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Prosticks Articles
Hong Kong Economic Journal --- 31 July, 2000
Technical Trap in "Rising Three Methods"
Figure 1 shows the Candlestick chart of Dollar Swiss.
Notice that A is a strong rising bar. After that,
the market undergoes minor corrections for the next three
days. Then, on the fourth day at B, a powerful
strong rising bar occurs again. According to Candlestick
theories, the five bars from A to B
constitutes what is called a Three Rivers? pattern which
is a very bullish signal.
However, as can be seen, on the next day after B,
price only rises temporarily to C and then falls
all the way back. For the next few days, price continues
to fall sharply. Thus, the bullish Three Rivers? pattern
is a technical trap.
Figure 2 shows the corresponding Prosticks chart of
Dollar Swiss. Consider bar B, notice that though B
is a strong rising bar in the Candlestick chart, it is not
a very bullish Prosticks bar. The Active Range of B
lies in the lower half of the bar range, meaning that even
though price rallies strongly and closes near the high,
most trades take place at the low prices. The rally is not
accompanied by substantial volume and is thus suspicious.
Notice that the point C is exactly the same
price as the Modal Point of D. D is a long
range falling bar and thus heavy selling pressure had
existed on that day, particularly at the Modal Point which
is heaviest traded. Thus, when price rises to similar
level at C again, those selling pressure
resurfaces, imposing strong resistance forces to prices.
Obviously, the rally from B to C, due to the
lack of volume accompanying it, does not have enough
strength to counteract these resistance forces from D.
Notice also that the two bars at E also happen to
have Modal Points lying at the same price as that of D.
Thus, the Modal Points of D and E together
form a Modal Platform which is a strong resistance level.
Prosticks charts are dynamic charts. By offering
information on volume and time distribution, they help
locate the origins of money flow as well as evaluate
current market momentum. Candlestick charts, by displaying
only open, high, low, and close prices, are static in
nature and do not offer such critical insights.
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