Apple Daily --- June 18, 2000

Improving Accuracy Using Modal Points

In past articles, we demonstrated how modal points can be used to estimate the resistance and support levels of the markets. However, every bar has a Modal Point. How can we tell which modal points are the ones with true significance?

But before we begin, please note that nothing provided by ProSticks.com in any way constitutes a solicitation by ProSticks.com to the purchase or sale of securities.

Our extensive research suggests that Modal Points with the following characteristics will be more significant and have a greater impact on future price movements than other Modal Points.

1. The Modal Point of the bar made from an important high or low are significant. By definition, a low is formed when the price falls and then rebounds higher. Thus, Modal Points of major lows represent the beginning of where the buying forces began, and vice-versa for major highs.
2. Price levels that are formed by more than one Modal Point are significant. A cluster of Modal Points occurring at roughly the same price level suggests an intense tug-of-war between the buyers and the sellers. Heavy positions of both strong and weak hands are embedded at this price range.
3. Modal Points of gapping bars are important. A gap indicates the presence of excess cash flow driving the market either up or down. With a ProSticks chart, two adjacent and non-overlapping Active Ranges constitute as a gap.
4. A Modal Point which is shielded by a subsequent bar is not significant. For example, if the price forms a Modal Point at 100, and the market subsequently rises and later retraces below 100, the Modal Point of 100 is no longer significant.

Support and resistance levels work both ways. When the price attempts to breach a support level but fails, a rebound will follow. On the other hand, if the price successfully breaks a support level, the drop will continue until the next support level is reached. Thus, investors should monitor closely the behaviour of the prices around the support and resistance levels and react appropriately.

The below ProSticks chart of SmarTone (0315) outlines the concepts we have identified in this article. Followers of ProSticks are encouraged to apply the above concepts to account for the price reversal at A and to identify the reason as to why the Modal Platform was drawn at that particular price level.