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Earnings per Share or EPS is one of the most powerful and popular fundamental indicators of a company or stock; and is the basis for calculating Price to Earnings (P/E) ratio. EPS comes mainly in two forms, Basic Earnings per Share and Diluted Earnings per Share. Basic EPS is a simple calculation in which the company’s earnings are divided by the total number of shares outstanding at that time. For example, $1,000,000 earnings and 100,000 shares outstanding will give a basic EPS of $10. But this is not very accurate from an investor’s point of view as there are many other factors to consider.

Diluted EPS is a more accurate, complex and investor-friendly way of calculating EPS. It is calculated using the fully diluted shares outstanding which can include stock options, convertible debts, warrants, convertible preferred stocks, and employee stock purchase plans in addition to normal outstanding stocks. Diluted EPS is calculated with regard to the possible scenario in which the holders of these dilutive shares exercise their shares. Each of these dilutive stocks are weighted according to their effects, like most, least and anti-dilutive; and is diluted to the basic EPS number.

Diluted EPS provides a more realistic picture of a company’s earnings per share. Its value is always lesser than the basic EPS value. For instance, a company XYZ can have a basic EPS of $10 but diluted EPS of $9.5 only. When a company reports net loss, then these dilutive shares become anti-dilutive, and thus the dilutive EPS equals basic EPS. The companies which do not have any dilutive shares also report only basic EPS.

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GAAP and Non-GAAP are two different methods to record and report accounting information. GAAP refers to Generally Accepted Accounting Principles that are commonly accepted and are imposed on companies in order to provide investors consistent financial information, so they could examine the health of the company before investing. GAAP earnings refer to the earnings of a company as calculated by applying GAAP or Generally Accepted Accounting Principles.

Non-GAAP earnings refer to a company’s earnings calculated not according to the common accounting principles. It is an alternate measure of calculating earnings. Companies, however, are required to follow the GAAP rules that include revenue recognition, balance sheet item classification and outstanding share measurements. Only then can investors easily measure a company’s true progress before investing in it. However, companies claim that Non-GAAP accounting more accurately reflects their earnings and financial health.

Non-GAAP is often employed by companies to paint a rosy picture, and mislead investors. As there aren’t any specific rules governing this practice of accounting, there isn’t any uniformity in the information presented, which is necessary for investors to compare among industry measures. The information presented could be exaggerated and inaccurate. In other words, the Non-GAAP earnings of a company needn’t be its actual earnings. Such an accounting could omit many parameters demanded by the GAAP.

As auditors possess maximum freedom when the company employs Non-GAAP mode of accounting, investors need to exercise caution before they decide to invest. Though GAAP refers to generally accepted accounting principles, companies presenting GAAP earnings also need to be scrutinized, as figures could still be distorted by shrewd accountants.

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Three stars in the south is a bullish reversal candlestick pattern indicating the start of a new uptrend after an established downtrend. This is a rare candlestick formation which is formed of three bearish (colored or black) candlesticks. The bullish three stars in the south pattern is similar to the three black crows candlestick pattern, and the first two candlesticks in the pattern resemble hammer candlesticks.


The requirements of bullish three stars in the south formation include:

• The pattern should form at the bottom of a significant downtrend.
• The first day is a long bearish day with a very long lower shadow and with no or very small upper shadow.
• The second day is also a bearish day with a lower close. The candlestick is a smaller version of the first day candlestick which stays within the trading range of the first day candlestick.
• The third day candlestick is a small bearish marubozu (no upper or lower shadow) with a lower close which stays within the second day’s trading range.

Three stars in the south candlestick pattern occurs when bears fail to continue the existing downtrend. The facts that the bears are continuously failing to close lower even after bringing the prices to lower levels (indicated by long lower shadows) and that the prices stay within the trading range of the previous day, tempt many short sellers to close their positions and tempt bulls to establish an uptrend.

Three stars in the south is a moderately reliable candlestick formation. The pattern is used as an indicator by many short sellers to close their positions. Traders should ideally wait until the high of the second candlestick in the three stars in the south pattern is broken before starting long positions. Confirmation of trend reversal is signified by a bullish candlestick, a large gap up or a higher close on the next trading day.

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Projection bands are banded indicators used for forecasting future minimum and maximum price levels. Both projection bands and oscillator indicators were developed by Mel Widner and introduced in 1995. Projection bands resemble other band indicators such as moving average envelopes and Bollinger bands and have characteristics of channel indicators like Raff regression channels.

