If a trendline or pattern breaks due to some bad news but it returns back what to do?
I am a student in technical field from India. I had a question about what to do when a pattern is formed by stocks moving in one direction on one day, reversing direction on the next day, and reversing again on the day after.
Should one sell once the pattern breaks, or wait for the next day even if the patterns would be for the stock to drop on that day.
Is this even a meaningful pattern at all?
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There is a technique called the Elliott wave which explains these 'shocks'. The reversal directions you are questioning are part of the pattern, it is known as corrections.
The Elliott wave is an indicator based on psychology of investors. Think about it this way, if you see a huge up trend what are you most likely to do, sell and make profit or continue, this is why there is a shock before it continues. Many people will sell to be safe, especially after hearing the bad news they won't risk it.
By learning the Elliott wave you'll be able to make an educated decision on whether or not to stay or leave.
Here are websites on the Elliott wave:
stockcharts.com/school/doku.php?id=chart_school:market_analysis:elliott_wave_theory http://www.swing-trade-stocks.com/elliott-wave.html
The Elliott wave is helpful in any time frame and works well with momentum.
Hope this helps.
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