Risks of Investing

Unexpected events can interrupt the operations of the stock exchange.

ISTANBUL - The Istanbul Stock Exchange (IMKB) was unable to trade in Wednesday’s morning’s session after the exchange was cut off due to a broken fibre optic cable. According to a statement issued by the IMKB, data flow to the exchange had been interrupted after the fibre optic cables was severed during road work by the local municipality on Istinye Street, close to the near IMKB building.
“Therefore, opening session of the stock exchange has been postponed,” the statement said. “The opening time of the trading will be announced later.”
Though most of its employees are currently on strike, Turk Telekom said that it had dispatched technical teams to fix the problem."[1]

Source:
[1] NTVMSNBC 28.Nov.2007 http://www.ntvmsnbc.com/news/427877.asp

The Rule of Multiple Techniques

Technical analysis is more about probabilities. There is no indicator which always gives 100% correct signals. Therefore it is better to watch for confirmion of each indicator signal by other indicators. Arthur Sklarew decribes this in his book "Techniques of professional chart analysist" in the following way.

"Technicians know very well that the price chart analysis is not an exact science. No single chart technique yet discovered is infallible. Despite this lack of perfection, price chart analysis can very often give reliable forecasts of trend direction... ...Confirmation is therefore an essential component of every valid chart signal.

In addition to comparing price charts of different contract months and time scales, it has been my experience that the accuracy of any technical price forecast can be improved greatly by the application of a principle that I call the “Rule of Multiple Techniques.” The Rule of Multiple Techniques requires that the chart technician not rely solely on one single technical signal or indicator, but look for conformation from other technical indicators. The more technical indicators that confirm each other, the better the chance of an accurate forecast." page 8

Finding the unusual moves

Standard distribution of the stock range can give us a clue about the market sentiment. If the range of the current index is above the normal levels we can expect the strong move next day.


Here are standard normal distributions of the indexes.



The image below is showing the unusual moves of the DAX index. As you can see this technique can be a strong confirmation for your other technical analysis tools.

Trend qualifiers

New highs or new lows: New highs show the strength of the stock trend. If a stocking to a new high or low it is showing the strength of the upword move or downword move. A stock must hit new highs or lows if it is in an uptrend or downtrend. A two-month calendar high or low can be used.

Base breakouts: trending stocks must exhail before continuing further. During exhail they build a base(sideways movement). a base breakout is when a wide-range bar that goes higher occurs after a sideways market movement. Sideway movement shows that buyers and sellers are in gear.
When the stock breaks out of this base the buyers have gained control with the likelihood that the trend is developing[1]

Gaps in the direction of the trend: there various gaps. gaps in the direction of the trend suggests strong demand for the stock as buyers are bidding up the stock before it opens.[1]

Laps in the direction of the trend: a lap occurs when a stock opens greater than the prior day’s close but less than the prior day’s high. This indicates that traders are willing to hold the position overnight. While not as strong as a gap, a lap in the direction of trend suggests demand for the stock.[1]

Resources:
[1] Dave Landry on Swing Trading, Dave Landry

Limiting losses (Protective stops)