How to Recognize Weakness in a Sideways Candlestick Pattern Use Stock Volume and Leading Indicators

By | May 11, 2022

Stocks and the Stock Market move sideways about 70% of the time. Yes, some stocks get into periods of moderately trending activity. However, if you really look at charts just to see the 3 trends of Uptrending, Downtrending, and Sideways, you will see that stocks are in some kind of sideways candlestick pattern most of the time.

Traders do not spend sufficient time learning how to recognize which of the several types of sideways action is underway. Being able to accurately determine what type of sideways action is forming before the sideways candlestick pattern completes will help tell you which direction the price will move, either the Uptrend Breakout or the Downtrend Breakout.

In order to really determine the direction for the breakout in recognizing weakness in a sideways candlestick pattern, you must use more than Price Indicators.

Price Indicators are incapable of leading price because price must move in that direction before the indicator can show that in its line graph.

Shortening the period settings does not make the Price Indicator lead; rather, it merely makes the Price Indicator overreactive to every price directional change that occurs naturally in the Daily View or Intraday View of charts.

Chart example #1 below shows a sideways candlestick pattern that is 4 points wide.

This chart has a typical Platform Candlestick Formation. The assumption might be that the stock will break to the upside due to the presence of giant Buy Side Institutions using Dark Pools. That would be only if you considered Price and did not check stock Volume Indicators, which reveal if the Dark Pools are in Quiet Accumulation, Rotation, or Distribution mode.

When studying the stock Volume Indicators for chart example #1 above, there is clear evidence that, while there are some Smaller Funds buying, stock Volume overall is declining due to large lots selling as this stock moves sideways in a fairly tight range.

There is a surge of stock Volume that moves the indicators into an extreme Angle of Ascent™ while Price maintains. This is a divergence pattern because Price and stock Volume diverged. This is a negative divergence, as Price and stock Volume should be in harmony or in sync.

The stock immediately sells down the next 3 days because large lots are on the sell side. Then, over the next few days, the stock consolidates just slightly lower. However, stock Volume Indicators all turn to the downside quickly. The stock gaps twice and halts at a prior Dark Pool Buy Zone™ which is at a 10-point lower level.

Summary

Recognizing weakness in a sideways candlestick pattern is crucial if you want consistent success trading stocks. Price patterns are no longer sufficient by themselves to reveal the information needed to determine the direction of the stock after the sideways candlestick pattern completes.

This particular sideways candlestick pattern is consistent with an Earnings Report release. During the sideways candlestick pattern, Dark Pool Quiet Rotation™ occurred on a very consistent basis. This giant Buy Side Institution activity was hidden from Smaller Funds and Retail Traders. The gaps are all driven by bad news and panic dumping.

During Earnings Seasons, it is imperative to always read sideways action correctly and be prepared for Earnings Reports. High Frequency Trading Firms (HFTs) use the Earnings News to gap stocks, especially the most popular big blue-chip stocks, which are what most Retail Traders prefer to trade.

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