Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Upthrusts

What it is:

Upthrusts are false breakouts that can trap the unsuspecting trader. Upthrust patterns quickly reverse, with the stock or index then often testing the opposite end of the trading range.

How it works (Example):

Upthrusts are a type of technical pattern named by legendary technician Richard Wycoff. The quality of upthrust can be judged by an examination of the degree of penetration of support or resistance, as well as the volume on the day or period this penetration occurred. These four scenarios are possible:

-- Large penetration on large volume
-- Large penetration on small volume
-- Small penetration on large volume
-- Small penetration on small volume

Upthrusts provide the swing trader with good opportunities. First, they can provide a stop loss, which should be placed just above the extreme of the day the upthrust occurred. They can also create a target, since the stock is likely to test the opposite end of the trading range.

The recent upthrust in the Nasdaq Composite is shown below. The duration of the upthrust lasted for approximately one week. For most days during this period, the Nasdaq traded roughly two billion shares -- a bit higher than normal daily volume. Observe on the chart that the bearish engulfing candle signaled a key reversal. Also, note that the Composite was about to fall back into the consolidation pattern.

Why it Matters:

Being able to accurately recognize an upthrust can turn a potential threat from a false breakouts into an opportunity. Swing traders should always watch the activity following a breakout to confirm whether a stock is behaving as it should. If not, then it might still provide an excellent trading situation -- if you spot an upthrust in the making.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...