Projection bands are created by deriving two price bands--upper maximum and lower minimum price bands--derived from maximum and minimum prices over a period, and then projecting them into the future, parallel to the linear regression trendline. Unlike other bands, projection bands always contain the prices within them. Trading projection bands is similar to trading other bands; when prices are near the upper band, then overbought situation is identified and when prices are near lower band, oversold conditions are identified. Projection bands offer better results when used in conjunction with other trend analysis tools.

Projection oscillator is a modification of projection bands. It measures current price value to the upper and lower projection bands. Its value ranges from 0 to 100 where many traders use values above 70 to generate buy signals, and values below 30 to generate sell signals. But this approach is less reliable because projection oscillator is blind to stock momentum and market conditions. Crossovers (buy signal when the oscillator below 30 level cross 5-day MA) and Divergences (between current price and oscillator) are more reliable.

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After the recent economic recession, many traders are reluctant to risk their money as much as they were doing in the past. Most traders now tend to place the safety of invested money over ROI. Being diversified, liquid and traded like stocks, exchange traded funds (ETFs) would make safer investments. Traders can follow different strategies for this purpose.

Investing in ETFs that track specific sectors/industries is a popular option. Different sectors respond differently to economic changes; cyclic sectors such as transportation, financial and technology are more vulnerable to economic changes compared to defensive sectors such as utilities and consumer staples. The various cyclic sector stocks themselves react differently to news and changes; for instance, the healthcare sector comprising many pharmaceutical companies is considered safer than other sectors. Thus ETFs which are tracking these safer sectors can be good investments for future uncertainties.

Investing in ETFs tracking certain commodities, currencies or bonds is another option. Diversified ETFs which track a range of different currency pairs or currency indexes can turn out to be good investments. One can also find many commodity/bond ETFs which track some least volatile commodities and bonds. The downside of investing in these (least volatile) ETFs is the reduced portfolio returns. Besides, investing in them does not ensure profit, as they too can fall when bad news arrive.

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We have just created some handy pages for everyone to stay current with stock market happenings. Here are links.


Remember to bookmark & share them.

Let us know your feedbacks.

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Volatility is one of the major profit determining factors which should be measured correctly for executing a successful trade. Different traders use different indicators for measuring the volatility associated with an instrument. Some popular ones are discussed here.

• Stock Beta: Beta is the comparison of a stock volatility to market volatility. The greater the beta the higher the volatility. Beta value mainly favors long-term traders and investors (mainly CAPM investors) as it does not tell anything about short-term stock volatility.
• Bollinger bands: Bollinger bands and other standard deviation indicators mainly favor swing to intermediate term traders. They can also be used for a variety of purposes such as generating signals, finding supports and resistances, and finding trends.
• ATR indicator: Average True Range indicator measures only the volatility and is used by many traders to find entry points and stop-loss levels. ATR% and time series of ATR% can offer better results.
• Chaikin Oscillator: Chaikin accumulation distribution oscillator is an indicator which uses closing prices to measure market volatility. Though lesser known, it is an effective indicator to analyze money flow, confirm trends and predict trend changes.
• Moving averages: There are a number of indicators based on moving average, which respond differently to market volatility with reference to the smoothing factor they use. MA indicators are extensively used by all types of traders trading all kinds of instruments.

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It is best to stay away from High Yield Investment Programs (HYIPs). According to statistics, clients who lose their money are much more than those who are able to get their initial investment and interest. However, these programs are highly attractive and our greed drives us to invest in them. These tips are for those who can’t control their greed.

• Avoid all internet based HYIPs and avoid all the high profit guaranteed e-mails you get.
• If you are investing, then invest in local or large firms which have been there for five or more years; and which you know have good fundamentals.
• Never invest all of your money in one or two HYIPs, rather diversify your investments with HYIPs and other investment options such as stocks, funds, etc.
• Ask the HYIP operator about their investment schemes; if they are unable to offer you a reliable answer, avoid them. Also, be cautious about firms which connect themselves to big financial firms. A little research can help you tremendously.
• Invest only that amount which you can afford to lose.
• Realize the higher risk associated with these programs. Take these investments like a casino game, you can profit if you are lucky or if you have a specific talent to predict the result.
• Withdraw your interest as soon as it is available. Don't reinvest this interest in the same programs.
• Never treat these investments as long-term investments, rather treat them as short-term investments which can be withdrawn whenever you need money.

