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Monday, February 16, 2009

Island Clusters Reversal pattern


An island Clusters reversal is a chart formation where there is a gap on both sides of the candle after few days. Island Cluster reversals frequently show up after a trending move is in its final stages. An island reversal gets it name from the fact that the candlestick appears to be all alone, as if on an island. A key sign of a valid island reversal is an increase on volume on both the first gap, and then the subsequent gap in the opposite direction. An island reversal formation is often attributed to news driven events that occur in the pre-market or after-hours trading.

Island Reversal - Reversal Candlestick Pattern


An island reversal is a chart formation where there is a gap on both sides of the candle. Island reversals frequently show up after a trending move is in its final stages. An island reversal gets it name from the fact that the candlestick appears to be all alone, as if on an island. A key sign of a valid island reversal is an increase on volume on both the first gap, and then the subsequent gap in the opposite direction. An island reversal formation is often attributed to news driven events that occur in the pre-market or after-hours trading.

Island Top Short-term Pattern

An Island Top is a bearish signal indicating a possible reversal of the current uptrend to a new downtrend. This pattern is an indication of a financial instrument's SHORT-TERM outlook.

The Island Top occurs when the price "gaps" above a specific price range for a number of days and then is confirmed when the price "gaps" down below to the original range.

Island Reversal Bullish Chart Pattern

An Island Bottom is a bullish signal indicating a possible reversal of the current downtrend to a new uptrend. This pattern is an indication of a financial instrument's SHORT-TERM outlook.

The Island Bottom occurs when the price "gaps" below a specific price range for a number of days and then is confirmed when the price "gaps" above the original range.

Island Reversal

An island reversal is a combination of a continuation gap and a breakaway gap in the opposite direction. An island reversal looks like an island, separated from the rest of price action by a gulf in which no trading took place. It begins as a continuation gap, followed by a compact trading range with high trading volume. Then prices gap in the opposite direction and leave behind an island of prices. This pattern occurs very seldom, but it marks major reversal areas. Trade against the trend that preceded an island.

Gaps can serve as support and resistance levels. If greater volume occurred after an upside gap, it indicates very strong support. If greater volume occurred before the gap, then support is less strong.

How does Gaps occur ?

Gaps occur when prices jump in response to a sudden imbalance of buy or sell orders. A scary piece of news often triggers gaps. Gaps on daily charts show reactions to events that took place while the market was closed. Had the news come out during trading hours, a gap might have occurred only on intraday charts and perhaps have led to a wider daily range.

Types of Gaps are :-

  • Filled Gaps
  • Common Gaps
  • Exhaustion Gaps.
  • Breakaway gaops
  • Run away Gaps
  • Continuation Gaps

Continuation Gaps

A continuation gap occurs in the midst of a powerful trend, which continues to reach new highs or new lows without filling the gap. It is similar to a breakaway gap but occurs in the middle of a trend rather than in the beginning. Continuation gaps show a new surge of power among the dominant market crowd.


A continuation gap can help you estimate how far a trend is likely to carry. Measure the vertical distance from the beginning of a trend to the gap, and then project it from the gap in the direction of the trend. When the mar­ket approaches that target, it is time to begin taking profits.

Volume confirms continuation gaps when it jumps at least 50 percent above the average for the previous few days. If prices do not reach new highs or new lows for several days after a gap, you are probably dealing with a treacherous exhaustion gap.

What is a Gap ?


A gap is a chart pattern that consists of two adjacent Candlestisck, where the low of one candlestick is higher than the high of the other Candle.
A Gap is an area on a price chart in which there were no trades. Normally this occurs between the close of the market on one day and the next day's open. Gaps occur when the lowest price traded is above the high of the previous day or, conversely, when the highest price traded is below the previous day?s low.

Gaps appear more frequently on daily charts, where every day is an opportunity to create an opening gap. Gaps on weekly or monthly charts are fairly rare: the gap would have to occur between Friday's close and Monday's open for weekly charts and between the last day of the month's close and the first day of the next month's for the monthly charts. Gaps can be subdivided into four basic categories: Common, Breakaway, Runaway, and Exhaustion.

Common gaps

The common gap is the most frequent type of stock gap. They occur in markets without a stron trend. Common gaps occur within the normal course of trading and are insignificant developments in terms of price action. Common gaps are minor in size, occur often, and are not accompanied by high volume. Common gaps tend to fill soon after they are formed.


They are also referred to as a trading gap or an area gap, the common gap is usually uneventful. In fact, they can be caused by a stock going ex-dividend when the trading volume is low. These gaps are common (get it?) and usually get filled fairly quickly.

Breakaway Gaps

The gap reflects a bullish movement when the price has gapped upwards and a bearish movement when the price has gapped downwards. The breakaway gap has strong implications in the direction of the gap for the stock. Breakaway gaps occur when prices jump outside of a recent trading range or consolidation area. This may happen when a stock opens well above any high made recently or well below any low made recently, as a result of sudden extreme optimism or pessimism. Breakaway gaps are not filled quickly, and leave a blank space on the stock chart. Breakaway gaps often occur as resolutions to common chart patterns, as traders identify a pattern and rush to be the first into the trade. Identifying breakaway gaps properly can lead to very reliable trading signals, particularly when they occur on high volume.

Breakaway gaps are normally accompanied by heavy volume and occur when prices break out of a trading range congestion area.They are usually followed by a series of new highs in an upside breakout or, a series of new lows in a downside breakout, and are not closed.

Friday, January 30, 2009

Technical Analysis based Intraday & Nifty Fut Performance : 30th Jan 2009

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