Another Face Of A Wide-Range Bar
A stock is in a
downtrend. Suddenly, it stages an incredible rally by forming an
extremely long wide-range bar that envelopes the three prior bars. What are you
going to do? Is this a sign of a bullish reversal? If it looks that obvious to
every trader, chances are it is not going to work out. In fact, unusually long
wide-range bars often signal that buyers are out of their buying power. Let me
show you an example.
The chart below is a five-minute chart of L-3 Communications Holdings (LLL).
Focus on the 10:45 a.m. bar. It almost totally engulfed the three previous bars,
and it appeared to be ending the downtrend. But the stock could not reverse. It
simply resumed its downtrend. Now look at the 11:50 a.m. bar. A similar story
developed. The stock could not follow through to the upside.
Don’t be fooled by the size. Wait for confirmation.