Secret Free Stock Chart Patterns
The Hook Punch is a stock chart pattern label I've created
. This chart pattern can often be seen following a large downward move.
What happens is that following a huge downward move, the stock goes into a downtrend channel.
After typically 2 to 3 bounces up against the downtrend channel wall, the stock does a breakout move. After having a short rally, the stock then does a 38.2% to 50% Fibonacci retracement. It may or may not go into an uptrend channel.
The pattern resembles a giant hook with the punch being the breakout of the downtrend channel.
Traders can enter a long on the downtrend channel breakout, or a good rebound off a 38.2% to 50% retracement.
There may be more variation with this pattern than of most stock chart patterns I have seen which is why more stock traders haven't seen this before and I am left to invent the pattern myself. Due to this high variation, it is crucial that you recognize the psychology behind the pattern so that you can separate out the noise.
A huge plunge is the very first stage within the Hook Punch. Large numbers of investors panic and race to the exits or maybe figure that it is now time to book gains. That translates into an initial quick decline. Because panic traders and profit takers exit the stock, more rational short sellers dominate. That translates into a far more orderly downtrend channel. The average life cycle with the downtrend channel is three to five bounces inside the channel. When the life cycle of the downtrend channel comes to an end, bulls just are unable to pass up the outrageous bargain at this low level. The stock moves up and once it breaks the downtrend channel wall, short sellers race for the exit and take profits. This leads to the punch move through the downtrend channel wall. Following the panic short covering and short profit takers exit the stock, not enough buyers are going to run after the stock on the spike breakout. Many buyers lament that they did not buy earlier and promise to go in the stock if it pulls back enough. A Fibonacci retracement usually between 38.2% and 50% occurs. Buyers who missed buying the first low jump in as being the stock is not overbought short term. That buying forms a higher low on the stock chart and the stock is then liberated to move higher.
Take into account the Hook Punch can also result in a sucker punch to bulls having a decline after the Fibonacci rebound.
In the short movie below, I reveal to you a current Hook Punch that formed within the Nasdaq.
free stock chart patterns
by: Fred Stiles