all time, left and right brain thinking. Right brain – Can you recognize these double tops? Or do you have problem to recognize them? Left brain – Risk Management, how much risk you will like to take?
Moses
DISCLAIMER
Information provided here is of the nature of a general comment only and no intend to be specific for trading advice. It has prepared without regard to any particular investment objectives, financial situation or needs. Information should not be considered as an offer or enticement to buy, sell or trade.
You should seek advice from your broker, or licensed investment advisor, before taking any action.
Once again, the website does not guarantee any results or investment return based on the information and instruction you have read here. It should be used as learning aids only and if you decide to trade real money, all trading decision should be your own.