Friday, June 26, 2015

062615 MSWeekly – Inverted Technical Analysis

Inverted Technical Analysis™

Chart Examples Of How To Use Inverted Technical Analysis

When retail traders are already in a stock and it starts to move down rather than up, many do not know whether to sell the stock or hold it.  They are uncertain whether the move down is just a retracement or if the stock is going to continue moving down, so this is how Inverted Technical Analysis can help.
C:\Users\Adrienne\Desktop\TechniTrader - Inverted Technical Analysis.png
Often times a retail trader is looking at the chart from a perspective of hoping that the stock will turn around and run right back up. However hoping a stock will run up and analyzing the price action properly to determine whether it will or will not, makes all the difference between a profitable trade or a losing trade.
A special type of analysis is often needed to really determine whether the stock will turn around and move right back up, or if it is going to continue to move down and start a deeper retracement or even a short term correction. This type of Technical Analysis is called Inverted Technical Analysis, and it is only taught at TechniTrader.
What this means is that you are studying the downside action as if you intended to sell the stock short. If you are only looking at it from the stand point that you are in a trade that is either slightly in profit or slightly at a loss, you will not know whether to sell the stock or hold it.
We are going to use the chart below as an example of how to use Inverted Technical Analysis to study a chart for a held stock position. We will pretend that this stock is owned, and now that it is moving down the concern is whether to hold or sell the stock.
Chart example #1. C:\Users\Adrienne\Desktop\TechniTrader chart example #1 a MetaStock chart shows candlesticks needing Inverted Technical Analysis for a buy hold.png

Let’s say that the entry or buy was on the small gap up white candlestick day indicated by the green arrow. It moved up the next day as well, then it started to correct. This was a bit of a surprise as the expected action was more upside, especially since the index this stock is on went up over 100 points each day that this stock has moved down.
Nervousness is settling in and you are wondering whether to hold or sell the stock. You have a small profit for now.  You are wondering why this stock is moving down when its index and the general market has been moving up strongly.
You are hoping the stock is going to move up but you aren’t sure. Instead of hoping, worrying, or giving up on the trade use Inverted Technical Analysis and take a totally different perspective. Look at the chart and determine if this stock is a good sell short candidate.
In order to do this of course, you need to have an education in the sell side price action.  The sell side or downside price action is not the same as the upside price action. Price moves differently on the sell side because there are fewer Market Participants that sell short.  Selling is done for different reasons than when the Market Participants are buying. In addition when a stock moves down there are often Dark Pools lurking, that most retail traders are unaware exist in certain price levels and ranges.
The candlestick chart example #2 below shows how to use Inverted Technical Analysis with support lines, which are set at the Dark Pool levels of their prior accumulation.
Chart example #2.
C:\Users\Adrienne\Desktop\TechniTrader chart example #2 a MetaStock chart shows two levels of support under candlesticks as part of Inverted Technical Analysis.png

We can now quickly determine where Dark Pools are likely to enter again. We can also determine how far the stock can move down before it will find support, for either a bounce or a rebound that will convert back to an upside run.
In candlestick chart example #3 below a third line is drawn at the first support level. The stock is likely to easily bounce at the first support level. There is also support at the second line down which is even stronger support than the first level, and the lowest support line is where aggressive Dark Pool activity halted the last short term correction.

Chart example #3.
C:\Users\Adrienne\Desktop\TechniTrader chart example #3 a MetaStock chart shows three levels of support under candlesticks as part of Inverted Technical Analysis.png
When this stock is viewed as a sell short pick, it fails dismally as a sell short candidate because there is not enough possible point gain for profitability. It is not a good stock to sell short. By learning to read the sell side price action as easily as the upside price action and by using this analysis when you are in a held position but are uncertain what to do, will help decisions become far easier and analysis more accurate.
Inverted Technical Analysis exposes aspects of price action, Market Participant activity, and support levels. It also eliminates the most dangerous part of analysis which is letting your emotions, hope, or fears of loss distort or confuse your trading decisions.
I invite you to read more, watch an introductory Video or download an eBook about trading by clicking the button.
Trade Wisely,
Martha Stokes CMT

Instructor & Developer of TechniTrader Stock and Option Courses
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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.

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