If a trendline or pattern breaks due to some bad news but it returns back what to do?
There is a technique called the Elliott wave which explains these 'shocks'. The reversal directions you are questioning are part of the pattern, it is known as corrections. The Elliott wave is an indicator based on psychology of investors. Think about it this way, if you see a huge up trend what are you most likely to do, sell and make profit or continue, this is why there is a shock before it continues. Many people will sell to be safe, especially after hearing the bad news they won't risk it. By learning the Elliott wave you'll be able to make an educated decision on whether or not to stay or leave. Here are websites on the Elliott wave: http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:elliott_wave_theory http://www.swing-trade-stocks.com/elliott-wave.html The Elliott wave is helpful in any time frame and works well with momentum. Hope this helps.
Daily &gt; Weekly &gt; Monthly. This statement says that if you use daily returns you will get more noise than if you used weekly or monthly returns. Much of the research performed uses monthly returns, although weekly returns have been used as well. For HFT you would need to detrend the data in order to spot true turning points. As per the chart pattern when ever a stock breaks its 52 week high. This information may differ for penny stocks,small caps and mid cap stocks I would also be getting out of the stock market if I noticed prices starting to fall and a crash possibly on the way. There are some good and quite simple techniques I would use to time the markets over the medium to long term. I have described some of them in the answer to this question of mine: What are some simple techniques used for Timing the Stock Market over the long term? You could use similar techniques in your investing. And in regards to back-testing DCA to Timing The Markets, I have done that too in my answer to the following question: Investing in low cost index fund — does the timing matter? Timing the Markets wins hand down. In regards to back-testing and the concerns Kent Anderson has brought up, when I back-test a trading strategy, if that strategy is successful, I then forward test it over a year or two to confirm the results. As with back-testing you can sometimes curve fit your criteria too much. By forward testing you are confirming that the strategy is robust over different market conditions. One strategy you can take when the market does start to fall is short selling, as mentioned by some already. I am now short selling using CFDs over the short to medium term as one of my more aggressive strategies. I have a longer term strategy where I do not short, but tighten my stop losses when the market starts to tank. Sometimes my positions will keep going up even though the market as a whole is heading down, and I can make an extra 5% to 10% on these positions before I get taken out. The rare position even continues going up during the whole downturn and when the market starts to recover. So I let the market decide when I get out and when I stay in, I leave my emotions out of it. The best thing you can do is have a written trading plan with all your criteria for getting into the market, your criteria for getting out of the market and your position sizing and risk management incorporated in the plan. There are Patterns inside of Patterns. You will see short term patterns (flags / pennants) inside of long term patterns (trend lines, channels) and typically you want to trade those short term patterns in line with the direction of the long term pattern.  Take a look at the attached chart of GPN. I would like to recommend two excellent books on Chart Patterns. Richard W. Schabacker book he wrote in the 1930's. It is the basis for modern technical pattern analysis.  Technical Analysis and Stock Market Profits  Peter Brandt Diary of a Professional Commodity Trader. He takes you through analysis and trades. "There are stocks that have held 100% of the exact same trend (bull or bear) on a date or date range for years. While  history of course doesn't guarantee that the trend will hold for the current year, that fact itself is distinct from the question of whether history is an *indicator* worth building a thesis off of.  The problem is if and when someone thinks ""indicator"" is equivalent to ""definitive answer"".   Answer 2: A dozen big algo traders have disproven this notion.  Answer 3: Price is not only price action itself. It's calendar, evens, binaries, cyclical psychology, etc." Many of the major indices retreated   today because of this news. Why? How   do the rising budget deficits and debt   relate to the stock markets? It does seem strange that there is a correlation between government debt and the stock market.  But I could see many reasons for the reaction.  The downgrade by S&P may make it more expensive for the government to borrow money (i.e. higher interest rates).  This means it becomes more expensive for the government to borrow money and the government will probably need to raise taxes to cover the cost of borrowing.  Rising taxes are not good for business.  Also, many banks in the US hold US government debt.  Rising yields will push down the value of their holdings which in turn will reduce the value of US debt on the businesses' balance sheets.  This weakens the banks' balance sheets.  They may even start to unload US bonds. Why is there such a large emphasis on   the S&P rating? I don't know.  I think they have proven they are practically useless.  That's just my opinion.  Many, though, still think they are a credible ratings agency. What happens when the debt ceiling is   reached? Theoretically the government has to stop borrowing money once the debt ceiling is reached.  If this occurs and the government does not raise the debt ceiling then the government faces three choices: Ultimately no one really knows what causes the markets to rise and fall beyond supply and demand. If more people want to buy then sell, prices go up. And if more people want to sell, prices go down. The news channels will often try to attribute a specific reason to the price move, but that is largely just guess work to fill up the news pages so people have something to read. You may find it interesting to read up on the Elliot wave principle. The crash of 2008 was a perfect Elliot Wave fit. Elliot Wave theory states that social moods (which ultimately drive the stock market) generally occur in a relatively predictable pattern. The crash in September was a Wave 3 down. This is where the majority of people give up hope. However there are still a few people who are still holding on. The markets tend to meander about during wave 4. Finally the last few people give up hope and sell out. This causes the final crash of wave 5. Only when the last person has given up hope can the markets start to go up again.. "I think that pattern is impossible, since the attempt to apply the second half would seem to prevent executing the first. Could you rewrite that as ""After the stock rises to $X, start watching for a drop of $Y from peak price; if/when that happens, sell."" Or does that not do what you want? (I'm not going to comment on whether the proposed programmed trading makes sense. Trying to manage things at this level of detail has always struck me as glorified guesswork.)" It's not stopped. Crossing a moving average is considered a signal to buy or sell. Yahoo stock charts offer the ability to add moving averages to the charts, and you can observe all stocks cross the line regularly.   