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Reversals

Stock price reversals following end-of-the-day price moves█ Stock price reversals following end-of-the-day price moves In the intriguing world of stock trading, the research paper "Stock price reversals following end-of-the-day price moves" by Andrey Kudryavtsev takes a deep dive into the dynamics of stock price behavior, particularly focusing on interday reversals. Key to this study is the exploration of potentially profitable contrarian strategies. Preceding research has shown that these strategies, which bet against the current market trends, can yield significant abnormal returns – approximately 1.7% weekly and 2.5% monthly. The study analyzes thirty stocks from the Dow Jones Industrial Index, focusing on high-to-close and low-to-close price differences. It finds that stocks usually have higher returns following days with significant end-of-day price drops and lower returns after days with end-of-day price rises. These patterns suggest a market correction of overreactions. Based on these findings, the construction of daily-adjusted portfolios shows significantly positive returns, indicating the profitability of trading strategies based on these reversal patterns. █ Research Background and Hypothesis In stock trading, the concept of price overreaction is not new. Prior studies have established that stock prices often overreact to news, leading to a subsequent correction or reversal to a more 'fair' reaction level. This is particularly evident in intraday stock price movements, where overreactions and reversals are commonly observed. To investigate this, the study utilizes high-to-close and low-to-close stock price differences as proxies for end-of-the-day price decreases and increases. These price differences are compared for each stock in the sample and on each trading day. The hypothesis is that the daily return of a stock will be higher if its previous day's high-to-close difference is greater than the low-to-close difference. █ Methodology Let's get into the nuts and bolts. The study focused on thirty stocks that form the Dow Jones Industrial Index. Trading data from January 2, 2002, to September 30, 2011, encompassing 2,456 trading days was analyzed. Kudryavtsev used these stocks' daily high, low, and closing prices, as recorded on finance.yahoo.com. But it wasn't just a straightforward data grab. The prices were meticulously adjusted for dividend payments and stock splits. This adjustment was done by multiplying each actual price by the ratio of the day's reported adjusted closing price (as per Yahoo Finance) to the actual closing price. ⚪ For each stock and for each trading day (except the first day of the sampling period), two key metrics were calculated: High-to-Close Price Difference (RHCit): This measures the difference between the stock’s daily high and closing price. RHCit := math.abs(high - close) / close * 100 Low-to-Close Price Difference (RLCit): The difference between the stock’s daily low and closing price. RLCit := math.abs(low - close) / close * 100 These differences are expressed as absolute percentage price differences, ensuring they are non-negative values. By focusing on these two metrics, the study aimed to capture the essence of the stock's performance and its potential for a reversal the following day. █ Findings and Analysis For most stocks analyzed (28 out of 30), mean daily returns were higher following days with dominant high-to-close price differences, i.e., days closed with price decreases. This trend was statistically significant for most of these stocks, with 22 showing significant mean return differences at the 5% level, including 15 at the 1% level. Furthermore, for most stocks (29 out of 30), mean daily returns were positive when the previous day's high-to-close price difference prevailed and negative when the low-to-close difference did. These results support the study's hypothesis, demonstrating a pattern of reverting behavior in stock prices following end-of-the-day price moves. Such findings contribute to the existing literature on stock price overreactions and market inefficiencies and suggest potentially profitable opportunities for traders who can capitalize on these predictable reversal patterns. █ Implications for Traders Andrey Kudryavtsev's study offers valuable insights for traders, especially those focusing on short-term investments. The key findings highlight a consistent pattern where stocks tend to reverse their price movement the following day after significant end-of-day changes. For traders looking to capitalize on these insights, the study suggests constructing portfolios that adjust daily based on the observed reversal pattern. This involves holding long positions in stocks expected to yield high returns (following large high-to-close price decreases) and short positions in stocks expected to yield low returns (following large low-to-close price increases). By comparing the high-to-close and low-to-close price differences to the mean and median measures for the total sample, traders can identify stocks likely to follow the reversal pattern. This approach could be particularly effective for day traders or those who make frequent, short-term trades, as it leverages the daily fluctuations in stock prices. However, traders need to consider transaction costs and market volatility, which can impact the profitability of such strategies. █ Reference Kudryavtsev, A. (2013). Stock price reversals following end-of-the-day price moves. Economics Letters, 118(3), 203-205 ----------------- Disclaimer This is an educational study for entertainment purposes only. The information in my Scripts/Indicators/Ideas/Algos/Systems does not constitute financial advice or a solicitation to buy or sell securities. I will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, backtest, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on evaluating their financial circumstances, investment objectives, risk tolerance, and liquidity needs. My Scripts/Indicators/Ideas/Algos/Systems are only for educational purposes!