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Bearish separating lines pattern is a bearish trend continuation candlestick pattern, which indicates the continuation of an existing downtrend even after a long bullish day. This is a two candlestick formation, comprising a bullish and a bearish candlestick. Bearish separating lines pattern resembles bearish kicking candlestick pattern, but there is no gap between the candlesticks and the candlesticks are not total marubozu.


The requirements of a bearish separating lines candlestick pattern include:

• The pattern should show a significant downtrend.
• On the first day there is a long bullish (white or colorless) candlestick.
• The second day opens a gap below, at or very close to the first day’s opening price, and there is a bearish (black or colored) candlestick with no upper shadow (opening marubozu).

Bearish separating lines formation occurs when bears regain their confidence after a bullish day. The facts that the prices opened at below a gap (at the opening price of the previous day), and that the bulls are unable to bring the prices up above the second day opening price indicate that the bearish trend will continue.

Bearish separating lines pattern is a less common and less reliable pattern. For considering the formation a valid one, the second day candlestick must be opening marubozu. The reliability of the pattern increases with increase in real-bodies of candlesticks. Confirmation of trend continuation is required, which can be a bearish candlestick, a gap below opening or a lower close on the third day.

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Average Directional Movement Index Rating or ADXR is an indicator created by smoothing the Average Directional Index (ADX) indicator. The smoothing helps trend-traders to avoid small and short-term price ups and downs and to properly use other trend-analysis tools. ADXR is calculated by taking the average of two ADX values; one the current ADX value and other the ADX value n periods before.


Average Directional Movement Index Rating is interpreted just like ADX indicator and is often plotted with positive (+DI) and negative (-DI) directional indexes. ADXR is also interpreted like ADX, when the rating is at low levels (below 20) the market is considered non-trending and values above that marks definite trends (bullish or bearish). Now trend traders can use other trend-analysis and support/resistance tools to plan their trades.

When used in conjunction with +DI and –DI, average directional movement index rating can be used to generate various signals. Bullish signals are generated when +DI crosses above –DI and there is trend; bearish signal vice versa. When ADXR is at extreme levels (above 60), price reversals are possible, and buy or sell signals can be generated with ADXR cross a specific level.

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Day trading exchange traded funds (ETFs) can be less risky than day trading stocks but can also offer less reward. For more insights read "Are ETFs good for day trading?" Day trading of ETFs demands a sound trading plan. Below are certain points to be considered when developing your day trading plan.

• Trends: ETF prices move in the same direction as the stocks/index being tracked. A day trader should consider long-term, intermediate and short-term trends prevailing in the market. Moving average indicators, swing trade open positions, candlestick patterns and investor sentiments can be handy indicators.
• Support and resistance: Finding supports and resistance levels according to changing market trends is very important. Fibonacci, Gann tools and other short term indicators can help in this.
• Overseas market performances: Performances of Asian and European markets can be indicators of next day US market performances, at least for opening hours.
• Reacting to News: Success with day trading highly depends on how quickly you react to market news and reports.
• Gaps: Gaps are excellent indicators for taking positions at early market sessions.
• Position sizing: Often how much you can make from the market depends on how much you can risk. An ETF day trader should have good position sizing strategy with regard to his account size and risk tolerance, ETFs traded and market volatility.

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High-yield investment program (HYIP), as the name suggests, is an investment program which offer high (above normal) returns; can be upto 50% of investment per month. Although there are some reliable HYIPs there, most of these programs are fraud investment programs which use the classical ponzi scheme. These HYIPs use investments from subsequent tiers to pay (amount plus interest) to previous tiers.

High-yield investment programs marked their beginning at the end of 19th century. Many of those have managed to collect huge amounts of money from investors. They operated by smartly marketing their schemes via pyramid schemes, offering handsome amounts to recruiters, positive word-of-mouth advertising and through dedicated forums. The internet boom and e-currencies have also given rise to many 'anonymous HYIP operators' and globalization of the fraud. These new generation HYIPs used SPAM e-mails, anonymous hosting, and smart domain names (which often resemble a big financial firm) to market their schemes.

High-yield investment program operators usually do not disclose their investment schemes (mostly because there is no scheme). Some connect their names to big financial firms like international banks. There are also some operators who use the terms “HYIP Games” and “HYROL” (High Yield Return on Loan) instead of HYIP. Most high-yield investment programs collapse when new investments diminish, or when the amount to pay the clients exceeds that of new investments; the amount invested by the clients often vanish.

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Bullish separating lines is a bullish trend continuation pattern, indicating the continuation of an existing bullish trend; even after a long bearish day. This is a two candlestick pattern, formed of a bearish candlestick and a bullish candlestick. Bullish separating lines pattern resembles Bullish Kicking Candlestick Pattern, but it does not has a gap between the real-bodies of candlesticks and is also less reliable.


