Trading Trading Chart Patterns Trading Series I Education Hub Chart patterns provide a visual representation of the battle between buyers and sellers so you see if a market is trending higher, lower, or moving sideways. A good understanding of chart patterns will help you in making buy and sell decisions effectively. Learning Tip There are tons of chart patterns. Most can be divided into two broad categories—reversal and continuation patterns. Reversal patterns indicate a trend change, whereas continuation patterns indicate the price trend will continue after a brief consolidation. Comparison Continuation vs. Reversal Patterns Two basic principles of technical analysis are that prices trend and that history repeats itself.  An uptrend indicates that the forces of demand (bulls) are in control, while a downtrend indicates that the forces of supply (bears) are in control.  However, prices do not trend forever and as the balance of power shifts, a chart pattern begins to emerge.  Certain patterns, such as a parallel channel, denote a strong trend. However, the vast majority of chart patterns fall into two main groups: reversal and continuation. Reversal patterns indicate a change of trend and can be broken down into top and bottom formations. Continuation patterns indicate a pause in trend and indicate that the previous direction will resume after a period of time. Just because a pattern forms after a significant advance or decline does not mean it is a reversal pattern. Many patterns, such as a rectangle, can be classified as either reversal or continuation. Much depends on the previous price action, volume, and other indicators as the pattern evolves. This is where the science of technical analysis becomes the art of technical analysis. Steps to Apply Investing Using Trend Analyzing chart patterns and understanding how specific securities react to price patterns can help you determine whether the bulls or bears are in control. This, in turn, can help you strategize your trades by identifying entry points, exit points, and stops. Sometimes a chart pattern may fail to do what you expect. Other times you may have to exercise patience in waiting for a specific pattern to develop. Chart patterns are subjective and can be misinterpreted. Because of these caveats, you must practice looking at chart patterns by viewing charts of longer timeframes. Get PRO Get access to exclusive premium features and benefits. Subscribe a PRO plan. See More Related Topics Using Volume for Trading Fibonacci Retracement Load More

Trading Using Volume for Trading Trading Series I Education Hub When identifying potential price patterns on a chart, it is crucial to try and verify that the market psychology behind the price pattern is really happening at that point on the chart. One of the best ways to do that is to use volume to confirm things. Learning Tip Volume is one of the two fundamental data which drives technical analysis. It is extremely powerful indicator when used in conjunction with price. So always make sure to include in your trading strategy. Use of Volume Using with Price Patterns In the case of a rectangle pattern, volume should be decreasing while the rectangle is forming. There may be volume spikes whenever prices get near the top or bottom of the pattern, but in general, as a rectangle pattern continues to develop, volume should decrease. Volume will probably spike up heavily immediately after the breakout as people realize that the support or resistance line has been broken. Triangle patterns should have a similar volume pattern – decreasing volume while the triangle is forming with a sharp increase in volume once a breakout is achieved. Use of Volume Using Volume to Confirm Trend In an uptrend, volume should expand as the prices move higher and contract as the prices pull back. As long as this pattern continues, volume is confirming the uptrend. The opposite is true for downtrends. Volume should expand as prices decline and contract during rallies to confirm a downtrend. Negative divergences can occur if new price highs in an uptrend take place on declining volume. This type of volume activity is an indication of diminishing buying pressure. If the volume also begins to pick up on price pull backs, prices may begin consolidating or reversing into a downtrend. The same concept is true for positive divergences in downtrends. If volume begins to contract on new price lows but expands during rallies, prices may begin consolidating or reversing into an uptrend. Conclusion Important Points The two price patterns we’ve looked at – Rectangles and Triangles – are examples of Consolidation Patterns, also known as Continuation Patterns. They are called that because, in general, after the pattern completes, prices will usually continue whatever trend they were in prior to the pattern forming. In order words, if prices are in an uptrend prior to a rectangle pattern forming, prices will usually resume the uptrend once the rectangle pattern finishes. Basically, consolidation patterns are places where the bulls and the bears have another short-term argument about the stock, but it is a half-hearted one. The bigger picture doesn’t really change. Get PRO Get access to exclusive premium features and benefits. Subscribe a PRO plan. See More Related Topics Trading Chart Patterns Fibonacci Retracement Load More

Trading Fibonacci Retracement Trading Series I Education Hub Fibonacci retracement levels are based on ratios used to identify potential reversal points on a price chart. These ratios are found in the Fibonacci sequence. The most popular Fibonacci retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38%, and 61.8 is rounded to 62%. Learning Tip After an advance, chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback. Fibonacci retracement levels can also be applied after a decline to forecast the length of a counter-trend bounce. These retracements can be combined with other indicators and price patterns to create an overall strategy. Crucial Levels Fibonacci Levels as Alert Zones Retracement levels alert traders or investors of a potential trend reversal, resistance area or support area. Retracements are based on the prior move. A bounce is expected to retrace a portion of the prior decline, while a correction is expected to retrace a portion of the prior advance. Once a pullback starts, chartists can identify specific Fibonacci retracement levels for monitoring. As the correction approaches these retracements, chartists should become more alert for a potential bullish reversal. Keep in mind that these retracement levels are not hard reversal points. Instead, they serve as alert zones for a potential reversal. It is at this point that traders should employ other aspects of technical analysis to identify or confirm a reversal. These may include candlesticks, price patterns, momentum oscillators or moving averages. Classification Types of Retracement Levels The Fibonacci Retracements shows four common retracements: 23.6%, 38.2%, 50%, and 61.8%. From the Fibonacci section above, it is clear that 23.6%, 38.2%, and 61.8% stem from ratios found within the Fibonacci sequence. The 50% retracement is not based on a Fibonacci number. Instead, this number stems from Dow Theory’s assertion that the Averages often retrace half their prior move. Based on depth, we can consider a 23.6% retracement to be relatively shallow. Such retracements would be appropriate for flags or short pullbacks. Retracements in the 38.2%-50% range would be considered moderate. Even though deeper, the 61.8% retracement can be called golden retracement. It is, after all, based on the Golden Ratio. Fibonacci retracement levels are often used to identify the end of a correction or a counter-trend bounce. Corrections and countertrend bounces often retrace a portion of the prior move. Fibonacci retracements can be combined with other indicators such as candlesticks, price patterns, momentum oscillators, or moving averages to create a robust trading strategy and confirm potential reversals. Get PRO Get access to exclusive premium features and benefits. Subscribe a PRO plan. See More Related Topics Trading Chart Patterns Using Volume for Trading Load More