The Falling Wedge pattern forms when prices appear to spiral downward, with lower lows (1, 3, 5) and lower highs (2, 4) creating two down-sloping trend lines that intersect to form a triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
The Falling Wedge pattern forms when the price of a security appears to be spiraling downward, and two down-sloping lines are created with the price hitting lower lows (1, 3, 5) and lower highs (2, 4). The two pattern lines intersect to form a narrow triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. Continue reading...
Chart patterns are shapes that sometimes appear in the charts of securities prices. Some of them may prove useful to you. Some frequently discussed chart patterns include Head and Shoulders, Double/Triple Bottom/Top, Cups and Saucers, Flags and Pennants, and others. Generally, it can be useful to compare and connect the troughs to each other and the peaks to each other to see if there is a trend confirmation if the breadth is narrowing, or if a reversal might be imminent. Continue reading...
The Falling Flag (or Bearish Flag) pattern looks like a flag with the mast turned upside down (the mast points up). The pattern forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points 2-4 and 3-5. After the consolidation, the previous trend resumes. This type of formation happens when anticipation of a downtrend is high, and when a security’s price consolidates during a broader decline. It may indicate growing investor concern of an impending downtrend. Continue reading...
The Falling Pennant (or Bearish Pennant) pattern looks like a pennant turned upside down (the mast points up). It forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the converging lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes. This type of formation happens when anticipation of downtrend is high, and when the price of a security consolidates during a declining trend. It may indicate growing investor concern of an impending downtrend. Continue reading...
The Rising Wedge pattern forms when prices appear to spiral upward, with higher highs (1, 3, 5) and higher lows (2,4) creating two up-sloping trend lines that intersect to form a triangle. Unlike Ascending Triangle patterns, both lines need to have a distinct upward slope, with the bottom line having a steeper slope. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. There is a distinct possibility that market participants will sell out, and the price can move down with big volumes (leading up to the breakout). Continue reading...
The Rising Wedge pattern forms when prices seem to be spiraling upward, and two upward sloping trend lines are created with the price hitting higher highs (1, 3, 5) and higher lows (2,4). The two pattern lines intersect to form an upward sloping triangle. Unlike Ascending Triangle patterns, however, both lines need to have a distinct upward slope, with the bottom line having a steeper slope. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
The Three Falling Peaks pattern forms when three minor Highs (1, 3, 5) arrange along a downward-sloping trend line. This pattern often emerges at the end of a rising trend, when a security slowly rolls over. It potentially indicates sellers moving in to replace buyers, which pushes the price lower. If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at the downward breakout price level. To identify an exit, compute the target price by subtracting the pattern’s height (maximum price minus minimum price within the pattern) from the breakout level the lowest low. When trading, wait for the confirmation move, which is when the price moves below the breakout level. Continue reading...
The Broadening Wedge Ascending pattern forms when a security price progressively makes higher highs (1, 3, 5) and higher lows (2, 4), following two widening trend lines. This pattern may form when large investors spread their buying over a period of time. When initial buying occurs, other market participants react to rising price and jump on the bandwagon to participate. Then value investors begin to sell, believing the price has risen too much, which spurs the original large investor to resume buying again. Once these activities stop, the price may break out in either direction. Continue reading...
The Broadening Wedge Descending pattern forms when a security price makes lower lows (1, 3, 5) and lower highs (2, 4), forming two downward sloping lines that expand over time (kind of like a pointed down megaphone shape). This pattern may form when large investors spread out their selling over a period of time, and the Breakout can occur in either direction. When the initial selling occurs, other market participants react to falling price and jump on the bandwagon to participate. Then the value investors begin to sell, believing the price has not fallen enough, which spurs the original large investor to resume selling again. Continue reading...
A call option is a type of contract that allows the holder of the contract to purchase an underlying stock at a specific price, even if the market price goes higher. A call option contract gives the owner of the contract the right to purchase a particular asset, which is typically a stock, at a strike price designated in the contract during a certain period of time. For example, if the stock of company ABC is trading at $100/share, you might purchase the right to buy it at $90/share for a $12/share premium. Continue reading...
Hedging against future price risk was the main reason Futures contracts came into being. If an investor or a business knows that they need to acquire an asset or security at a future date, they might go ahead and agree to a price and have it in writing on a Futures contract. A futures contract means that an item has been sold at a stated price, and only awaits settlement at a future date. This will protect them from the risk that the price will move unfavorably in the future, and it will allow them to balance books and plan a budget with more certainty. Futures contracts are standardized and traded on exchanges. Continue reading...
The Falling Wedge pattern forms when prices appear to spiral downward, with lower lows (1, 3, 5) and lower highs (2, 4) creating two down-sloping trend lines that intersect to form a triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. This pattern is commonly associated with directionless markets, since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
Hedge funds are private investment groups that attract high net worth individuals (and in some cases institutions), and use investment strategies that may be riskier than would be suitable for the average investor. While the name "hedge" implies that the fund serves a defensive purpose, today’s hedge funds use wide array strategies, and more often than not the goal is total return. The strategies used are often speculative, contrarian, or alternative compared to most investment options in say mutual funds or traditional long-only asset managers. Continue reading...
Ratio call spreads are options strategies where the investor combines purchased calls and short calls at the same expiration but with different strike prices. A Ratio Call Spread starts off as a delta-neutral strategy, which means that even if you have two long calls and one short call, the sensitivity of your overall position to move in the underlying is equal whether it moves up or down by small amounts. Continue reading...
A bear call spread seeks to make money on the sale of call options but does not believe the underlying security will increase. A Bear Call Spread strategy is utilized when one believes that the price of the underlying stock will go down (but not significantly) in the near future. It entails selling a call short at a lower price than you buy a long call, which is done to realize a net credit at the outset. Continue reading...
A margin call is a mandatory request by the custodian/broker for the account holder to add equity to the account, either by depositing cash or selling securities to raise cash. When an investor takes an account on margin, the custodian will require that they keep a certain amount of equity/cash in the account to maintenance the borrowed amount. If the account value drops past a certain level, the custodian may require the investor to add equity to the account to cover the margin balance. Continue reading...
A naked call is a type of option contract where the seller of a call does not own the underlying security, thereby exposing them to unlimited risk. Investors have the ability to “write” or sell options contracts as well as to buy them. The seller of a call option has opened a position in which the buyer is given the right to buy 100 shares of a stock at the strike price named in the contract. The seller – along with all other sellers of calls for that security – are the ones who must cover and close the open positions if the call owners exercise their options. Continue reading...
An earnings call is when a company opens up a teleconference line or webcast that the public can join to hear the company management talk about how the company performed recently, their plans for the future, and the market forces that exist in the current environment. Most publicly traded companies today have adopted this practice. Earnings calls may take place once a year or during earnings seasons after the quarterly earnings have been announced in a press release. Companies often have one executive whose job is to interface with the shareholders in such settings, but various executives are often given a chance to present some thoughts. Continue reading...
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price for this formation by adding the height of the pattern to the upward breakout level. Pattern height is the difference between the breakout price (the highest high within the pattern) and the highest low. Continue reading...