ABC's (Tom O'Brien 2003)
What are ABC’s and Fibonacci? The information is extensive and beyond the scope of this overview, but explained in detail in my book Timing The Trade.
ABC’s are a chart pattern that you can learn to recognize. Fibonacci numbers as used in this application are the relationship of the numbers 38.2% and 61.8% to highs, lows, and the current stock price. There is additional leverage in identifying the connection between the price of a stock and the various mathematical streams created as a stock price goes up or comes down.
An 'ABC' is a pattern used to identify the potential value of a stock. Once a stock begins to establish a recognizable rise (a leg), it will at some point level off and ‘retrace’ for a period of time while it catches its breath and some investors take profits. The leg up is referred to as the 'A to B' leg
and is equal to the difference between the highest intraday high at ‘B’ and the lowest intraday value when the leg began the upward run (A). The next value is 'C'. 'C' is the value of the stock when it once again starts to rise from the retracement pattern range and begins to build a confirmed leg up. This is the 'C to D' leg. In simple terms the values are (A to B) = (C to D).
|ABOUT THE AUTHOR
Name: Tom O'Brien
Tom O'Brien is the CEO and founder of Tiger
Financial News Network. Host of two radio shows,
author of two newsletters and author of critically
acclaimed book 'Timing the Trade'.
Click Here for Complete Bio
The market price of stocks tends to lead, not follow news. Thousands of
examples have shown us over the years that whether we agree or disagree,
like it or not something happens to impact the price before news breaks or
a quarterly report is made public. It may not even be illegal insider
information that drives the price up or down. It may be a vendor that has
gotten a huge order for raw material from the company, and he mentions it
to his brother-in-law who is an investor and can put two and two together.
It may be a banker servicing the company notices that they are having cash
flow problems and decides to sell his shares. The possibilities are
endless. The simple fact is that you and I will not have that information
as quickly or as directly as others. For that reason it is important that
we understand how the simple law of supply and demand will force prices to
move up or down, and that we can learn to recognize major moves in advance
through technical analysis.
Is technical analysis always right? Not necessarily, but why not
improve your odds of a successful trade with good technical analysis? Is
fundamental analysis always right? No. How many times have you watched a
company stock value languish or fall, in spite of the fact it has a
beautiful bottom line? Many a fortune or college tuition has been
vaporized on trades made on companies with a beautiful PE and five
quarters of sequential growth.
There are many different mechanical systems that give buy and sell
signals in the market. Some are as simple as a Head and Shoulders
patterns, top or bottom formations, or computer biased proprietary
systems. These systems are evaluating many indices occurring in the market
and will give you signals from which you can make your trading decisions.
A judgmental trader is going to be using several principles applied in
certain market conditions to produce consistent results. This approach
relies heavily on observations of the market and using those principles to
find the particular stock or market to trade. This is the focus of the
information in this book. The more you study these principles, the higher
the degree of proficiency that you will attain. The more I learn, the more
I realize there is to learn and that the learning curve is never ending,
forming a full circle of continuous education and opportunity.
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