Trend Analysis
- Price Persistence (continuity of trend action): Prices tend to persist for longer
periods when price is of high quality. High quality prices have:
■ (^) Relatively small bar ranges
■ (^) Approximately equal bar ranges
When these two qualities are present, price tends to move in a predictable
manner. The trends and reversals are clear and decisive, making the tracking of
price action much easier for the trend trader. In this mode, prices exhibit rela-
tively low levels of volatility. See Figure 5.17.
- The Average Bar Stochastic Ratio (closing price compared to bar range): A
gradual decline in close prices with respect to the bar itself is also an early
indication of potential weakness in an uptrend. In a similar fashion, a gradual
increase in close prices with respect to the bar itself is also an early indication
of potential bullishness in a downtrend. We measure this increase or decline in
close prices with respect to the bar itself as a ratio, and it is referred to as the
bar stochastic. Unlike the standard stochastic oscillator which compares the
relative position of the closing price over the last N periods, the bar stochastic
measures the relative position of the closing price within the bar itself. It is es-
sentially a one‐period %K. A simple moving average of the bar stochastic ratio
is used to monitor this price action behavior. See Figure 5.18.
figure 5.16 Decreasing Bar Range/ATR Indicating Potential Trend Weakness on the
Weekly Chart of the GLD SPDR Trust Shares.
Courtesy of Stockcharts.com