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10/21/02  

Trending (Continuation Patterns) vs Trading Stocks

Trending stocks demonstrate a pattern of trading above or below their major moving averages (50, 150, and 200 day) and demonstrate a rising or falling trendline either through a series of higher highs and higher lows (uptrend) or a series of lower highs and lower lows. 

Trading Markets demonstrate a sideways pattern. There is no trend, in other words the stock or index will trade above and below its major moving averages with regularity. Further, the stock will establish clear overhead supply which it can not breech, and clear support or demand at the lower end of the range. 

Traders use these patterns to establish positions. For continuation or trending stocks, momentum traders will buy stocks trading above their 20 or 50 day moving averages, generally without overhead supply or resistance close to the entry price. More often than not the stock is making new highs. Long Traders using this approach will raise their protective sell stops, while short sellers will lower their protective buy stops as the stocks continue their trends. 

Traders using continuation patterns will exit a position if long trades break below their 20 or 50 day moving averages, while short traders will exit positions if a stock breaks above a trending 20 or 50 day moving average. 

Trending 

The steepness of the slope of ORCL is remarkable. It is near vertical and could have a quick pullback if it breeches the steep nearterm trendline. 

Down Trending

Trading Markets

KO, in a three year period has demonstrated a trading pattern, a downtrend, and is now going back into another trading range, unless it can break above 70 on a high volume. A powerful technical signal is breaking a long standing trading range on high volume. 

Here's a trading market of length, with a breakout. You can see the result.

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