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Any Thoughts on What SUSTAINS A TREND ?

edited November 2016 in Trading Strategies
Any thoughts on What Sustains a Trend?

Some stocks develop a Positive Trend but fizzle out. Other stocks turn into "magnificent fireworks" and keep on going until they become "10 Bangers".

TCK would be an example of Positive Momentum in motion.

Comments

  • markdmarkd ✭✭✭
    I can think of two things:

    The value of the underlying asset surges, due to either true economic demand or inflation. This is especially true of resource companies in areas like gold, oil and industrial metals. In TCK's case, it is metallurgical coal.

    The company dominates a growing market, so its earning grow steadily at an above market average rate. This happens in alot in tech and biotech or pharma, but it can also happen in retail.

  • Thanks, markd.

    Which S.C. indicators, or insights, would help us, early on ( in February for TEK ) for us to expect, or hope, that the early trend would continue ?
  • markdmarkd ✭✭✭
    I don't think TA lets you see that far ahead.

    OBV can help you find stocks that are turning around, but it doesn't tell you (it doesn't tell me, anyway) how far they will go. In TCKs case, after a buying surge in October 2015, price dropped to new lows in December, but OBV did not follow. Those big volume bars closing up when the trend is strongly down and making new lows are a tip off something is up. Who buys big in a losing stock? Somebody who knows something. Who knows something first? Insiders and big money institutions that can do the research. Of course, they are not always right. Sometimes they buy too soon (like in October).

    Then, if it's going to work out, there is often a lot of buying - big up volume bars - scattered in the first two or three legs. If there is any selling it is over fast and doesn't make much progress. So the best indicator a stock has a long way to go is a lot of buying from the start.

  • Thank you, markd.

    Very insightful! You make a lot of people happy!

    Are there any clues in the first third of Teck's rise ( April or May ) that it would keep on rising?
  • markdmarkd ✭✭✭
    The breakouts are clusters of high volume up bars, mostly without wicks or tails, with good range. That shows there was no distribution yet - if there were, the selling would show up as bars with compressed range, or long wicks or tails, or strong down bars. Those things are starting to show up now, indicating some players think this stock is fully valued. But, there have been no lower lows yet. Early on, the tallest bars were for up closes. Lately, the tallest bars are on down closes. Sometimes, the first signs of strong selling are followed by a final push to new highs, as big players realize they need to dump shares. The higher prices attract the buying volume they need. Other times, a new set of big money players come in, who think there is more value left, and the stock churns for a while as they absorb the sellers and then price resumes up. The stock is being supported if there is a big buyer response to a lower low, or a support break. If the response is weak, then the big players are gone. Read the back entries of the Wyckoff blog, or the Gatis Roze blog, or do some Wyckoff research on line or in the book store to get an idea of how big money operates.

  • Thanks, once again markd, for sharing your wisdom.

    Lots of "Homework".

    The Journey Continues . . .

  • Is the quick spike up of the SCTR from 10 to 90, in February a significant clue ?
  • markdmarkd ✭✭✭
    It shows the stock is doing better than it's peers at the moment, but it doesn't say anything about the longevity of the move.

  • For those who hold this stock, it is easy to see why they would continue to hold on to it. " Hope " seems to sometimes control our decision making and our wish to get more and to milk the cow until it is dry, is strong. It would be nice to wait and to hold onto the stock longer, so we could tell our friends that we did indeed, get a "10 Bagger".

    The Average Volume of TECK is declining, but the upward Slope looks good and is consistent, but this stock is getting "Long on the Tooth". The SCTR is constant. The PnF is still a Triple Top Breakout. The RRG is weakening. I'm not seeing a negative divergence.

    What other indicators can we look at to "see" or to surmise, when institutions are slowly, methodically and "stealthfully " rotating out of this stock, and when, if we were true unemotional chartists, we should pull the plug ?
  • markdmarkd ✭✭✭
    edited November 2016
    Indicators are usually late. Price and volume are always timely, but require more effort to read. The basic rules are:

    Higher volume must advance the trend - that is, make a new high close, or new high in an uptrend, and the opposite in a downtrend;

    New trend prices on notably lower volume, especially after a previous leg high or low have been crossed implies a lack of interest in taking prices further in the trend direction.

    For higher volume bars, range should be commensurate with volume and the open and close should be very near opposite ends of the bar (i.e. a long body). So, for instance higher volume and shorter or compressed range, or higher volume and wicks and/or tails indicate counter trend strength, suggesting the trend is more likely at least to stall and possibly reverse within a few more bars, unless the counter trend fails to follow through;

    Closes should be mostly in the direction of the trend. So in an up trend, closes should be consistently above the mid-point or better. An up close below the mid-point shows seller strength. Vice versa for a down trend.

