Preliminary Stop usually display in two different form:
Narrow range candles with high volume (Which is also a sign of divergence).
Long tail/wick/shadow candles with high volume.
Preliminary Stop
- It is the first sign that a trend must be near to its end.
- It is the first entrance of large, well informed traders against the main trend.
- In other words, it is the first attempt of well informed traders to absorb orders.
- Before accumulation the preliminary stop called Preliminary Support or Preliminary Demand.
- Before distribution the preliminarily stop called Preliminary Supply.
Uses of preliminary Stop:
- It is an indication that trading in the direction of trend is not a good idea anymore.
- The current market level might be a good place to book profits from previosly open trades (if any).
Extra Info:
There is a possibility for a trend to have multiple preliminary stops before entering into a clear sideways direction.
Due to inertial movement (Go with Flow) of a trend, trying to stop a trend is just like trying to stop a cargo ship. (A lot of power is required).
So sometimes one preliminary stops may not be enough.
So sometimes one preliminary stops may not be enough.