Click on Chart to Enlarge
The chart above is Newmont Mining (NEM). I am posting this chart because it shows what I consider one of my favorite candlestick patterns. I suggest clicking on the chart to view it more clearly.
The pattern forms when there is a large down day like Tuesday, then the next day price gaps up to the middle of that large black candlestick. Then price comes down to undercut the low of the large down day. However, there is a reversal and the price closes near where it opened. This forms a long lower shadow and a small real body. I view this as a harami/hammer/doji power packed reversal candle.
Here are other factors I want to see to take the trade:
1. Very high volume on the hammer candle (at least higher than the prior day)
2. Very oversold market conditions (this is present now as evidenced by the stochastic chart underneath the price chart)
3. Bullish technical divergence (price going lower, but indicators at higher lows)
4. Candle occurs around the lower bollinger band (this indicates that the reversal is occurring at a statistically extreme range, which is good)
I prefer the next day gaps up at least slightly. It did not do this today, and this trade may fail. However, I would take this candle pattern as a reversal warning in the near future, even if it is not a major trend reversal.
As an aside, I made a trade on AEM yesterday which is not going well today so far. I will have to exit if there is no sign of follow through later today. But these stocks are on my radar for a trade set-up even if today doesn't work out.
Pete
No comments:
Post a Comment