    The trend must respond to counter trend strength, else the trend is at least uncertain - that is, if sellers show strength by breaking support in an up trend (for instance, a high volume low or close below the low of a higher volume bar that advanced the trend), buyers must respond quickly to that breach with volume and range to put price back above support; in a downtrend, sellers must respond in like fashion to buyers breaking above resistance;

    The open, close, high and/or low of higher volume, wide range bars (including the gap, if any) often become support and/or resistance - for instance, in a down trend, the top of a long body, high volume bar that closed down often caps a counter trend rally (this just happened in gold - see Oct 4 and today).

    In longer legs, the reaction often test the area where buyers and sellers fought for control in the prior leg. So, in an up leg you will often see a few strong days, then a couple or more retracement days, then the leg resumes. A reaction of the top will often return to the point where the leg resumed. Vice versa in down legs.

    For a trend to continue, the color of the tallest volume bars should be in the direction of the current trend. So, in an up trend, the tallest volume bars should be black with no red bar taller than the tallest black bar. The opposite for down trends.

    Of course, rules are made to be broken. These are guides, not guarantees. A weight of the evidence approach is probably best - keep track of whether bulls continue to show strength of weakness, and bears the same. So for instance, in an up trend, an episode of seller strength and a couple of instances of buyer weakness spell trouble. Just one or two usually isn't enough.

  • Lots to think about.

    Lots to digest.

    I"ll give it a try.

    Many thanks, markd.
  • Hi @MarkD. That is a nice compilation of "rules" for using price volume to discern the strength of a trend. I have 2 follow up questions to see if I have the correct pictures in my mine.
    1. Is another way of saying your 2nd rule, "if volume decreases notably after price has passed the previous swing high or low, the trend will likely soon reverse"?
    2. Is another way of saying your 4th rule, "If (in an uptrend) wicks show up that come down to the midpoint, seller strength is noticeable and the trend is in jeopardy."
  • markdmarkd ✭✭✭
    edited November 2016
    For any rule, (maybe "rule" is a poor choice of words - maybe "guideline" or "indication" is better) all you can say is, buyers or sellers are showing strength or weakness. Usually, they will do so several times before the trend actually reverses. So no one event guarantees anything. But for the trend to reverse, it usually happens that the trend shows weakness and the counter trend takes advantage of that weakness to show strength. If the counter trend doesn't show interest, the trend can remain intact in spite of its weakness. It's also possible for counter trend strength to show up first. Then it's up to the trend to respond if the trend is to remain intact.

    So, for rule 2, you might re-phrase it as, new trend prices on decreasing volume makes the trend vulnerable to counter trend strength.

    If you have a short term position, you might tighten your stop.

    For rule 4, likewise, you would add it to the weight of the evidence and watch how the trend responds to that counter trend strength. If buyers respond, the trend is not in jeopardy. If they respond weakly, you would worry more.
  • Hi markd. Your concept and usage of Candle Glance is fascinating. Are there any good sources and books that can elaborate on the definition and usage of "clusters" of Candle Sticks more than the general, introductory information found in Chart School
  • markdmarkd ✭✭✭
    Greg Morris's book Candlestick Charting Explained is pretty thorough. He's a contributor to Stockcharts blogs. It's probably available through the SC Bookstore.
  • Another book that discusses volume pretty well is Anna Coulling's Volume Price Analysis. I found her store inventory analogy quite helpful.
  • At this point in time, the Daily Volume & the Weekly Volume of TECK is declining, all of my other indicators are stable or are still rising.

    Are there any other signs of "Weakness" or slick, silent "Rotation" out of the stock?
  • markdmarkd ✭✭✭
    A lack of interest at higher prices caused the top (low volume and bad form at 11/28 peak), not selling. The selling in response to the lack of buyers was not excessive, so its not distribution, just short term traders going elsewhere. My own preference would be to wait for a test of the 10 day lower channel to be sure the selling has played out, but it might not get there since the channel has widened so much. Also, Friday's wide range on low volume suggests sellers might be done already. It came at the right place - the bottom of a higher volume bar that advanced the trend. But the buyers who came in at 11/22 didn't come back with the same enthusiasm (much lower volume). So the alternative would be an entry above the high of 11/30 or 11/28, to wait for evidence that buyers are back.
  • Early in the discussion string you wondered if there was a way to tell early in the trend that it could continue well. I'd say that solid indication of a peak formation is clearly higher volume near the end of a clear trend and RSI getting <30 or >70 is important, but until something's actually run far, you can't tell it will. The best you can expect to do is to have a good strategy to trail your SL somewhat under likely places it will retest.