OANDA:DE30EUREducation
by Zeiierman
3
HOW-TO: Cosmic Cloud #1📡 INDICATOR Cosmic Cloud 👩‍🏫 HOW-TO CONTENT This how-to shows that even price movement during major events like global market crashes adhere to the indicator levels. ✅ POINTS the price drop starts after reaching a resistance level (top-left chart) or the price drop is confirmed by a downward breakout from one of the support levels the 2020 stock market crash (👑) reaches its lows at various Cosmic Cloud supporting levels 🔔 USEFUL ALERTS Resistance Channel Re-entry ↓ Basis Test ↓↑ Support Channel Entry ↓
TVC:DJIEducation
by cosmic_indicators
Poor Reversals GuidePoor Reversals Indicator This indicator finds Poor Reversals. Poor reversals are reversals in price with consecutive highs or lows that are close together. Look for the different types of highs and lows. Some say candle patterns don't matter, but they forget it's the orderflow that makes the pattern. Find poor, tweezer , and 1 tic rejections and study what happens next. We don't need to read the depth of market to see what the orderflow is saying. They are called poor because the auction didn't run its course. It didn't continue the direction until all activity in that direction was exhausted. Proper reversals create excess. Excess is a long tail/wick. A proper reversal leaves a long tailed excess unfilled. The different highs and lows give clues to what kind of orderflow happened there. The difference between them is which high or low happened first. Price does often come back to these areas and clears them up with a proper reversal. We can see them on all timeframes. Knowing what they mean in the orderflow helps with reading charts. The Poor Reversals are: Poor 1 Tick Rejection Tweezer When looking at 2 bars that have very close high or lows, there are a few different types. They are each poor and can be further defined as each are price action clues. If next low is higher, it's a poor low If next low is lower, it's 1 tic rejection If next low is equal, it's tweezer bottom If next high is lower, it's a poor low If next high is higher it's 1 tic rejection If next high is equal it's tweezer top Poor Highs and Lows: The high or low comes first. The next bar does not go past it. Poor highs and lows are often created from price exhaustions. This means at poor highs buyers are trapped. At poor lows sellers are trapped. Price ran out of steam to continue in that direction. There wasn't enough activity/participation to continue the auction in that direction. Poor lows are defined when 2 lows are very close, and the 1st bar is lower. The 2nd comes very close to a new low. It happens most when shorts, at the moment, "run out of steam". They were "too aggressive" and got themselves "short in the hole". When a poor low is made, price will bounce because shorts are buying to protect profits. Poor highs are defined when 2 highs are very close. The 1st bar is higher. The 2nd comes very close to a new high. It happens most when longs, at the moment, "run out of steam". They were "too aggressive" and got themselves "long in the tooth". When a poor high is made, price will pullback because longs are selling to protect profits. 1 Tick Rejections: The high or low comes last. The last bar goes just a little bit beyond the first bar. A "1 tic rejection" happens when a new low is made and quickly rejects. The name is misleading. It doesn't have to be "1 tic". Different markets have different measurements. For ES, it's less than 8 tics. For NQ, it's about 5-20 points. It varies depending on relative market volatility . 1 Tick highs are defined when 2 highs are very close, and the 1st high is lower. The second high is a small peek above. This happens when longs are aggressive and drive price up. Price makes a newer high and longs rapidly start taking profits. Their selling activity drives price lower. In the orderflow, longs likely closed at the same time new shorts sell. This competition to sell drives price lower. At the high, it says longs saw it wouldn't go higher and they took rapid exit. 1 Tick lows are defined when 2 lows are very close, and the 1st low is higher. The second low is a small peek below. This happens when shorts are aggressive and drive price down. Price makes a newer low and shorts rapidly start taking profits. Their buying activity drives price higher. In the orderflow, shorts likely closed at the same time new longs buy. This competition to buy drives price higher. At the low, it says shorts saw it wouldn't go lower and they took rapid exit. Tweezer Tops and Bottoms The highs or lows of the bars are equal. Tweezers most often mean that an aggressive trader is influencing price. They drove price in one direction and then quickly reversed sentiment. Tweezers most often happen in stop hunts. An aggressive trader found where the stops were located and then entered an aggressive order to turn the market. Tweezer Tops are defined when 2 highs are equal. The first bar sets the high. The second bar matches the high. This happens when there is an active seller entering. It could be simple profit taking from longs or new aggressive shorts. In price action, price will move up to find short stops. When the stops are found, the market reverses sharply lower. Tweezer Bottoms are defined when 2 lows are equal. The first bar sets the low. The second bar matches the low. This happens when there is an active buyer entering. It could be simple profit taking from shorts or new aggressive longs. In price action, price will move down to find long stops. When the stops are found, the market reverses sharply higher. Poor Reversals can be Poor, 1 Tick Rejections, or Tweezers. They are all considered poor and upon further investigation we can see they are created from different conditions in the orderflow. They are not called Poor Reversals because they are weak. They are called poor because of the action that happened there. One side got caught in a bad position. Other sharks in the market smelled blood and ripped them apart. This indicator is a work in process. While the concepts are great for real time trading, this indicator is not designed to be used in real time trading. It will repaint based on the bar close. The purpose of this indicator is to train our brains to see these nuances on candle charts. Some say candle patterns don't matter, but they forget it's the orderflow that makes the pattern. We must make split second decisions and knowing the context behind the orderflow reduces response time. These poor reversals don't have to retest, and the best ones won't come back. I use these concepts to find exits, where my trades might be wrong, confirmation I'm on the right side. It's amazing how these simple nuances can turn the markets. But sure enough, they do. Check them out in all time frames. It's a fun indicator to play with. Some markets do require tweaks to the “Ticks” setting. Too big and charts will be noisy. Too low and not much will show up. A general rule of thumb is more volatile markets need higher tick values while less volatile need lower Tick values. Higher timeframes are also more reliable than lower time frames. I've included some customizable settings and I plan on adding more in the future. Enjoy!
