Resting Days are important during a sideways market. A resting candle is a continuation pattern, indicating that the buyers are waiting briefly but that the original run is still intact.
A Pre-Buy is an entry pattern used by day, swing, and momentum traders.
A resting day pre-buy pattern is typically a small candle or doji that forms at or near the high of the previous day on a rising stock run, or at the low on a falling stock price run. It is a pause in price action, a resting phase that can last a day or several days.
It is what creates the stairstep pattern we use in swing and momentum trading. During markets when the follow-through is not spectacular and swing trades have smaller or shorter runs, an advanced entry technique is to find stocks that are resting with a doji or small candles at or near the high of the previous day’s longer candle in an uptrending stock. If there are several small candles or doji all in a row, then it should be recognized as the step pattern of the springboard just prior to the springboard forming.
Many traders, regardless of whether they are brand new or have been trading for 20 years, just don’t understand candlesticks as thoroughly as they should and rely upon the indicators more than they should. Instead of the indicators being a confirmation of the price action, they become a crutch for the trader who has not taken the time or hasn’t studied price action sufficiently to make price the first thing to study in their trade analysis. If you can’t accurately read a chart, then a pre-buy is going to be a problem for you to see and interpret accurately. You are going to choose tiny runs instead of a flat or horizontal step pattern.
How do you find these resting day patterns or steps for a pre-buy entry? You find them usually on days when the market was flat overall. A flat market day is a very important day. It tells you the dominant trend is still intact and that the market is merely resting. We get a lot of these days and often traders dismiss them as unimportant. But for very short-term trades, they are quite important as you can often find excellent pre-buy entries at very low risk on those quiet market days. A quiet market is a resting market, taking a breather after some big gains. It is not the same as an insipid market that occurs during choppy weak markets. A quiet market is building underlying energy and can be a signal for a big move.
After a quiet or flat market, swing traders should be scouring their scans for stocks that have resting day patterns for a pre-buy pattern.
If the market is running, it is not likely you will find these resting days or pre-buy patterns. Pre-buy patterns always are very small candles or doji. Small to no wicks are best on an uptrending stock. Extremely long wicks and tails, both on a single candle, are not resting patterns but indecision patterns, which have a totally different psychology for the buyers.
Trade wisely,
Martha Stokes CMT
Member of the Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
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