    I find price action around trap lines (not sure what the right term is for sharp changes of direction that form support and resistance) to be the most help discerning trend strength and direction, and look at volume trends (I use a 20EMA on my volume indicator) and spikes.

    I especially get interested if (I'll use a new uptrend as an example since TECK is the chart under discussion) if price tries to reverse at the point RSI peaks at <30, price starts to reverse and RSI is back on top of 30, and then that reversal fails and price continues back down but RSI is not yet <30. If it's already done that once and I see it again I watch for price to shift (nice solid move, especially with decent volume) to back on top of that line. If that doesn't happen and I suspect it's really wanting to reverse, I'll just keep watching as support fails again with decent volume continuing. Eventually I like to see a last gasp (I've heard it referred to as the "puke point" when the last of the weak hands finally give up), and then price move fairly quickly back on top of the first clear support it left on the way down. I believe this gives the best early entry providing a pretty tight stop loss area (if it doesn't "get gone" and price starts to fade again, I can always wait again). Then if price does actually start trending in the new direction, I watch for price to get on top of resistances that form. The primary ones I use are double-tops and the 13/50/200 EMAs, especially when they coincide with support/resistance lines.

    I've attached a zip file of a series of TECK markups illustrating this. I hope you find it helpful.
  • markdmarkd ✭✭✭
    Great analysis, @snyderk5 . Thanks for taking the time make and post the charts. Very generous and enlightening.
  • I read a few of the answers before writing this. I apologise in advance for any duplication and don't mean to disrespect anyone who may have already covered some of these ideas:
    • Trends are sustained by the end-user demand for the product or service and by overall market conditions...though this sounds basic, it is important to keep this in mind when looking at technical charts. We Chartists often think we can predict the future by running various indicators, oscillators and price patterns. In short, a strong chart PLUS a strong end-user demand SUSTAINS A TREND.
    • The type of stock matters...penny verses mid-size or blue chip etc. They have different behaviour patterns, typically.
    • Penny stocks are driven largely by hype and buzz. Newsletters, websites, rumours...all pennies have high risk. Penny stocks are tough since just about anything will cause price charts to bounce around or go parabolic at just about any time. Trending is tough because they are so short term when they are being buzzed by their promoters. Predictability, so, sustainability of trend, if we can call it that?!, improves as the size of the company and the quality improves. Mid-size: the price chart will move slightly ahead of the news but in the end the trend is sustained by company innovations that come to fruition and prove successful, (not talking about fads, but sustainable innovations): new competitive strategies, breakthrough innovations going to production, etc. Think "making more revenue and thus boosting profits". So you have to understand what management are up to and have some knowledge of business strategies. Other trend builders: upcoming cost cuts, stock buy-backs, acquisitions which are finally successfully integrated and starting to produce, etc. Blue chips, that is value companies, are often the kind that more successfully participate in TRENDING so momentum indicators/oscillators, all of which are plentiful can help to beat the bushes for them. Be sure to use combinations that are not sycophantic for better results.
    • Trends can be seen by watching for the troughs to ascend. "Higher lows" as the saying goes. These are tough to run in formulae because there is no fixed time period between troughs that fit all stocks. But if you can eyeball for them, it may be helpful. As the experts say, "Trend is in play until it isn't", for whatever that is worth. Often you can see the subsequent troughs starting to stall as an early signal of a trend stalling and planning to trend in a reversal. RSI is useful in some instances.
    • I like to use a variety of tools to spot potential chart opportunities. STOCKCHARTS and this forum with gurus like "Mark'd" are absolutely indispensable to anyone's opportunity to succeed...thanks Mark'd for all your help to all of us.
    • I also like to watch for what I call "boiling tops", A STOCK THAT TRIED TO BREAK OVERHEAD RESISTANCE about 3 to 5 times. Frequently when they break through that resistance they seem to want to move strongly, though not a guarantee of longevity and i have no proof of this, but suspect because the stock has been "frustrated" for quite some time, if I can describe it that way, I suspect these tend to run a bit longer. I've not kept stats on these but I do enjoy finding them from time to time.
    • Sectors matter, too. Precious metal mining, for example if you can capture the price just starting to stir to signal pre-feasibility. It may not be a price breakout that will run for long, but sometimes that pre-feasibility is enough to move it up to a new level and keep it there for quite some time. It may be helpful to spot for price bouncing within a channel and starting to get more excited, almost like a weak "megaphone" pattern. But, like any stock, no guarantees. Once the dust settles from everyone excited about the pre-feasibility reports, the price likely will settle at a new slightly higher plateau, but be on guard for a reversal, too. Another great time is the period leading up to the pour of their first few bars/ingots. Volume may not be present, yet, but price will be stirring so you may have to default to seeking or running price patterns rather than leaning on volume as your signals. Of course, when they pour everyone gets excited and so do the super-computer algorithms. So, be careful, too. At that time or close to that time price will jump.
    • So, waiting for a breakout may not be the right strategy for some stocks. The point is, charts are awesome but you need a wide tool set, lots of reading to learn about the various indicators, oscillators and patterns and then to try to replicate them in your formulae, along with some knowledge of the business, management team, etc., to know if the trend is HIGHLY PROBABLE of lasting for any period of time.
    • Recently I've taken a shine to ADX to help with some of my picks. Even the basic ADX "New Uptrend" scan in Stockcharts has been helpful.
    • Monitor the INDEX(s) as well. If the overall index is crapping out, be extra careful with any stocks you turn up in your scans. Even TRENDING stocks may not be able to sustain their implied trend. Tough to run against the crowd. I like to keep a separate Chartlist of about 15 indices and I review those prior to running any of my scans each night. When I see those INDICES TRENDING I have much more faith in any trends I see on my individual stocks that emerge from my screener.
    • If you are using "daily close" in any of your scans, it'll make a difference if you run your scans during markets or after markets. I often do both and compare the lists. I like to do a run about noon-ish and then after market close. SURVIVORS get more scrutiny and more leeway than others when studying and critiquing my scan results after hours.
    • Economic periods matter, too. If inflation is ahead, you want to position with companies that can not just survive, but also thrive because of brands, pricing power, etc. They can manage costs and sustain their profits and thus their stock prices if end users NEED their service or product no matter how costly. If heading into a recession, a real recession, not the hype we hear on the business news, you want to cover your backside by adding a criteria set to help identify companies that offer services and product that perform well into a recession and submit your charting results to that to find higher-quality picks.
    • And remember, despite all of the above, there is no magical or easy way to make money in the stock markets...and life is all the more complex because of banks messing in the markets, and brokerages running super-computer algorithms that profit from micro-second trades. So, despite our charts suggesting a trending stock, we still may not be able to pick trends that will last for longer periods of time. After you buy, stay close to your stocks to be ready to take profits at the first sign of trouble ahead.
    • Best wishes on your trading and investing success.

