decline. In a downtrend,each decline falls to a lower low than the preceding decline and each rallystops at a lower level than the preceding rally. In a trading range, most ral-lies stop at about the same high and declines peter out at about the same low.
A trader needs to identify trends and trading ranges. It is easier to tradeduring trends (Figure 20-1). It is harder to make money when prices are flatunless you write options, which requires a special skill.
Trading in trends and in trading ranges calls for different tactics. Whenyou go long in an uptrend or sell short in a downtrend, you have to give thattrend the benefit of the doubt and not be shaken out easily. It pays to buckleyour seat belt and hang on for as long as the trend continues. When you tradein a trading range, you have to be nimble and Close out your position at theslightest sign of a reversal. ae
Another difference in trading tactics between trends and trading ranges isthe handling of strength and weakness. You have to follow strength duringtrends—buy in uptrends and sell short in downtrends. When prices are in atrading range, you have to do the opposite — buy weakness and sell strength.20. TREND AND TRADING RANGE
a
Soybeans
Figure 20-1. Trend and Trading Range
A pattern of lower bottoms and lower tops defines downtrends.
Soybeans declined from November until the middle of January. Bottom4 was lower than bottom 2, and peak 3 lower than peak 1. The break ofthe downtrendline at point 5 signaled the end of the downtrend. A bro-ken downtrend can lead to either a trading range or an uptrend.
The November-January downtrend has dissolved into a trading range,defined by horizontal lines drawn through the low 4 and highs 3 and 6.When the decline from high 6 stopped at a higher low 7 without reach-ing the bottom of the range, you could draw a preliminary uptrendline.A breakout from the range at point 8 confirmed the beginning of a newuptrend.
At the right edge of the chart, prices are hovering just above theiruptrendline. It is a buying opportunity because the trend is up. Thedownside risk of a trade can be limited by placing a stop either belowthe latest low or below the trendline. Notice that daily trading ranges(the distances from highs to lows) are relatively narrow. This is typical ofa healthy trend. Trends often end after several wide-range days-a sign ofblowoff action.
 82 CLASSICAL CHART ANALYSISMass Psychology
An uptrend emerges when bulls are stronger than-bears and their buying forcesprices up. If bears manage to push prices down, bulls return in force, break thedecline, and force prices to a new high. Downtrends occur when bears arestronger and their selling pushes markets down. When a flurry of buying liftsprices, bears sell short into that rally, stop it, and send prices to new lows.
When bulls and bears are equally strong or weak, prices stay in a tradingrange. When bulls manage to push prices up, bears sell short into that rallyand prices fall. Bargain hunters step in and break the decline; bears covershorts, their buying fuels a minor rally, and the cycle repeats.
A trading range is like a fight between two equally strong gangs. Theypush one another back and forth on a street corner but neither can control theturf. A trend is like a fight where a stronger gang chases the weaker gangdown the street. Every once in a while the weaker gang stops and puts up afight but then is forced to turn and run again.
Prices in trading ranges go nowhere, just as crowds spend most of theirtime in aimless milling. Markets spend more time in trading ranges than intrends because aimlessness is more common among people than purposefulaction. When a crowd becomes agitated, it surges and creates a trend.Crowds do not stay excited for long—they go back to meandering.Professionals tend to give the benefit of the doubt to trading ranges.
The Hard Right Edge
Identifying trends and trading ranges is one of the hardest tasks in technicalanalysis. It is easy to find them in the middle of a chart, but the closer youget to the right edge, the harder it gets.
Trends and trading ranges clearly stand out on old charts. Experts showthose charts at seminars and make it seem easy to catch trends. Trouble is,your broker does not allow you to trade in the middle of the chart. He saysyou must make your trading decisions at the hard right edge of the chart!
The past is fixed and easy to analyze. The future is fluid and uncertain. Bythe time you identify a trend, a good chunk of it is gone. Nobody rings a bellwhen a trend dissolves into a trading range. By the time you recognize thatchange, you will lose some money trying to trade as if the market was stilltrending.20. TREND AND TRADING RANGE 83
Many chart patterns and indicator signals contradict one another at theright edge of the chart. You have to base your decisions on probabilities in anatmosphere of uncertainty.
