The last three days action of a stock or commodity can often be used to point the direction of the next minor effort. A turn in the minor trend can take many forms, some of which are unpredictable. However, there are certain characteristics in three-day patterns which can occasionally be used advantageously for evaluating potential turning points in the minor trend.
In any given three days action there are nine potential support / resistance points, three highs, three lows, and three closes. One rule might be to buy on the close of the third day, if the closing price is above the average of these nine points. However, although a set of rules can be put down, one must recognize they are not absolute. This is intended to be an additional tool and is not a trading systems.
The requirements for an up drive are:
- Three days action with the first two days closings in close proximity to each other.
- First two days have a smaller spread than the third day.
- Close on third day is above the 62% point of the daily range and is above the two previous closes.
- Low on third day is above low of second day.
- Added significance of a possible minor turn is present if market is at a support point or trendline.
An example of these rules follows:
Note the third day has a wider spread and a high close with the low above the second day low.
The strongest three-day equilibrium reverse is where the high and close on third day are above the high of two previous days. The reverse of the above is true for a downmove.
