Bull Warrior Stocks

[Soapy Bubbles]

** Bubble's Friday Commentary on TA

Here's a good intro:
http://www.mysmp.com/video/technical-analysis/inverted-head-and-shoulders-pattern.html

That'll help you on your trek. But the thing to see is the evening star on the weekly chart -- that's a bearish reversal and was triggered by today's dumping which decimated the chart. This sort of drop indicates a discontinuity in the propagation of "beliefs" or "data" from one candle to the next in the chart. Basically such an event is a barrier to the flow of information (from the left to the right) in the chart; thus constructing patterns in candles due to the flow of information.

Think of it like a calmly running creek where the water slowly carries a mini-army of rubber duckies. If the flow of water remains even and smooth, you can roughly predict the patterns the ducks trace out on their journey down the creek. Now, suddenly, introduce a bowling ball falling into the water from above. Duckies go everywhere and it appears chaotic. Why? Well, the information encoded in the orderly floatind ducks depended on a history of undisturbed motion. Once the ball fell in, that history was prevented from propagating into the future and gave rise to an unordered behavior. The same idea applies for charts. If a stock has a long history of normal trading (weakly diluted, everyday normal trading, no weird events or shocks), then you'll see patterns emerge in the chart. That's the stuff we pick out using "TA". (Basically it's just pattern recognition, to be honest.) Once the normalized trading is disrupted by dumping shares, news, or major selloff/buyer (the bowling ball effect), the flow of information in the chart is disrupted (a discontinunity in the chart) and a new (potentialy chaotic) candle-motion may emerge.

Thus from chaos comes volatility and the potential for a "bounce play". Or it may just tank more. Or it may just go flat as psychology goes to hell. It's just something you have to gauge on L2, have a drink, and think about it. Bubbles recommends cognac.

So... Today's candle is the key in the chart at the moment. It halted the flow of information and now you need to look at the possible future of the chart, not the past since it was denied propagation into the future.

And that's the essence of TA. TA is all about the emergent patterns from smoothly flowing information (psychology) from candle to candle, from pattern to pattern. Disrupt that pattern, you reset the chart. Keep the flow even, you get wedges, triangles, and other stuff we can all label. But chaos has its advantages since it introduces volatility and the chance for trading.