Most people cannot accept uncertainty. They have a strong emotionalneed to be right. They hang onto losing positions, waiting for the market totum and make them whole. Trying to be right in the market is very expen-sive. Professional traders get out of losing trades fast. When the market devi-ates from your analysis, you have to cut losses without fuss or emotions.
Methods and Techniques _)
 
There is no single magic method for identifying trends and trading ranges.There are several methods, and it pays to combine them. When they confirmone another, their message is reinforced. When they contradict one another,it is better to pass up a trade.
1. Analyze the pattern of highs and lows. When rallies keep reachinghigher levels and declines keep stopping at higher levels, they identifyan uptrend. The pattern of lower lows and lower highs identifies adowntrend, and the pattern of irregular highs and lows points to a trad-ing range (Figure 20-1).
2. Draw an uptrendline connecting significant recent lows and a down-trendline connecting significant recent highs (see Section 21). Theslope of the latest trendline identifies the current trend (Figures 20-1,20-2, 21-1).
A significant high or low on a daily chart is the highest high or the lowestlow for at least a week. As you study charts, you become better at identify-ing those points. Technical analysis is partly a science and partly an art.
3. Plot a 13-day or longer exponential moving average (see Section 25).The direction of its slope identifies the trend. If a moving average hasnot reached a new high or low in a month, then the market is in a trad-ing range.
4. Several market indicators, such as MACD (see Section 26) and theDirectional system (Section 27), help identify trends. The Directionalsystem is especially good at catching early stages of new trends.84 CLASSICAL CHART ANALYSIS
Heating Oil
Figure 20-2. Trendlines Identify Trends
The most important message of a trendline is the direction of its slope.When the slope is up, trade that market from the long side. When theslope is down, trade that market from the short side.
The uptrendline connecting bottoms 1 and 2 identifies an uptrend. Ittells you to trade heating oil only from the long side. Notice that some-times prices break their uptrendline but later pull back to it from below(3). This is a superb shorting opportunity. This happens again at point 7,where prices rise to their old uptrendline after breaking it.
When you trade in the direction of the trendline, you are usually trad-ing in the direction of the market tide. At the right edge of the chart, youneed to look for a shorting opportunity because the trend is down. Donot sell short immediately, because prices are too far below their down-trendline and your stop would have to be too wide. It is essential to waitfor trades with a good risk/reward ratio. Patience is a virtue for a trader.
 
Trade or Wait
When you identify an uptrend and decide to buy, you have to decide whetherto buy immediately or wait for a dip. If you buy fast, you get in gear with thetrend, but your stops are likely to be farther away and you risk more.
If you wait for a dip, you will risk less but will have four groups of com-20. TREND AND TRADING RANGE 85
petitors: longs who want to add to their positions, shorts who want to get outeven, traders who never bought, and traders who sold too early but are eagerto buy. The waiting area for a pullback is very crowded! Markets are notknown for their charity, and a deep pullback may well signal the beginningof a reversal. This reasoning also applies to downtrends. Waiting for pull-backs while a trend is gathering steam is an amateur’s game.
If the market is in a trading range and you are waiting for a breakout, youhave to decide whether to buy in anticipation of a breakout, during a break-out, or on a pullback after a valid breakout. If you trade multiple positions,you can buy a third in anticipation, a third on a breakout, and a third on apullback.
Whatever method you use, there is one money management rule that willkeep you out of the riskiest trades. The distance from the entry point to thelevel of a protective stop should never be more than 2 percent of youraccount equity (see Chapter 10). No matter how attractive a trade is, pass it
up if it requires a wider stop.
Money management tactics are different in trends and trading ranges. Itpays to put on a smaller position in a trend but use a wider stop. Then you willbe less likely to get shaken out by reactions while you keep risk under control.You may put on a bigger position in a trading range but use a tighter stop.
Finding good entry points is extremely important in trading ranges. Youhave to be very precise because the profit potential is so limited. A trend ismore forgiving of a sloppy entry, as long as you trade in the direction of thetrend. Old traders chuckle: “Do not confuse brains with a bull market.”When you cannot tell whether the market is in a trend or in a trading range,remember that professionals give the benefit of the doubt to trading ranges.If you are not sure, stand aside.
Professionals love trading ranges because they can slide in and out ofpositions with little risk of being impaled on a trend. Since they pay low orno commissions and suffer little slippage, it is profitable for them to trade ingently fluctuating markets. Those of us who trade away from the floor arebetter off trying to catch trends. You can trade less frequently during trends,and your account suffers less from commissions and slippage.