The requirements of bullish separating lines candlestick pattern include,

• The market should be characterized by a significant uptrend.
• There should be a long bearish (black or colored) candlestick on first day.
• There should be a long bullish (white or colorless) candlestick which opens at opening price of first day (or close to it) and with no lower shadow (opening marubozu).

Bullish separating lines formation occurs when bulls regain their confidence after a bearish day. The facts that the prices opened above a gap (on opening price) of previous day and bears are unable to bring prices below the opening price indicate that the uptrend will continue.

Bullish separating lines is a less reliable candlestick pattern. The pattern is considered valid only when the second-day candlestick is an opening marubozu. The reliability of pattern increases with increase in real-bodies of fist and second day candlesticks. Confirmation of trend continuation is highly advised, which can be a gap above opening, a bullish candlestick or higher close on third day.

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Raff regression channel, also known as regression channel, Raff regression and linear regression channel is a handy indicator for finding support and resistance levels for trends. The indicator was developed by Gilbert Raff. Raff regression channel is an application of linear regression trendlines, which uses the least squares fit method to plot trends.

Raff regression channels are plotted directly over price charts as equidistant parallel lines to linear regression trendline. The distance between the channel lines and regression line is the greatest distance to a high or low price from the trendline. The upper line is considered as the resistance and the lower line is considered as the support. Most trading systems available today can easily draw Raff regression channels with only one parameter, the time period. A new channel is created when the price break the existing channel.

Raff regression channel is a simple tool for finding support and resistance. Prices regularly swing between the upper and lower lines. Buy signals can be generated when price cross center regression trendline from below and sell signals can be generated with price cross the line from above. Short-term price movements beyond the channel may occur many times, but when the price stays outside for extended period, reversal of existing trend is expected.

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Pair trading of Exchange traded funds (ETFs) is a less explored ETF trading strategy, which can be used to profit from any market condition. Find out more about pairs trading strategy. It is a market neutral strategy with less downside risk. The first step in pair trading is finding two related ETFs, that is, ETFs which move in the same direction most of the time. Here are some ETF pair trading opportunities.

US & International markets – Today all major international markets move almost in the same direction. Thus a US market tracking ETF and an emerging market tracking ETF can make a good pair, because emerging markets show greater volatility. In a downward market, the trader can buy a US market tracking ETF and short an emerging market tracking ETF. If the US ETF loss is 5%, the emerging market one loss can be 8%; thus one can profit 3%.

Traditional and Smart ETFs – Smart ETFs try to magnify any market movement. Thus short term pair trading of traditional and leveraged ETF tracking same (related) indexes can work. In a bullish market if traditional ETF can gain 3%, a smart ETF can gain double. Thus shorting a traditional ETF and buying a smart ETF can result in a gain of 3%. Other possible pairs include ETFs tracking large cap and small cap stocks, ETFs tracking related currencies, ETFs tracking two related industries/sectors/exchanges, and trading an ETF and stocks included in that ETF portfolio.

The success of ETFs pair trading strategy depends on 1) finding the right pairs with tight correlation, 2)successfully predicting market direction (for taking the right long/short position), and 3)limiting your trading costs (by taking big positions or by trading through a discount broker).

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The Week Ahead: A drop in world markets, a decline in June consumer sentiment, and growing uncertainty over upcoming earnings reports are just some of the negatives putting pressure on the markets recently. Watch the retail sales report, the PPI, and business inventory numbers that come out on Tuesday. The CPI and industrial production calculations arrive on Wednesday while the jobless claims and housing starts numbers are released Thursday and Friday respectively.

Stocks to Watch: The big bank earnings reporting season begins with Goldman Sachs (GS) on Tuesday. Look for potential disappointments to further destabilize markets going forward. Navigant Consulting (NCI), a global consulting firm was upgraded by JMP Securities because of good cost controls and good employee retention numbers. Fertilizer stocks such as Potash Saskatchewan (POT) and others...AGU, IPI, MOS... were hurt when India purchased potash from a large Russian firm at a steep discount to what major producers are asking.

