Forum Archive Index - December 2001
Please note usage of the Forum is subject to the Terms & Conditions.
[sharechat] Anatomy of a Trade
This trade, while being more successful than most, nevertheless demonstrates
well the ways in which different technical indicators can be combined to give
clear unequivocal trading signals.
The stock is UAXS (USA Nasdaq)
UAXS had been in a downtrend for many months, but had recently closed above its
trendline. Because of this, I was watching for a new uptrend to begin. Prices
had started to rise, but were meeting resistance at about $1.32. When prices
clearly broke through this level, I bought, placing an "at Market" order just
before the close. This was the third day in a row with rising prices and rising
volumes. The trend indicator Directional Movement (DMI) and the Chande Momentum
Oscillator (CMO) had both given Buy signals. 5 different types of indicator all
agreed - a near perfect set-up. The only thing possibly lacking was a clear
volume climax at around the lowest point. Prices climbed for a few days, and
then began to retrace. I was hoping that the broken resistance level of $1.32
would now become support. This is what happened, and the uptrend continued.
Before long this trade was showing substantial paper profits, which I did not
want to give back to the market in the event of a retracement. With fast-moving
stocks like this, I often use a 5 day simple moving average as a trailing stop.
I would sell if the close fell below this. Even steep uptrends have the
occasional down day, when prices close below their open, and/or below the close
of the previous day. One day like this is acceptable, but should the day after
the down day close below the low of the down day, again, I would sell.
The first real sign that the uptrend might be in trouble was at the
candlestick marked A. Note the very long upper shadow - keen sellers had pushed
the closing price a long way down from the high of the day. Notice also the
very heavy volume - higher day after day. This was starting to look like a
price/volume climax. Remember that it takes volume to stop a trend. The next
day (B) carried the close still higher, and ended on its high - normally very
bullish signs. But look at the volume - barely one sixth of the previous day.
This was another clear warning that the trend was running on empty. The
candlestick at C is a bearish Dark Cloud Cover, opening above the high of the
previous day, but closing well below it, and on increased volume. The uptrend
appeared to be over. The next day (D, a Doji candlestick) the candles B,C and D
formed a pivot-point reversal, prices fell below the 5 day moving average, and
also fell below the low of of the prior down day, on still higher volume. With
both of my stops hit simultaneously, I exited the trade with a Market order at
A more active trader would have sold at least one day earlier on the strength
of the candlestick signals alone. A less active trend trader would hold until
the DMI and/or the CMO signalled a sell. Neither is anywhere near a sell at
this point. Only time will tell which approach will turn out to be the most
profitable in this instance.
The important thing is to combine indicators of different classes. The trading
decisions here were made on a combination of a trend indicator, an oscillator,
candlestick patterns and support/resistance levels, all being confirmed by
This was written 2/12/01 for the "Learning to Invest" series by Phaedrus.
Are you a Techie? Get Your Free Tech Email Address Now! Visit
To remove yourself from this list, please use the form at