RSSWHERE can I find the software to screen for THIS PATTERN HELP?
Thursday, May 27th, 2010
READ THEN GIVE INPUT
Look bellow at Diedrich coffee DDRX over the past six months (chart at the bottom of this) it has had a massive gain: Stocks like this one and others that I seen come out of what is called a “Narrow Sideways Price Channel”! In other words in this case it was at a relatively FLAT price or price channel when it was a penny stock and then it stated picking up momentum. There is a rule I once remember reading in an investing book that if a stock or commodity is in a narrow flat price range: if it STARTS to gain momentum in will generally continue on in that direction until resistance is met. In other words if there is a 20 dollar stock and it stays almost the same price for 3 month but then all of a sudden starts falling to 18 and bellow, then it will probably KEEP going down for a long time to come i.e. falling demand. The same holds true for this stock if a stock that’s 35 cents which it was and stays flat and then goes to 1.10 there is a good chance it will keep going up i.e. rising demand. I have SEEN this pattern before it’s amazing how it seems to work. SOOOO how can someone screen for this or find this? IS there software for finding horizontal narrow price channels?
http://moneycentral.msn.com/investor/charts/chartdl.aspx?showchartbt=Redraw+chart&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&C5=1&C5D=26&C6=2009&C7=4&C7D=1&C8=2009&C9=0&CF=1&symbol=DDRX&nocookie=1&SZ=0&CP=0&PT=5
There is a really good site that has pattern screeners; they auto fit lines, etc. onto the chart prices, and will recognise channels, etc.
Here is the chart for DDRX:
http://finviz.com/quote.ashx?t=ddrx&ty=c&ta=1&p=d
(personally, i can’t really see a horizontal trading pattern… is it in june?)
Here are a list of stocks that are trading in horizontal price channels
http://finviz.com/screener.ashx?v=210&s=ta_p_channel
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The reason why the horizontal price channel “breakouts” (as they are colloquially known as) gain momentum, is because the channels are, more often then not, areas of accumulation and distribution. This is when smarter traders will either gather/buy or unload/sell shares of stock without trying to move the price much, because they anticipate a sharp change in price in a short while.
When the traders accumulate, they buy up a large body of shares, thus reducing supply. When more people eventually realise the price will rise, the demand rises, while the supply has already fallen, and the price rises, and the traders profit from the large pile of shares they had accumulated. The same happens for distribution, except with selling and the price falling.
To predict the direction of the breakout, check if either volume is increasing or decreasing. Also check selling/buying pressure with indicators like the CMF, and the On Balance Volume (OBV).
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The other reason for horizontal channels, which used to be really common before the great depression, when trading in large blocs and insider trading did not have to be reported, is that there are two parties that are buying or selling at a certain price. The bloc selling creates the resistance price, and the bloc buying creates the support price. Eventually, one bloc will have all the shares they want either bought or sold, while the other party still wants to sell/buy more, so the price breaks in that direction.
If the channel is forming because of this reason, you can check the volume of the peaks, and compare it to the volume of the troughs, to anticipate the movement before the breakout.