The major feature of this chart is the
multi-line channel running through the middle (1). I called
this channel the Fly Paper channel, because stocks generally
get stuck in this channel., when they are trying to move from a
bullish to a bearish trend, or from a bearish to a bullish
trend. If the visualization of getting stuck in Fly Paper does
not work for you, then think of this channel as a huge mountain
or deep valley in which the market participants are going to
have to cross before a new trend can take place. In most cases,
they don't make it unless a major fundamental change in the
condition of the stock has occurred.
When prices are above the channel, we look
to buy the dips (2).
When prices break the channel, we look to
sell the rallies (3).
And last but not least, we also track, just how far a
stock is likely to move in one day, or one week using
an indicator called Average True Range. And in this
example, the stock will move an average range of $3.90