Stripnomics

Mr. Volatility, from TradethePictureadvised me technically. He told me when to get in and I listened.

For shits and giggles, I have also been conducting my own analysis usingthe theories of ”Japanese Candlestick Charting Techniques” by Steve Nison. My analysis will focus on that aspect only. The technique was created by  Japanese rice traders over a hundred years ago. I was introduced to it by a fellow Economics major at UCSD, Brett Peterson. He is now an attorney in San Diego.

According to Stockcharts.com:

“In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.” Click HERE to see an introduction and see how candlesticks are constructed.

Here are some sample candlesticks:

CLICK TO ENLARGE

Candlestick charting makes me think of each trading day as a battle between BULLS and BEARS. The day’s candlestick lets me know what happened in the battle. On some days, the Bulls win. Bears win on others. Sometimes, neither wins. Groups of days lets me know how the war is going between the Bulls and Bears. Candlesticks can be very good indicators of short-term direction. They are not good at determining the velocity of a price swing. Western indicators are better for that.

If you look at the picture below, you will notice that PLD has been in a long-term downward “death spiral” since May.

CLICK TO ENLARGE

On August 26th, a HAMMER appeared during a downtrend which was a signal that the downtrend would end. Thereafter, a series of DOJI STARS formed. DOJI STARS occur when the open and close are the same, or at least very close. This is a strong indicator of reversal in an up market. However, in a down market, they have less significance. Personally, I interpreted these doji stars as an indicator that the market was trading in a sideways channel with lower support around the $41 level.  I also interpreted the rare occurrence of multiple DOJI STARS as an indicator of building VOLATILITY. I was hoping that PLD would bounce a bit so I could get into my position a bit cheaper. Unfortunately, the stock did not bounce hard enough and ended up breaking lower resistance below $41 on September 15th. You will notice that I revealed the answer to my Multiple Choice Quiz on September 16th, after I establshed a good short position.

The bottom of the graph shows volume on any given day. I interpret this as an indicator of how many soldiers fought in the days battle. Days with many soldiers fighting are important. They indicate great battles in the war. So who do you think is winning the war?

So where are we going now? As I said, the multiple DOJI STARS indicated great uncertainty and volatility building. Wherever we go, it will likely be a big move. As you know by now, I think ProLogis is on the way DOWN!

This entry was posted on Monday, September 22nd, 2008 at 11:15 pm and is filed under ProLogis (PLD), Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.