Conflicting Timeframes
Most traders ignore the fact that markets usually are both in a trend and in atrading range at the same time! They pick one timeframe such as daily or86
CLASSICAL CHART ANALYSIS
Eurodollars —- Weekly
Eurodollars — Daily
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Figure 20-3. Conflicting Trends in Different Timeframes
The weekly chart of Eurodollars shows a perfect uptrend A-B. At thesame time, the daily chart shows that a downtrend X-Y is beginning.Which of them will you follow? Contradictory signals in different time-frames in the same market are among the most common and thornydilemmas in trading. You need to watch markets in more than one time-frame and know how to handle their conflicting signals. The TripleScreen trading system helps you solve this problem (see Section 43).
 21. TRENDLINES 87
hourly and look for trades on daily charts. With their attention fixed on dailyor hourly charts, trends from other timeframes, such as weekly or 10-minutetrends, keep sneaking up on them and wreaking havoc with their plans.
Markets exist in several timeframes simultaneously (see Section 36).They exist on a 10-minute chart, an hourly chart, a daily chart, a weeklychart, and any other chart. The market may look like a buy on a daily chartbut a sell on a weekly chart, and vice versa (Figure 20-3). The signals in dif-ferent timeframes of the same market often contradict one another. Which ofthem will you follow?
When you are in doubt about a trend, step back and examine the charts ina timeframe that is larger than the one you are trying to trade. This search fora greater perspective is one of the key principles of the Triple Screen tradingsystem (see Section 43).
A losing trader often thinks he would be better off if he had a real-timequote machine on his desk. One of the universal fantasies of losers is thatthey would be winners if they could get their data faster and focused on ashorter timeframe. But they lose money even faster with a quote system!When that happens, some losers say they would be better off trading right onthe exchange floor, without any delay for data transmission. But more thanhalf of floor traders wash out in their first year; being in the middle of theaction does not do losers any good.
The conflicting signals in different timeframes of the same market are oneof the great puzzles in market analysis. What looks like a trend on a dailychart may show up as a blip on a flat weekly chart. What looks like a flattrading range on a daily chart shows rich uptrends and downtrends on anhourly chart, and so on. When professionals are in doubt, they look at the bigpicture, but amateurs focus on the short-term charts.
21, TRENDLINES
Charts reveal the actions of bulls and bears. Bottoms of declines show wherebears stopped and bulls regained control of the market. Peaks of rallies showwhere bulls ran out of steam and bears gained control. A line connecting twonearby bottoms shows the lowest common denominator of bullish power. Aline that connects two nearby tops shows the lowest common denominator ofthe power of bears. Those lines are called trendlines. Traders use them toidentify trends.88 CLASSICAL CHART ANALYSIS
When prices rally, draw an uptrendline across the bottoms. When pricesdecline, draw a downtrendline across the tops. Projecting those lines into thefuture helps anticipate buying and selling points.
The most important feature of a trendline is its angle —it identifies thedominant market force. When a trendline points up, it shows that bulls are incontrol. Then it pays to buy with a protective stop below the trendline. Whena trendline points down, it shows that bears are in control. Then it pays tosell short and protect your position with a stop above the trendline.
Trendlines are among the oldest tools of traders. Modern computerizedtools for identifying trends include moving averages, the Directional system,and MACD (Chapter 4).
How to Draw a Trendline
Most chartists draw a trendline through extreme high and low points, but it isbetter to draw it through the edges of congestion areas (Figure 21-1). Thoseedges show where the majority of traders have reversed direction. Technicalanalysis is poll-taking — and polltakers want to track opinions of masses, notof a few extremists. Drawing trendlines through the edges of congestionareas is somewhat subjective. You have to watch out for the temptation toslant your ruler.
Panic dumping by bulls at the bottoms and panic covering by bears at thetops create extremes, which appear as long “tails” on the charts. You want tobase your trendlines on the edges of congestion areas and not on tailsbecause tails show little about the crowd other than its tendency to panic.
The extreme points are very important—but not for drawing trendlines.Markets usually recoil from those tails, offering opportunities to short-termtraders (Figure 21-1). As Steidlmayer pointed out, a bar that looks like a fin-ger sticking out of a tight chart pattern provides a valuable reference pointfor short-term traders.
