Hong Kong Economic Time --- June 30, 2000

When a price forms a new high, it is usually regarded as a bullish signal and the confirmation of an uptrend. During the 1980s, there were a group of hedge fund traders known as the "Turtle Traders" who simply bought when the price closed above a 20-day high and sold when the price closed below a 20-day low. During years when the market was trending, the performance of these "turtles" were spectacular. However, during consolidation years, false breakouts were very frequent. Very often, the price would rise above the 20-day high or fall below the 20-day low without a sufficient follow-through. Significant capital drawdowns forced many of these "turtles" out of business during years when the market was in a trading range, such as 1989. Nevertheless, in the long run, adopting a trend-following strategy such as the turtles' should fare well.

Fortunately, ProSticks charting can sometimes help filter out some of these false "turtle" signals.

The first chart below is a Candlesticks chart of Great Eagle Holdings (0041). Notice that at A, the price broke above the previous 20-day high (B), signifying strong bullishness. Also, the price closed above the Bollinger Band, suggesting that an uptrend was underway. Unfortunately, for the following days, the market lacked a follow-through. Investors who had longed at A were already in the red.

The second chart below is the corresponding ProSticks chart of Great Eagle. At A, although the price closed above the 20-day high, the Active Range was concentrated near the lower prices and below the 20-day high. This meant that though the price rose strongly, it was not accompanied by volume. Most of the transactions took place at the lower price levels. Thus, while the Candlesticks chart suggests strong bullishness, the ProSticks chart suggests that the rally may be susceptible to a potential "technical trap" and investors need to be cautious. As can be seen, a technical trap had been indeed set.

As many investors rely on a particular trading pattern, big money players can manipulate particular prices in order to create that particular pattern to lure investors into the market for them to distribute their positions. A technical trap is formed in this fashion. Thus, information revealed on charts that show only the open, high, low, and close prices can be sometimes misleading. On the other hand, manipulating the volume of trades is difficult and expensive. As such, information revealed on a ProSticks chart cannot be manipulated.