If you look at the DOW weekly line chart. (Weekly chart represents the close of every week. line chart is as shown above and in the link below, the chart posted in my last blog is daily candlestick chart, the blue and white bodies are called candles and hence the name candlestick chart) you will see one of the most beautiful chart patterns called Head and shoulders. Please bear with my poor drawing skills. The above figure will give you a clear idea.
For Chart Click here
you will see a head and shoulders pattern in the period: June 2007 to Jan 2008.
The idea is whenever a head and shoulders pattern is formed (two shoulders and head) if the price goes below the neck line, it will possibly go down by X (X is Shown in the fig above).
I know its complicated, so I request u all again to post ur queries incase u are not able to see a pattern.
Explaining this will become much easier once I get permission to post charts on my blog.
6 comments:
so if the price goes below the neckline and falls by nearly 'X'does that mean the probability of price going up (in near future) is high; considering other factors have not changed a lot.
That is good question Tarun.
Actually it means that the probability that the price will remain somewhere that level for some time is high. You as a trader should get out of the position and then wait for new signals.
Quite an interestin analysis..Can see an I-Banker in d makin.. :)
Wel, on a serious note... u can also include d 3%-3 day rule..guess that would answer Tarun's qs. more TECHNICALly
Really appreciate d effort..
Good Luck..
Hey nyasa thanx for paticipating..
Now thats something new to me.
3 %- 3 day rule.
Would really appreciate if u can explain it further.
You seem to have gained a lot from MBA :)
Just talked to Nyasa..
what she means to say is when the price breaches the neckline, and if in the nxt 3 days (We are studying a weekly chart so take that to be around 1.5 to 2 weeks) price falls by 3% it confirms that price will fall by X. Am I right Nyasa?
thts a very valuable information.
I thought tarun asked me what after the price goes down by X.
Nyasa teri party pakki hai :-)
If I got the 3%-3day rule right, I think that its a good rule to move out of your positions within 3 days of breaching of the neck line. so this gives an investor a signal of spiraling down of the index, but that does not answers Tarun question, am I right?
further why should an investor move out of positions when it reaches "-X" below neckline.
It wud be the trough of the graph I suppose. Kindly Clarify....
And thanks for sharing this luvly piece of info...do keep it up ...
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