NWZ Update-
Although we have not discussed testing, and tests in any detail yet.
On Monday, NWZ put in a lovely looking test bar.
Although there are several types of test bars, the 'generic' test, is a narrow spread downbar, closing mid to high, on low volume.
(the down bar - can also be stretched to a level closing bar which has by far the majority of the trading for the period as a downbar)
So remember what this bar looks like......it is important.......it is said to be 'testing the supply' within the body of the bar next to it, where an increase in supply was previously found.
And if you look carefully, you will see where the previous 'mini shakeout type bar' on higher volume closed, and that the test has pushed back below that close to the shakeout bars low, then it has recovered to close level in price, after finding lower volume.
Now firstly, tests are a confirming indicator for strength, on their own they rarely indicate strength, what they do is help to confirm the strength that has been previously seen.....a la the little shakeout bar previously (and just a quick mention that the 'generic' shakeout, is considered to be a type of violent test).
Secondly, tests work best in an uptrend, or after serious strength has already been seen (called having 'strength in the background' of the chart).
They can be discounted a little within an accumulation zone or trading range, and discounted substantially in a downtrend.
And finally, tests are considered successful if the next bar is up (close to close).
And it should be noted that a 'failed test' (where price does not respond higher, but actually falls in price, especially where the next bar closes lower than the low of the testing bar) can be considered a sign of weakness in itself, or as confirming previous weakness seen on the chart.
So in particular, where price is in a downtrend, and a potential test bar fails, this is just another sign of weakness on the chart.
Similarly, in a potential accumulation zone or trading range, a failed test is not good and depending where in the range it is, and what has preceded it, may signal that price might come back to the lows of the zone or range, or will at least suggest that price is not ready to breakout yet.
And in an uptrend, depending on the exact circumstances, a failed test might suggest price will pull back a little to consolidate, especially if there has been other weak bars prior to the actual failed test.
So effectively on this chart, we have a mini shakeout followed by a test......in itself a nice little set up, and in an uptrend (or with potential strength close up in the background) one which is worth following.
One of my mentors would often use the saying "a test plus a shakeout - equals a breakout", so obviously a push higher of some sort would 'generally' be expected in response to this particular type setup.....we'll see.......
Note, that if you look back a few bars, to very early January, you will see where a very similar setup to this, has failed before (with that upthrust type of bar immediately prior to it).
View attachment 138435
Fire way with any questions you have on this chart, or any other of the charts or the terms used previously.
Often people won't really 'get it' straight away, but after a while they have a 'light bulb' moment, and it all starts to come together, and make proper sense.
Secondly, tests work best in an uptrend, or after serious strength has already been seen (called having 'strength in the background' of the chart).
They can be discounted a little within an accumulation zone or trading range, and discounted substantially in a downtrend.
cheers
