January 20, 2009

Peaks and Troughs Trading

By Planet Wealth

At times a stock can travel sideways, not really making any sort of significant price moves. As a small term trader, we like looking at around 3 months worth of data to give us an thought of the direction of the stock.

Peaks and Troughs is a very well loved and successful way of determining whether buyers or sellers are in control. Higher Troughs (as discussed in previous posts) tell us the buyers are in control and Lower Peaks tells us sellers are in control.

The chart below is of CMJ. Though it has not been able to break out of the $2.25 resistance or $1.85 support for the last 3 months, there is a way to tell which way is more likely to head when it breaks away from this consolidation so we can be prepared for a breakout day. It is with peaks and troughs. Since late November the stock has not been able to meet the previous high, making Lower Peaks (LP) telling us sellers are more prevalent and the stock is more likely to break down.

(click on image to enlarge)
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