  • Very Insightful !

    Very Helpful !

  • TECK is below the EMA (50) and is beginning to look like it is " Rolling Over " .

    Any Thoughts ?
  • I see consolidation resistances at just under 22 and just under 24, as well as 22-ish being the 50 and 13 EMAs, which I use on all my charts (with the 200). Since RSI got nicely over 70 up at the peak and it shifted pretty solidly down from that (with increased volume -- profit-taking for Christmas vacation???), it is definitely looking heavy to me. One of two small candles right where it is would make it an even more tempting short, although I don't like trading this time of year -- I think the big boys are all spending their money on Rodeo Drive or wherever. :-)
  • edited January 14
    20/20 vision is great. It looks like TECK was not Rolling Over, but the price dipping into the 50 day EMA, turned out to be a short lived and shallow Whip Saw, or a Shake Out. The price of TECK seems to be on the rise again.

    It's hard to know what to do at the time.

    Any thoughts?
  • Well, at this time the consolidation has formed a peak in the RSI that is lower than the peak in the RSI at the price high, so RSI is just confirming price action. If it was divergent, I'd say it was confirming the heaviness. After such a nice rise in just a year, the sell-off through December could be profit-taking to finance Rodeo Drive Christmas shopping. ;-)

    Since that peak had RSI over 70, though, I wouldn't get excited about upside potential until price broke that high and consolidated or even retested the old high (the resistance-becomes-support thing). I would put the new support at about 22, and since it closed below the low of the consolidation there at the high, wait for a retest around 22 and RSI to stay above 50, leaving a very tight stop-loss -- a shift to below 20 would kill the trade for me. I also kinda like that volume got so low at the low in price because it could mean that those interested in selling already sold. Price dropping from 22 to 20 would be only a 10% risk, which is fairly small in most peoples' books.
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