Markets constantly fluctuate, seeking an area that generates the highestvolume of trading. A tail shows that a certain price has been rejected by themarket. It usually leads to a swing in the opposite direction. As soon as yourecognize a tail, trade against it. Place your protective stop halfway throughthe tail. If the market starts “chewing its tail,” it is time to get out.
Victor Sperandeo described another method for drawing trendlines in hisbook, Trader Vic. His technique helps identify reversals of well-establishedtrends (Figure 21-2).
Sperandeo draws an uptrendline from the lowest low of the move to the21. TRENDLINES 89
CRB Index
Tail
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Figure 21-1. Trendlines and "Tails"
Draw trendlines through the edges of congestion areas and leave out theextreme prices. Tails are long bars at the ends of trends—they spring out-side of congestion areas. Markets recoil from tails, offering good tradingopportunities in the opposite direction.
Notice how the angles of uptrends tend to recur, month after month.Knowing this can help you draw preliminary trendlines. At the right edgeof the chart, prices are touching their uptrendline-buy as soon as yousee a bar that fails to reach a new low.
 
highest minor low prior to the highest high. That line may not pass throughprices between those two points. When that trendline is broken, it gives thefirst signal of a trend change. The second signal is given when prices retestthe recent high and back away from it. The third signal occurs when pricesbreak through the previous minor low. It confirms that the uptrend hasreversed. A mirror image of this method applies to downtrends.
Rating Trendlines
The single most important feature of a trendline is its slope. When a trend-line slants up, bulls are in control and it pays to look for buying opportuni-90 CLASSICAL CHART ANALYSIS
Figure 21-2. 1-2-3 Reversal Method
Draw a trendline from the highest high (A) to the highest minor high (B)preceding the lowest low (C) so that it does not pass through pricesbetween A and B. The break of this trendline (1) is the first signal of atrend change. A test of the recent low (2) gives the second signal of atrend change. This is a good time to start buying. When prices breakthrough their minor high (3), they will confirm that the trend hasreversed. This method, described by Victor Sperandeo, helps catchmajor reversals rather than shorter-term swings.
 
ties. When a trendline slants down, bears are in control and it pays to lookfor shorting opportunities. You can rate the importance of any trendline byexamining five factors: the timeframe of the trendline, its length, the numberof times prices touch it, its angle, and volume.
The longer the timeframe, the more important the trendline. A trendlineon a weekly chart identifies a more important trend than a daily trendline. Atrendline on a daily chart identifies a more important trend than an hourlytrendline, and so on.
The longer the trendline, the more valid it is. A short trendline reflectsmass behavior over a short period. A longer trendline reflects mass behaviorover a longer time. The longer a trend continues, the greater its inertia. Amajor bull market may follow its trendline for several years.
The more contacts between prices and trendline, the more valid that line.21. TRENDLINES 91
When the trend is up, a return to the trendline shows a rebellion amongbears. When the trend is down, a rally to the trendline shows a rebellion bythe bulls. When prices pull back to a trendline and then bounce away from it,you know that the dominant market group has beaten the rebels.
A preliminary trendline is drawn across only two points. Three points ofcontact make that line more valid. Four or five points of contact show thatthe dominant market crowd is firmly in control.
The angle between a trendline and the horizontal axis reflects the emo-tional intensity of the dominant market crowd. A steep trendline shows thatthe dominant crowd is moving rapidly. A relatively flat trendline shows thatthe dominant crowd is moving slowly. A shallow trendline is likely to lastlonger, like a turtle racing against a hare.
It pays to measure the angle of every trendline and write it down on yourchart (Figure 21-1). This can be done using a computer, a protractor, or aChinese Charting Tool. Comparing angles of trendlines shows whether thedominant market crowd is becoming more bullish or bearish. It is uncannyhow often trendlines trace the same angle time and again in a given market.It may be because the key players seldom change.
Sometimes prices accelerate away from their trendline. Then you can draw anew, steeper trendline. It shows that a trend is speeding up, becoming unsustain-able (Figure 21-3). When you draw a new, steeper trendline, tighten your stop,place it immediately below the latest trendline, and adjust that stop at every newbar. The breaking of a steep trendline is usually followed by a sharp reversal.
