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Idenitfying Chart Patterns Biswa
Idenitfying Chart Patterns Biswa
TECHNICAL ANALYSIS
Getting Started with Technical Analysis
Learn the assumptions that guide technical analysis, and get to
know the basics of trend trading.
Understanding Construction
Patterns and of Common
Their Limits Chart Patte
TECHNICAL ANALYSIS
Understanding
Patterns and
Their Limits
Defining Patterns
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• A pattern is bounded by at least two trend lines (straight or curved)
• Patterns are fractal, meaning that they can be seen in any charting
period (weekly, daily, minute, etc.)
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TECHNICAL ANALYSIS
Keep in Mind
Some of our human tendencies can be
dangerous for investors.
• See patterns where there aren’t any
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Techniques for
Trading Patterns
BROKERAGE: TECHNICAL ANALYSIS
• Breakouts
• Entry Stops
• Protective Stops
• Retracements
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BROKERAGE: TECHNICAL ANALYSIS
Breakouts
Price
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BROKERAGE: TECHNICAL ANALYSIS
Confirmation Filters
Types of Filters
• Intrabar
• Percentage or point
has taken place.
• Money
BROKERAGE: TECHNICAL ANALYSIS
Entry Stops
Entry Stops
Buy stop orders are used to
enter trades once the price
breaks out.
Breakout
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BROKERAGE: TECHNICAL ANALYSIS
False Breakout
Breakout
Price breaks out but almost
immediately returns back Line
through its breakout price.
Failed Breakout
(Trap)
False breakout occurs and
the price then breaks out in
the opposite direction.
Line
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BROKERAGE: TECHNICAL ANALYSIS
Protective Stops
Protects Capital
Determines the amount of
capital risk before entry
Types of
placement Breakout
Line
• Filters, such as percent,
points, or money
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BROKERAGE: TECHNICAL ANALYSIS
Example
Breakout
• Enter on breakout
• If price continues in
direction of breakout, profit
from breakout entry
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BROKERAGE: TECHNICAL ANALYSIS
Retracements
Counter Trend
Correction (pullback)
Types
• Pullback (on breakout down)
• Throwback (on breakout up)
Waiting for
• Don’t always occur
• Performance can suffer
when they do
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Construction of
Common Chart
Patterns
BROKERAGE: TECHNICAL ANALYSIS
Other
• Head and Shoulders
• Cup and Handle
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BROKERAGE: TECHNICAL ANALYSIS
Price
downside.
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
Characteristics: Rectangle
(entry up, breakout up) Zone
• Trading range with support and
resistance levels bounding price Entry Throwback
action Zone
Breakout
• Slight tilt, similar to horizontal
line
channel
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BROKERAGE: TECHNICAL ANALYSIS
Triangle: Symmetrical
Take the height from the highest peak in the pattern to the
• Best occurrence may be upward lowest trough in the pattern. Then either add it (for upward
breaking out – above average for
all patterns*
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BROKERAGE: TECHNICAL ANALYSIS
Triangle: Ascending
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BROKERAGE: TECHNICAL ANALYSIS
Triangle: Descending
Take the height from the highest peak in the pattern to the
lowest trough in the pattern. Then either add it (for upward
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* Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2nd ed.
BROKERAGE: TECHNICAL ANALYSIS
Triangle: Wedge
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*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2nd ed.
BROKERAGE: TECHNICAL ANALYSIS
Characteristics: Head
27 *Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2nd ed.
BROKERAGE: TECHNICAL ANALYSIS
Characteristics:
• Inverted but otherwise Head and Shoulders Bottom
identical to a top pattern (breakout up)
except not as profitable*
Price
Breakout Breakout
Neckline
Neckline
Entry Throwback
Right
Shoulder
Head Head
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
= Buy Wedge
= Stop Wedge
= Exit
Triangle
Triangle
Rectangle
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*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2nd ed.
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
Characteristics:
• Traditionally, candlestick patterns are reversal patterns, meaning they
are used to identify when a trend is ending
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BROKERAGE: TECHNICAL ANALYSIS
Doji
Characteristics: Doji
• A one-candle pattern formed when the open
and close are the same price, and the high
and low are roughly equidistant from the open
and close
• Extremely common
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BROKERAGE: TECHNICAL ANALYSIS
Harami
Characteristics: Harami
• A two-candle pattern of a large body of either Top Bottom
color followed by a small body of the opposite
color; The second body is completely within
the body of the large body and is called a
“spinning top”
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
Characteristics:
Hammer
• A one-candle inverted hanging man or hammer Top Bottom
pattern. Hammers by themselves have white
bodies and shooting stars have black bodies
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BROKERAGE: TECHNICAL ANALYSIS
Engulfing
Characteristics: Engulfing
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BROKERAGE: TECHNICAL ANALYSIS
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BROKERAGE: TECHNICAL ANALYSIS
Pennant/Flag
Characteristics:
Flag and Pennant
• Pennant and flag patterns are in upward trend Flag Pennant
variations of the same pattern
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BROKERAGE: TECHNICAL ANALYSIS
Gaps
Characteristics
• Definition – no trading (gap)
at specific prices
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BROKERAGE: TECHNICAL ANALYSIS
Gaps
Characteristics
• Gaps are generally profitable on
breakouts from patterns, trends,
support or resistance
of the two bars. Add that amount to the taller of the two
bars to get a price target.
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BROKERAGE: TECHNICAL ANALYSIS
Volatility Patterns
Characteristics:
• Dull activity is known as “low volatility.” New
trends often begin from periods of low volatility
at opening
above inside
• One way to look at volatility is to observe the bar close
relationship between price bars
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BROKERAGE: TECHNICAL ANALYSIS
Narrow Range
Characteristics: NR4
• One low volatility pattern is called a “Narrow
Range” pattern and consists of a bar with a
range narrower than its preceding bars than days 1-3
three bars
Sell
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Getting Started with Technical Analysis
Learn the assumptions that guide technical analysis, and get to
know the basics of trend trading.