As a contrast to Victor's charts, you can see that Apple, over the last two years, has traded above and below the 50 day MA. A believer in technical analysis using MA will observe a buy signal in Dec '11 just under $400, with a sell in mid-$500s in May. Moving averages are a form of following the trend, and work well when either trend is strong. It's when the stock is too close to the line that's it's tough to call whether it's time to be in or out. Candle stick patterns are generally an indication of possible short term changes in price direction (if a reversal pattern). A doji is such a reversal candle, and should be read as there could be a short term change in the direction of price action. A doji is most effective at peaks or troughs, and the outcome can be a higher probability if occuring during overbought conditions (at the peak) or during oversold conditions (at the trough). So a doji should be used for short term changes in direction and not a total change in the overall trend. Although there could be a doji at the very top of an uptrend or at the very bottom of a downtrend, we wouldn't know it was the change of the trend until price action confirms it.  The definition of an uptrend is higher highs and higher lows. The definition of a downtrend is lower lows and lower highs. So an uptrend will not be broken until we have a lower high and confirmed by a lower low, or a lower low confirmed by a lower high. Similarly a downtrend will not be broken until we have a higher low confirmed by a higher high or a higher high followed by a higher low. Another thing to consider is that doji's and other candle stick patters work best when the market is trending, even if they are only short term trends. You should usually wait for confirmation of the change in direction by only taking a long trade if price moves above the high of the doji, or only taking a short trade if price moves below the low of the doji. "Remember the 1st Law of Technical Analysis: ""For every analysis there exists an equal and opposite analysis.""  And the 2nd Law of Technical Analysis: ""They're both wrong."" Technical analysis in the absence of hard data is just a lot of hand-waving meant to dazzle CNBC viewers and rope would-be day traders into paying for colored-plot-filled trading platforms. How, mathematically, do you define a bull trap?  Does the lead in trendline have to have a certain minimum/maximum slope?  Does the trough have to be below/above a certain percentage of the peaks?  Does the entire period have to encompass less/more than a certain number of trading days?  Etc. Before you attempt to use such an analysis to predict the future direction of a stock price you need to be able to answer the above questions (and more) rigorously.  Only then can you test your definition against historical stock movements to see whether it has predictive power.  If it doesn't have predictive power, then you start over or tweak your definition until it does. Notice that once you're done with all of the above work you are no longer doing technical analysis and are now doing statistics!" Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period average lines and long period average line then it is bearish in nature. Soon in few days you may find 20 SMA leading downwards followed by closest period and then long. Also SMA and EMA can best be observed in charting software in candlestick mode. Because these moving averages can also be adjusted and viewed based on Opening price, High prices, Low Price or closing price. In you case I guess the data is of closing price data. Overlapping of averages may be sign of reversals. So if you want to buy this stock you may have to wait till all the average lines cross-over and when new trend begins with SMA of shortest avg period (20) leading above the long avg period (90 days in your case). Then you can buy and just follow the trend. I hope it answers you question. Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets.  Consider some examples: Each of those events could be seen in the growing unsustainability of local policies.  ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run.  In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse.  When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough. "If they return to their earlier prices Assuming I don't make too many poor choices That's your problem right there: you have no guarantee that stocks, will in fact return to their earlier prices rather than go down some more after the time you buy them. Your strategy only looks good and easy  in hindsight when you know the exact point in time when stocks stopped going down and started going up. But to implement it, you need to predict that time, and that's impossible. I would adopt a guideline of ""sell when you've made X%, even if it looks like it might go higher."" Congratulations, you've come up with the concept of technical analysis. Now go and read the hundreds of books that have been written about it, then think about why the people who wrote them waste time doing so rather than getting rich by using that knowledge." There was a book written by Harry Dent in the early 90's that talked about the approaching demographic problem. The simple version of his theory is that people spend the most money between 45-49, after which people begin to become a drain on the economy as they utilize government benefits and begin draining retirement plans.   Boomers are moving out of this range and there is no group substantially large enough to follow them, according to him, until the mid 2020s when the Echo Boomers come through.   While he had some things way off and, u fortunately, seems to be overcompensating as of late and only hawking his newsletters, he had some great points in his first book.   To me, you can't fudge those numbers and what he said makes a lot of sense. That seems to be very similar to this article.