When the trend is up, volume normally expands when prices rally andshrinks when they decline. This shows that rallies attract traders whiledeclines leave them cold. The opposite occurs in downtrends— volumeexpands on declines and shrinks on rallies. A pullback on heavy volumethreatens a trendline because it shows that the rebellious crowd is growing.
If volume expands when prices move in the direction of a trendline, it con-firms that trendline; if volume shrinks when prices pull back to a trendline, italso confirms the trendline. If volume expands when prices return to a trend-line, it warns of a potential break; if volume shrinks when prices pull awayfrom a trendline, it warns that the trendline is in danger.
Trendline Breaks
The breaking of a well-established trendline shows that the dominant marketcrowd has lost its power. You have to be careful not to anticipate trading sig-nals — most traders lose money when they jump the gun.92 CLASSICAL CHART ANALYSIS
S&P 500 Weekly
89pr Tin tug Ket Tec Feb Apr Jun tug KT let Feb ipr Tin Tug
Figure 21-3. When Trendlines Accelerate
The stock market rose slowly but steadily from its 1987 bottom. Youcould buy each time prices touched their shallow uptrendline (1). Theuptrend accelerated in 1988, and at point A, a new uptrendline (2) hadto be drawn. When the new, steeper trendline was broken, it indicatedthat the bull move was over. The market offered, as it sometimes does,an excellent shorting opportunity at point B, when it pulled back to itsold uptrendline before crashing.
 
A trendline is not a glass floor under the market —one crack and it isgone. It is more like a fence that bulls or bears can lean on. They can evenviolate it a bit without toppling it, the way animals shake a fence. A trendlinebreak is valid only if prices close on the other side of a trendline. Sometraders insist that a trendline has to be penetrated by two or three percentagepoints of price ($8-$12 in the case of $400/oz. gold).
After a very steep uptrend is broken, prices often rally again, retest theirold high, and touch their old uptrendline from below (Figures 20-2, 21-3).When that happens, you have a near-perfect shorting opportunity: a combi-nation of a double top, a pullback to an old trendline, and perhaps a bearishdivergence from technical indicators. The reverse also applies to down-trends.21. TRENDLINES 93
Trading Rules
1. Trade in the direction of the slope of a trendline. If it points up, lookfor buying opportunities and avoid shorting. When the slope is down,trade from the short side and avoid buying.
2. A trendline provides support or resistance. When prices rise, place buyorders at the uptrendline and protective orders below. Reverse the pro-cedure in downtrends.
3, Steep trendlines precede sharp breaks. If a trendline is steeper than45°, place your stop right at the trendline and adjust it daily.
4. Prices often retest their latest extreme after breaking a steep trendline.A pullback rally to an old high on falling volume and with indicatordivergences provides an excellent shorting opportunity. A decline toan old low after a downtrendline is broken provides a low-risk buyingopportunity.
5. Draw a channel line parallel to a trendline and use it as a target forprofit taking.
Trendline Channels
A channel consists of two parallel lines that contain prices (Figure 21-4). Ifyou draw an uptrendline across the bottoms of reactions, you can draw achannel line parallel to it across the tops of rallies. When you draw a down-trendline across the tops of rallies, you can also draw a channel line parallelto it across the bottoms of declines.
Channel lines, like trendlines, should be drawn across the edges of con-gestion areas, leaving out the extreme highs and lows. The presence of achannel line reinforces the validity of the trendline itself. The validity ofchannel lines depends on how many times they were touched by prices.
‘A channel line marks the area of bulls’ maximum power in an uptrend andbears’ maximum power in a downtrend. The wider the channel, the strongerthe trend. It pays to trade in the direction of the channel’s slope, going longin the lower quarter or half of a rising channel and selling short in the upperquarter or half of a falling channel. Profits should be taken at the oppositechannel wall (see also Section 45).94 CLASSICAL CHART ANALYSIS
9 an fn ay
Figure 21-4. Trendline Channels and Preliminary Trendlines
The downtrendline 1, drawn across rally peaks, identifies a bear marketin corn. A channel line 2 is drawn across the lows, parallel to the trend-line. The channel line helps track the maximum power of bears in adowntrend. The best shorting opportunities are in the upper half of afalling channel, while the best buying opportunities are in the lower halfof a rising channel.
When prices break out above their downtrendline, channels can helpyou draw a preliminary uptrendline. First, draw a new channel line 3 toconnect the last two rally tops. Then draw line 4 parallel to it, touchingthe latest bottom. This is the new preliminary uptrendiine.