CME_MINI:ES1!Education
by CoreySurles
1
Divergences Explained by a RaccoonThis video's purpose is to go over the fundamentals of divergences. How to spot them and the effects they have. I might make a video later on practical application and how to trade them; as well as how to combine them with other technical analysis tools and techniques. And I should be doing a stream soon where we just spend an hour hunting divergences on different commodities; whether it's crytpo, stonks, or forex. I hope this helps those trying to understand divergences. Let me know if anything seems off or is confusing, I am more than happy to make another video to clarify anything that seems off or incomplete. Thanks for watching.
FTX:BTCUSDEducation
by GR3ND3L
61
Fast Market Moves And FOMO - Don't Get TrappedWhen the market moves strongly in a direction, you might feel the need to jump in and chase the trade because of the Fear Of Missing Out (FOMO). Don't do that. In fact, if you spend some time looking at the charts, you will find that often with such sharp fast market moves, the potential for a trade in the same direction as the fast move is over by the time people start reacting out of fear of missing out. This is when trades get squeezed and people lose money fast. When you listen to experienced traders talk about such fast moves, you will often hear comments like "Wow, XYZ has rocketed up, but it's too late to enter now, I'll rather wait for a good pull back and see if there is an opportunity to enter later". You might actually hear them say that the move has gone too far from the moving average (maybe the 9 EMA or even 20 EMA) and that it's more likely that it will cause a "rubber band" effect with the price action moving back closer to the average. The market may continue to rocket up or down, but let it go, don't chase that move, wait for your turn to get a good entry spot. This is true no matter what you trade, Forex, Crypto, Stocks or Commodities, they all exhibit this tendency to recover (often quickly) when the price has suddenly moved too far from the average price. New traders are often caught off-guard by this, and tend to jump into the trade exactly when others are exiting their positions, so don't give in to FOMO. The market will give you many trading opportunities during the day, be patient and don't trade out of fear or greed.
TVC:GOLDEducation
by EasyTradingSignals
Simple Patterns Tutorial, The Correct Way To Trade Double Tops In this short tutorial, we will look at the three most common Double Top formations along with how to properly trade them and when/where they typically appear on a chart. Double Tops work very well as trend continuation patterns for the obvious reason that you are trading with the underlying trend (strength) in the market however, Double Tops can also be a great tool for identifying and trading trend reversals. I do not recommend trading these patterns as reversals at every support or resistance level, as trading this way will most likely not be a consistently profitable trading strategy. One method to trading these patterns as reversals is to use higher timeframes to identify important price levels. For Example- You may use the Daily chart to identify important support/resistance structure levels while using the 1hr chart to actually identify and trade the double top itself.. Every strategy should have something called conditions and criteria's for entry.. If you follow my work, you have heard me say this in the past. In the case of this example, A daily level of structure Support/Resistance would be our condition and a double top on the 1hr chart would be our criteria for entry.. You rules should state this: Condition: 1) Price must retest a daily level of support or resistance in order to look for entry criteria. Criteria: 1) After price has retested a daily level of support/resistance, I am allowed to look for a double top entry on the 60 minutes timeframe. -See example of this exact trade at bottom of description (Chart 4 and 5) Chart One: Most Common Double Tops Chart Two: Examples Of Double Top Reversals & Trend Continuation Chart Three: Double Top Trade Examples Chart Four: Daily Retest Of Support/Resistance: Chart Five: Double Top On 60 Minute Timeframe: Often, you will notice that price is up-trending on the daily chart but down-trending on the hourly charts. Many traders get confused regarding how to handle this confliction of trend.. One way to handle this is by doing what is stated above. Use a higher timeframe like the daily chart to find important price levels, and use a lower timeframe like the hourly or minute charts to trade at these levels. Just because the daily trend is up does not mean we cannot trade a double top reversal on the 1hr chart as that timeframe may be down-trending in a perfectly healthy daily uptrend.. I hope this was explained clearly, please feel free to ask me any questions you have in the comments below or via private chat & I will be happy to help. Also please let me know what double top you think is the best to trade (see chart 3) in the comments below. I will do a follow up lesson to answer this question I am asking you. I think the answer may surprise you & know it will be a AAH-HHA moment in your trading journey! If you would like to put in a request regarding what trading content you'd like to learn more about, please use the link below to submit a vote for future trading tutorials and topics! tradersnsights.myshopify.com Free Position Size Calculator: goo.gl TradersNsights Facebook: www.facebook.com Thanks Traders, as always I hope this was helpful to you!
Education
by Alec40
8