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So here is a very important point. You don't have to pick winners every time you trade. You can relax and forget about that kind of perfection. Instead, you need to become ruthless in your management of risk and reward! |
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This section will introduce you to several proven chart patterns. |
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The Revival Buy is a continuation play. Do you recall what we said about "continuations" in the previous chapter? The stock has been in an uptrend but has been trading sideways for several days. We know that it will either reverse direction or continue in the uptrend. We are looking for a particular chart pattern that indicates that this stock will continue in the uptrend. |
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Look at Figure 13.1. What are you looking for on the chart? As we discuss each point, think about how logical all of this is: |
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First, you want to see that the sellers have tried to drive this stock down. Before you want to take a long position you want to know that selling pressure has been exhaustedthat there are no more sellers out there ready to drive the price down. |
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So, for the day before the last trading day, you want to see that the stock closed down for the dayaggressively downwith the closing price to have been in the bottom 25 percent of the trading range. This tells us that the sellers were in control on that day. |
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Look at the Japanese candlestick bar marked as 1 on the chart. This is the day before the last trading day. Can you see how the sellers controlled that day and drove the stock down hard? |
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