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by Sean Moore
Horizontal formations in point & figure charts can help to signify when a security is likely to make a move. The longer the stock moves in a sideways fashion, the greater the potential for a move. This concept was an important building block for Richard D. Wyckoff's stock analysis method.
Position: N/A
Sean Moore
Traders.com Staff Writer.
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STRATEGIES
Wyckoff Part 3: Recognizing Potential
05/11/00 04:26:16 PMby Sean Moore
Horizontal formations in point & figure charts can help to signify when a security is likely to make a move. The longer the stock moves in a sideways fashion, the greater the potential for a move. This concept was an important building block for Richard D. Wyckoff's stock analysis method.
Position: N/A
| In the third step in Wyckoff's stock analysis procedure, the trader uses point & figure charts to further pinpoint those securities with the greatest opportunity to yield a profit. Parts 1 and 2 of the Wyckoff method began identifying those potentially profitable securities by establishing the market trend, then analyzing the relative strengths of various overperforming sectors and securities. |
| A point & figure chart can be quickly analyzed. A horizontal formation after a decline indicates that operators are willing to support the stock and stem the decline. After a rally, a horizontal formation uncovers the supply that's being offered and signals a downturn in prices as soon as the supply meets the demand. One general rule of point & figure charting states that the number of times a figure is repeated in a horizontal formation is the number of points a stock will advance from its low or decline from its peak. Figure 1 shows a horizonal formation on the point & figure chart for Citigroup Corp. This formation follows a slight downtrend and spans 21 divisions, signifying a potential for a 20+ point rise. This rise was realized in the few months that followed the horizontal formation. |
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| Figure 1: Point & figure chart for Citigroup Inc. shows the buildup of a horizontal formation and the associated uptrend that followed. |
| Graphic provided by: TradeStation. |
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| Wyckoff states that those stocks with the largest horizontal ranges represent the best candidates in which to establish positions. Using this in combination with Step 2 of the Wyckoff method (determining which securities are outperforming the market) help the trader ease closer to making a trading decision. |
| Related Articles: Wyckoff Part 1: Defining A Trend Wyckoff Part 2: Determining Relative Strength And Weakness |
Traders.com Staff Writer.
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Comments
Date: / /Rank: 3Comment: nice chart. just a test
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