Kicker Signals The Kicker Signal is one of the most powerful Candlestick signals. This is due to the signal having a gap built into it. In some cases the gap is very obvious. In other cases the gap is not always recognized by investors. As described in Mr. Bigalow’s book “Profitable Candlestick Trading”, the Kicker Signal dramatically illustrates investor sentiment has changed.
The J-Hook Pattern The J-Hook Pattern is another example of being alerted when a gap up could occur. The J-Hook Pattern occurs after a trend has had a fairly strong run up. It backs off for a period, most likely profit taking. The stochastics do not get back down to oversold, they start leveling out and curl back up near the 50 area.
As always, there are exceptions to all rules. The Gapping Plays are those exceptions. As previously discussed, the gap at the top of a trend is the exhaustion gap. The same is said for the gap at the bottom of a trend. The appearance of those gaps is either the last gasp exhilaration (at the top) or the last gasp panic (at the bottom).
Now turn the tables over. The same enthusiasm demonstrated by a gap to the upside is just as pertinent for sellers on the downside. A gap down illustrates the desire for investors to get out of a stock very quickly. Identifying clear Candlestick “sell” signals prepares the investor for potential reversals. The Doji at the top, Dark Clouds, Bearish Engulfing patterns are obvious signals
A gap that occurs well after the beginning of a trend reversal, where stochastic are still in the midrange of an uptrend, has different implications. How do you distinguish whether a gap is a potential measuring gap? Evaluate where the stochastic are in the trend. If they are still relatively low, the trend has more room to create another gap before getting to the
In this example Microsoft is charted using 20 day Bollinger bands at 2 standard deviations. Contracting bands warn that the market is about to trend: the bands first converge into a narrow neck, followed by a sharp price movement. The first breakout is often a false move, preceding a strong trend in the opposite direction. A contracting range [C] is evident in June 1998: