In the early 1960s, dancer Nicholas Davas started his first stock investment with $3,000 earned from dancing. He netted $2 million in 18 months. It caused a huge sensation. Later, he published a book called "How I Made 2 Million in the Stock Market." In this book, Nicholas summarized his trading methods into a set of theories, namely the "Box Theory". The Box Theory later became a highly sought-after trading theory in the stock market.
The so-called box refers to the stock forming a certain price area during its operation. That is, the stock price fluctuates within a certain range, thus forming a box in which the stock price moves. When the stock price falls to the bottom of the box, it will be supported by buying orders, and when the stock price rises to the top of the box, it will be pressured by selling orders. Once the stock price breaks through the box, it is a good trading opportunity.
When making short-term investments, we can also make full use of the box theory to guide our transactions. Today, I will teach you how to use box boxes to determine short-term buying and selling opportunities.
There are actually many types of cabinet shapes. Today we will focus on learning the rectangular, triangular, flag-shaped, and diamond-shaped cabinet shapes.
1. Rectangular box
In stock trading software, if we connect these high points and low points with straight lines, we will get two horizontal straight lines. This shape looks like a rectangle, so it is named rectangular box.
The oscillating form of a rectangular box is very common. This finishing form is caused by the competition between long and short parties with equal strength. The power of the two parties reaches a balanced state in the box, and no one can dominate. Bulls believe that the falling position of the stock price is an ideal buying point, so they start buying every time the stock price adjusts to that position, forming a horizontal support line. The short side remained cautious about the rise in stock price and lacked confidence. They believed that the stock price would be difficult to break through the top of the box, so they began to sell, forming a horizontal pressure line.
When the stock price breaks through this box shape upward, it means that the power of the bull side has defeated the power of the short side, and the stock price will rise in the future. At this time, short-term investors can wait for opportunities to buy.
On the contrary, when the stock price falls below the box pattern, it means that the short side has defeated the long side and the stock price will fall in the future. At this time, short-term investors should sell the stock.
2. Triangular box
When the fluctuation range of the stock price becomes smaller and smaller, when we connect the highest price and the lowest price with a straight line, we will find that it forms a triangle. This is what we call the triangular box shape. The triangular box also shows that the power gap between the bulls and the bears is not large, and they are in a stalemate.
Triangular boxes can be divided into three types: convergent type, ascending type and descending type.
The convergence type means that the high points of the stock price gradually decrease and the low points gradually increase. The line connecting the high points is sloping downward, and the line connecting the low points is sloping upward. Converging triangle boxes may appear during the top consolidation process of an upward trend or during the bottom consolidation process of a downward trend. When the consolidation is over, the stock price may rise or break through the triangle box downwards. You should buy when there is an upward breakthrough, and you should sell when there is a downward breakthrough.
The rising pattern means that the line connecting the high points of the stock price is parallel, and the line connecting the low points is sloping upward. The rising triangle box will only appear in the high consolidation area after the stock price has risen for a period of time. At this time, it means that the stock price rise has encountered obstacles, but the upward force is still very strong. Once the stock price breaks upward, you should actively buy.
The descending pattern means that the line connecting the high points is sloping downward, and the line connecting the low points is horizontal. This box will appear in a falling market, indicating that the stock price is blocked from falling, but the downward force is still very strong. Once it falls below, it should be sold as soon as possible.
3.
After the stock price has risen for a period of time, the flag-shaped box begins to fluctuate. We connect the high points and low points of the stock price with straight lines to get two basically horizontal straight lines that slope downward. This is a rising flag shape. Box shape. When this form appears, it means that the profit chips are constantly increasing, which inhibits the decline of the stock price. Although the stock price has risen to a certain position, no one is very worried that it will fall. At this time, it enters an adjustment stage. Once the stock price breaks upward, it will re-enter the rising market. At this time, short-term investors should buy and buy.
After the stock price fell for a period of time, it began to fluctuate. We connected the high points and low points to form two basically horizontal straight lines that slope upward. This is a falling flag-shaped box. This shows that after the stock price has fallen for a period of time, new forces have entered, supporting the stock price and hindering the decline. However, the power of the stock price to rebound and rise is not very strong. Once these supporting forces are consumed and the stock price breaks through the box downwards, the downward trend will continue. At this time, investors should sell their stocks.
4. Diamond box
Diamond box, as the name suggests, means that during the process of stock price fluctuations, we connected the high points and low points with straight lines and found that it formed a diamond shape. During the formation process of the diamond box, the fluctuation range of the stock price first gradually enlarges, and then the fluctuation range gradually decreases. This pattern may appear in an upward trend in stock prices or in a downward trend in stock prices.
Once the stock price breaks through the upper line on the right side of the diamond box, it means that the stock price will rise in the future and you should buy it.
On the contrary, once the stock price breaks through the lower line on the right side of the diamond box, it means that the stock price will fall and you should sell as soon as possible.
Okay, let’s stop here today on how to discover short-term trading opportunities through box patterns. Hope it helps you!