At the right edge of the chart, corn is trending higher. It is expen-sive-near its upper channel line. If you want to go long, place an orderto buy in the vicinity of the new uptrendline 4.
 
A Preliminary Trendline
Normally, a trendline touches at least two points on a chart. There is a little-known technique for drawing a preliminary trendline through only one point(Figure 21-4).
When prices break their downtrend and rally above it, you can assumethat the downtrend has ended and a new uptrend may begin. Connect the twolatest peaks — this is the channel line of the new uptrend. Draw a line parallel22. GAPS 95
to it through the latest low. This preliminary uptrendline, drawn parallel to achannel line, tells you where to expect the next bottom. It often points toexcellent buying opportunities. This procedure tends to work better at bot-toms than at the tops.
More on Trendlines
When prices break their uptrend, measure the vertical distance from thetrendline to the latest top and project it down from the breaking point. If thecrowd can become optimistic enough to swing prices so many dollars abovethe trendline, then it is likely to become equally pessimistic and swing pricesthe same distance down from the trendline. Reverse this procedure in down-trends. This method gives you the minimum target for a new move, which isoften exceeded.
Trendlines can also be applied to volume and to indicators. The slope ofa trendline of volume shows whether more or fewer people are becominginvolved in the market. A rising trendline of volume confirms the currentprice trend. A falling trendline of volume shows that the market crowd isrefusing to follow the current price trend. Among technical indicators, theRelative Strength Index (see Section 31) is especially well suited for trend-line analysis. It often breaks its trendlines in advance of prices, providing anearly warning of a trend change.
22. GAPS
A gap is a chart pattern that consists of two adjacent bars, where the low ofone bar is higher than the high of the other bar (Figure 22-1). It shows thatno trades took place at a certain price, only at higher and lower levels.Webster's Dictionary defines: “Gap: 1. a hole or opening, as in a wall orfence, made by breaking or parting; breach. 2. an interruption of continuityin space or time; hiatus; lacuna.”
Gaps occur when prices jump in response to a sudden imbalance of buy orsell orders. A scary piece of news often triggers gaps. Gaps on daily chartsshow reactions to events that took place while the market was closed. Hadthe news come out during trading hours, a gap might have occurred only onintraday charts and perhaps have led to a wider daily range.
For example, a strike at a major copper mine is bullish for copper. If thenews comes out in the evening, the shorts become frightened and want to96 CLASSICAL CHART ANALYSIS
 
 
 
cover. They flood the pit with buy orders before the opening bell. Floortraders respond by opening copper above the previous day’s high. The smartmoney, incidentally, has probably bought copper before the strike wasannounced. Smart money tends to put on trades when markets are quiet, butamateurs tend to jump on the news.
Gaps show that the trading crowd is spooked, that losers are getting hurtand dumping their positions. When you know that bulls or bears are hurting,you can figure out what they are likely to do next and trade accordingly.
Some gaps are valid; others are phony. Valid gaps occur when the marketskips a price level. Phony gaps occur when a financial instrument trades inanother market while the market you analyze is closed. For example, dailycharts of Chicago currency futures are full of phony gaps. Currencies tradein Tokyo, London, and elsewhere while the Chicago Mercantile Exchange is22. GAPS 97
Figure 22-1. Gaps
Cover this chart with a sheet of paper and slide it slowly from left to right.
A. A breakaway gap. Sell short and place a stop a few ticks above thegap's upper rim.
B. An exhaustion gap-prices pull back into it the next day. The down-trend is over. Cover shorts immediately.
C. Another exhaustion gap, marked by a lack of new highs after the gap.Several days of churning offer good shorting opportunities with a stopabove the high.
D. A continuation gap in a downtrend. Go short, with a stop a few ticksabove the gap's upper rim. Prices hit that stop a few days later-nomethod is fail-safe.
E. An exhaustion gap, closed two days after it opened. Cover shortsimmediately.
F. Acommon gap in the midst of a congestion area, closed the next day.No action recommended.
G. A breakaway gap. Go long and place a protective stop a few ticksbelow the gap's lower rim.
H. A continuation gap. Add to longs and place a protective stop a fewticks below the gap's lower rim. The gap at the right edge of this chartcould be either a continuation or an exhaustion gap. Relatively quietvolume suggests