Hey Guys,
There were some comments this week concerning the IHL share price spike and the pullback.
I am reading a book at the moment that mentions this similar instance the excerpt is as follows.....
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(From a price surge...) you will generally see a sequence of anywhere from two to six price contractions. This progressive reduction in price volatility, which is always accompanied by a reduction in volume at specific points, signifies that the base has been completed.
For example, a stock will initially come off by, say, 25 percent from its absolute high to its low. Then the stock rallies a bit, and then sells off 15 percent. At that point buyers come back in, and the price rallies a bit more within the base. Finally, it retreats by 8 percent. As a rule of thumb, each successive contraction is generally contained to about half (plus or minus a reasonable amount) of the previous pullback or contraction. Volatility, measured from high to low, will be greatest when sellers rush to take profits.
As sellers become scarcer, the price correction will not be as dramatic, and volatility will decrease as the price makes its way to the right side of the base. Typically, most VCP (Volatility Contraction Pattern) setups will be formed by two to four contractions, although sometimes there can be as many as five or six. This action will produce a pattern, which also reveals the symmetry of the contractions being formed.
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Most of know this is normal price action but is a little tricky to explain when your not an expert.
This guy is a PRO Trader and knows his stuff.
"Think & Trade Like a Champion: The Secrets, Rules & Blunt Truths of a Stock Market Wizard" - Mark Minervini
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