This is a new pattern discovered by Nameless Hero. StockTrendCharts.com reserves the right to publish and distribute "Bull Mood Consolidate Pattern".
From the past experience, we had discovered the "Common Low Risk Setup Pattern" which is good for spotting a low risk setup in a high volatile market or for accumulating stock for long term investments. Here I am going to introduce a new pattern named "Bull Mood Consolidate Pattern".
Usually this pattern will appear after the low risk pattern if the stock continues to rally to a higher level. And usually the second rally will be more profitable and that's why I would like to publish it. Why it is more profitable? I believe the first round of rally alerts more traders or investors and price movements are based on bid and ask, as long as more asks than bids, the price goes up. This pattern is a little harder to master because the risk is comparably higher than the low risk pattern. However if you have faith in your favorite stock, this won't be a problem because you want to own it anyway. "Bull Mood" comes from the gradient background of the chart. The algorithm uses proprietary ways to measure the strength of the underlining movement and the trading behavior of a particular stock to generate the gradient. There are only four kinds of gradients and they are presented in four different colors: light red, light green, red and green. A complete trading cycle of a stock would looks like: light green, green, light red and red. This means the stock starts from red (bear cycle), some bottom fishing trader or big players accumulates during a depressing period, the gradient would change from red to light red. Then the technical traders sees a break out signals and joins the trend, the color changes from light red to light green. Follows by late buyers and average Joe traders thinking the stock would take them to the next platform, the color changes from light green to green. As the stock ran out of buyers, the color changes from green to light red and then more selling pressures kick in, the color changes from light red to red and then starts over again. The example is above is just arbitrary, the pattern could become more complicated because of sentiments, news and broad market movements but the basic idea is like that.
Below is a Bull Mood Consolidate pattern on GLD:
Below is a Bull Mood Consolidate Pattern on UNG recently:
Both of the charts have similarities, they signaled a max (black blocks) in the short term after a reasonable rally. In many cases, the first rally can be spotted by the Common Low Risk Pattern. The gradient was changed from red, light red and then to light green and this signals is bullish. On top of the gradient changing to bullish side, the trend level should increase along the way as well. After this first run from a bear market, it is significant to drive more attention from other technical traders to join the party. We can see a mild pull back with red bars (consolidation phase ~5%) for couple days and then a stronger rally. The price during the consolidation phase will never go below the point where the rally starts. The light green gradient is a sign of some bullish movements forming. This pattern is a little harder than the low risk setup pattern but it is not that complicated and understandable. This pattern is not for novice traders but for more experienced traders. The traditional charts like candle stick charts may shows a bull flag pattern on the similar time period.
Here I would like to summaries the pattern:
1. A significant rally was formed and turns gradients from red, light red to green. Please refer to Common Low Risk Setup Pattern.
2. A pull back after step #1, the price usually won't drop below the point the first rally starts (a consolidation within 10% is perfect).
3. The background gradient turns from either light red or red to light green.
4. A good point to enter order is to wait for 2-4 red bars appears after the first rally and before the end of the week.
5. If the condition of step #1, #2, #3, #4 were met, any price below the close of the previous week would be a good entry point because the next weekly close usually higher than the last week's close. If not then the pattern is not confirmed.
6. While waiting for the pull back, set a low limit order to buy on a daily spike down, you would usually get something cheaper than what you think if the stock price ever spikes down during the consolidation phase.
This pattern incurs a little higher risk than the Common Low Risk Setup Pattern, but it is more reward-able. Almost guaranteed the price will go up after you have bought the week after.