Apple Daily --- 13 August, 2000

In the stock market, no matter whether you are a novice, or a seasoned trader, you are liable to fall into certain charting traps every now and then. Price breaks above all major resistance levels. You long, only to find out that you have bought at the market top. Alternatively, price may fall below all major supports. You then cut loss on your existing positions, and to your frustration, the market starts turning around the next day. These kind of frustrations happen to traders again and again throughout their trading careers. To most of them, charting traps are an unavoidable market phenomenon, and one cannot, but to live with them.

Sometimes, charting traps are products of market manipulation by big money players. Since most individual investors follow similar trading rules and strategies, big money guys can easily induce them to react in their pre-planned ways by artificially creating certain short-term price patterns. For example, suppose a big money guy knows that everyone will buy after a resistance line is broken above and he has a large block to distribute, he may aggressively buy the stock and push price upwards to break the resistance line. Then, when the resistance line is broken and all the amateur investors rush in, he starts selling his block.

Another well-known manipulation strategy is to accumulate a stock in large blocks after 3:30pm and push price upwards until it becomes one of the top ten percentage gainers in the whole market. This attracts a lot of individual investors to buy the stock the next day on market open since they think that the stock will have follow through from previous day powerful buying activities. Unfortunately, at this point, the big money players then start distributing, trapping the frenzied crowd at high prices.

In short, individual prices traded in the market are subject to manipulation. Reading a chart based only on individual price movements causes one to be vulnerable to potential charting traps set up by big money players.

Figure 1 shows the Candlestick chart of Legend Holdings (0992). Notice that bar A is a very powerful rally bar, surpassing all nearby major resistance levels. Unfortunately, it does not have follow through during the next few days and price simply falls back to the level before the rally. Obviously, this is a technical trap.

Figure 2 shows the corresponding Prosticks chart of Legend Holdings. Notice that even though A rises strongly and closes near day high, the Active Range is actually situated in the lower half of the day range. This shows that most volume are traded at low prices. Most of the rally are not accompanied by enough volume. The rally lacks strength and is susceptible to market maniupulation or overreaction. Realizing this, individual investors should not be so eager to buy at A even though the rally is remarkable.

Unlike individual prices, Active Ranges and Modal Points are very difficult to be manipulated. This is because they are price levels with substantial volume and thus manipulating them requires huge amount of money. On the other hand, manipulating individual traded price is less costly, especially during times when the market is quiet and inactive. Thus, while a Candlestick bar may tell lies, a Prosticks bar is unlikely to tell lies. With a volume component, a Prosticks bar not only offers the price information, but also the value of the market. Understanding the value of a market enables one to be less easily fooled by occasional irrational price movements exhibited in a market, especially around market close.

The Active Range is computed using a mean-deviation method in statistics. Theoretically, it encompasses approximately 68% of total volume traded throughout the whole day. Those who want to know the exact mathematical formula used to calculate the Active Range please visit our website at www.prosticks.com .