Special Note: The financial stocks again could be leading the market lower and look vulnerable to another downside move in the weeks and months ahead as they did a year ago. One ominous sign is the banking indexes which topped in early May and have recently broken a support shelf on its chart ahead of the S&P 500. Similarly, a homebuilders index (XHB) sports a pattern that suggests that the worst is yet to come. Both of these groups are critical in restoring the credit markets the Feds having been trying to revive.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Short-term trading strategies, especially day trading and swing trading, demand high levels of discipline and concentration. These strategies can work in any market condition for any instrument (stock, forex, futures, funds, etc) but each of these instruments/markets needs different strategies and approaches. There are 5 basic requirements for implementing short-term trading strategies.

1. Liquidity – The instrument/market should liquid enough that you can buy/sell whenever you want.
2. Volume – The stock or currency pair should satisfy a minimum daily trading volume.
3. Trending – The instrument/market should show at least a short-term trend in either direction.
4. Large position sizing – As you are trading for a small price differences, you should have comparatively large position size than long-term traders.
5. Sophisticated trading system – When trading for small price differences, you cannot rely solely on your brain, you should have systems that helps you in decision making.

For being successful with your day or swing trading practice you need much more than these basic requirements, which include 1) a sound trading plan which tells you what to buy/sell, when to buy/sell, target which profit levels and where to place stop-losses. 2) Control over your mind – so that the greed never overtake the truth, 3) Good trading education, 4) good money management skills and 5) risk tolerance.

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Three outside down is a highly reliable bearish market reversal pattern, which indicates the end of an existing uptrend and the start of a new downtrend. This three candlestick formation is regarded as the confirmation of bearish engulfing pattern; because the first two day’s candlesticks form bearish engulfing pattern and the third candlestick confirms the trend reversal.


The requirements of bearish three outside down pattern include,

• The market should be characterized by a significant uptrend.
• On first day there is a bullish (white/colorless) candlestick taking the price to new highs.
• On second day there is a long bearish (black/colored) candlestick, the real-body of which totally engulfs the real-body of first day candlestick. Thus forming the bearish engulfing pattern.
• Third day is also a bearish day with lower closing than the second day.

Bearish three outside down candlestick pattern forms when bears take control of the market after a period of long bullish activity. Two consecutive bearish days with closes below than the previous day is a clear indication of bearish market reversal.

Bearish three outside down formation is highly reliable; reliable than bearish engulfing pattern. The reliability can increase with significance of previous uptrend, with increase in real-body and trading volume of second day candlestick and with lower close on third day. Since bearish three outside down pattern is confirmation of another pattern, most traders do not look for other confirmations. The suggested confirmations include a downside gap, lower close or bearish candlestick on day four.

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Time Series Forecast or TSF indicator is a trend indicator which shows the underlying trend of a security and tries to predict future price movements. The indicator works on the principle of least-squares fit method and is plotted by calculating the linear regression trendlines.

Time series forecast indicator plotted just like linear regression indicator, by taking the end points of many simultaneous linear regression trendlines. But, unlike linear regression indicator, TSF also considers slop of the trend. This makes TSF more responsive to new trends and thus is better suited for short-term traders like day traders as it actually predicts the next period’s price level. Time series indicator is also known as ‘Moving linear regression indicator’ and ‘regression oscillator’.

Time series forecast is interpreted like moving averages and linear regression indicator. When price stays above the indicator, then the instrument is in bullish trend and when the price stays below then vice versa. Price movements across the level is considered as a buying/selling opportunity and price movements away from the line is considered short-lived and price is expected to comeback to the level.

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Exchange Traded Funds (ETFs) are really handy tools for building an investing portfolio which needs passive management and less screening skills. An investment portfolio comprising mainly of ETFs can offer more control over portfolio management and returns which equal (or exceed) tracking markets. Here are some tips for long-term ETFs investment.

1. Diversification – ETFs vary considerably with their portfolio composition. For long-term investors, it is better to choose ETFs which track broad indexes than some small industries or a handful of stocks.
2. ETF Performance – Most actively managed ETFs fail to outperform the benchmark; more over they are also costly to handle. Passively managed ETFs which offer returns as the tracking benchmark is a good option; as far as the benchmark is a good and broad one.
3. Large investments – With ETFs, the trading cost associated with buying/selling is a major profit determining factor. So instead of buying a small number of shares frequently, try to buy more number of shares occasionally; preferably through a discount brokerage firm.
4. ETF with no style drifts – There are some funds which regularly change their portfolio compositions, like including more small or large cap stocks. This active management can cost you, prefer ETFs which stay passive with their style.
5. Better to avoid similar instruments – There is no significance of trading two ETFs or trading and ETF and a mutual fund tracking same index (except higher trading costs). Be diversified with your investments.
6. Tax efficiency – Choose the ETFs that offer you better tax savings than others.

