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Acceleration & Deceleration of Trends


Acceleration & Deceleration of a Trend

Market Acceleration and Deceleration is a concept of watching the markets price activity for strength and weakness. Much like an automobile accelerates and decelerates through city streets, the market reacts the same way. Investors need to learn to watch for this type of market price activity because it can help guide them to greater profits.

Well use the charts above to attempt to illustrate how the market accelerates and decelerates within a trend. I like to use analogies to bring home a point and so the readers will have something to associate with as Im explaining something. For this case, I will use a train moving into a train station. As the train moves into the train station, it slows, then stops to let people off. After the new passengers load into the train, it begins to accelerate to its new destination.

A. Now lets apply this analogy to the market price of the chart above. As the market nears the end of its previously bearish trend, the size of the black candles begins to shrink as the trend decelerates. Then, the market trend reverses and begins to accelerate upward as the bullish trend strengthens. As the bullish trend accelerates, notice how each trading session is able to close near the high of the session. This is a good sign that the market is continuing to accelerate upward.

B. The last white candle of the first bullish trend shows the market is beginning to decelerate with its inability to close near the high of that session. Then, the following session is a black doji line that indicates the bullish trend has possibly ended and the market might reverse. This doji line forms a Bearish Harami pattern (P0) formation that provides us further indication the market may move downward.

C. The next candle is a large black candle that confirms the bearish harami line and shows us how quickly the market intends to take back the bullish ascent. After this big black bar, another small black candle forms (which is actually a black lower shadow). This small black candle is still a bearish candle, but does not show us the market is continuing to accelerate downward. The interesting thing though is that the small black candle formed with a bearish gap between it and the previous candle another strong bearish sign. Then, the following candle is a very large black candle that closed near the low of the session a good sign of bearish acceleration. Lastly, another small black candle formed again the market shows us that the bearish trend may not continue.

P1. At this point a White Hammer forms that gaps below the previous black candle. The hammer itself indicates that this may be the beginning of a potential market bottom. If we look back at the bearish trend, well notice that there are three distinctive gaps that have occurred within the trend a Bearish Three Gaps Pattern. We know that the bearish three gaps pattern means that the bearish trend will likely exhaust at some point in the future. The next candle to form is white and again gaps above the white hammer. This new pattern formation is a Three River Morning Star pattern a potential bottom formation and a clear identification of market support (shown by the blue line).

Notice that an Engulfing Bearish pattern formed shortly after the Three River Morning Star pattern. The reason I mention this is because this Engulfing Bearish pattern is actually a Last Engulfing Bearish pattern because it did not receive confirmation with the following trading session and actually formed near the end the bearish trend.

D. The type of price activity seen here at D is a clear example of congestion. Nearly every other candle is an opposite color to the prior candle and the market price is not really going anywhere. Also, notice how the market attempted to break the support level created by the Three River Morning Star pattern, but the following trading session drove it back above the support level. This is a good sign that the support level is strong and will likely hold.

P2. The second pattern I would like every one to notice is a Three River Evening Star pattern formation. This pattern occurred shortly after the market attempted to break the support indicated by the Three River Morning Star pattern. This Three River Evening Star pattern is indicating a resistance level (shown in blue) near the high of the Doji Star pattern.

P3. Immediately after the Three River Evening Star patters formed, a Piercing Line pattern formed with a large white candle that closed at the high of the session. This type of candle is called a Long White Closing Bozu Line one of the strongest bullish candle types. The Piercing Line can be acted upon by aggressive investors, although conservative investors should wait for confirmation of the pattern.

 
 
     
 

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