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The Week Ahead: The unemployment rate at 9.5% is now near a 26 year low with over 6 million jobs lost since the beginning of 2008. A relatively quiet week for the markets has June's ISM Non-Manufacturing Index to start things off on Monday to gauge the service side of the economy. Alcoa will officially kick off the second quarter earnings season with its Q2 report on Tuesday afternoon. The weekly jobless claims numbers along with the June chain store sales report on Thursday are the only other noteworthy reports.

Stocks to Watch: Acuity Brands (AYI)) stock fell over 7% after comparisons to last years' numbers failed to live up to expectations. Sovran Self Storage (SSS) halted a six day run after announcing a quarterly dividend cut from .64 to .45 a share. Illumina Inc. (ILMN) shares dropped 14% after warning that its Q2 revenues will be lower than previous estimates due to customer delays in its lighting array business. Sepracor (SEPR) dropped 18% after its depression treatment scored poorly in early phase II trials.

Special Note: One point on the current unemployment rate also known as U-3 is that it underscores the true rate of unemployment or U-6. Although U-3 is at 9.5%, U-6 which includes all of U-3 plus the underemployed and those that have stopped looking for work is estimated to be around 16.5%. This number could easily exceed 20% by next year. When all numbers are factored in then 1 out of 6 workers are out of work and/or not fully employed.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Limiting your trading losses is one of the four basic trading principles. But many traders, especially beginners, forget it. They place stop-losses but then lower those; waiting for market reversal. Often this market reversal does not occur and they have to close their position with high losses. Being optimistic they think that they can make up these losses with the profits from subsequent trades. This is a hard task; below is why.

Suppose you are trading with $10000 and a stop loss of 5% (at 9500). If you close your trade with a 5% loss ($500), you then have to earn back $500 to regain your original position, which is 105.26% of $9500. This 0.26% difference is often achievable. But when you lower your stop loss to 10% (9000); then you have to earn 111.1% to regain the original position. And when you lower it to 15% and 20%, then the money to regain becomes 117.6% and 125% respectively; 17.6% and 25% than you lost. This scenario becomes really unmanageable when you trade on margin.

One other thing that adds to your loss is your lack of diversification. When you are trading a handful of closely related stocks then your overall downside capital loss risk increases, because the prices of your investments can fluctuate in only one direction at a time. Costs involved in trading should also be considered.

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Bullish three outside up is a highly reliable candlestick bullish reversal pattern which indicate the end of an existing downtrend and the beginning of new downtrend. It is a three candlestick formation, which is regarded as the confirmation of bullish engulfing pattern, because the first two candlesticks forms the bullish engulfing pattern, and the third candlestick confirms the trend change.


Requirements of bullish three outside up candlestick pattern include,

• The pattern should form at the bottom of an established downtrend.
• The first candlestick is a bearish (black or colored) candlestick.
• On second-day, there should be a long bullish (white or colorless) candlestick closing above the first candlestick, the real-body of which totally engulf the real-body of first day candlestick. Thus forming the bullish engulfing pattern.
• The third day is also a bullish day closing higher than second day.

Bullish three outside up formation occurs when bulls take control of the market after a significant downtrend. Two consecutive bullish days with higher closes than first-day candlestick is a clear indication of a bullish trend.

Bullish three outside up candlestick is a highly reliable, reliable than bullish engulfing pattern. The reliability increases with increase in trading volume and real-bodies of second and third day candlesticks. As three outside up is a confirmation of other pattern, most traders don't look for other confirmations. The suggested confirmations are higher close, a gap up or bullish candlestick on day four.

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Linear regression trendline is a simple statistical indicator to predict future prices/trends based on past prices; or to extend past prices to the future. It is an indicator based on linear regression. Linear regression trendline is plotted as a straight line through the past price chart using the least squares method. This helps in minimizing the distance between prices and the trendline.

The idea behind linear regression trendline is future prices go inline with current prices. Most logical way that one can predict tomorrow’s price is – close to today’s price. For example, if the price is in upward trend, then tomorrow’s closing price (usually) can be the point of linear regression trendline which is above and close to today’s closing price. Linear regression trendline is considered as the ‘equilibrium price’. Price movements above or below the trendline can be a buying/selling opportunity. Price deviations from trendline are considered short-lived and the price is expected to return to the trendline.

Linear regression indicator or LRI plots multiple linear regression trendlines. It acts as a moving average of linear regression trendlines. But there are two key differences, unlike moving averages it do not have much delay and it actually forecasts future trends.

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