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Chart Reading 101
Charts Formation Course
Ask a Chartist why he lost money and he says I didn't follow my CHARTS!!, its amazing sometimes when two individuals see the
same charts and one prefers to buy and the other sell, to our understanding there's only one truth and it can be seen on the charts.
Charting Course Overview
It is important to note that the Charting Course provided herein does not attempt to be a comprehensive treatment on Charting or
Technical Analysis methods. There are numerous, well-written books on Chart Interpretation and Technical Analysis. A brief and
simplistic review of some basic charting concepts are provided for reference only and to stimulate further study.
TRENDLINES
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Trendlines - Inclining Trendline
A straight line usually drawn to define an uptrend against or through price
bar lows. |
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Trendlines - Declining Trendline
A straight line usually drawn to define a downtrend against or through
price bar highs. |
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Support
A horizontal line (floor) which has acted as a barrier to lower prices.
Usually defined by two or more price bar lows. |
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Resistance
A horizontal line (ceiling) which has acted as a barrier to higher prices.
Usually defined by two or more price bar highs. |
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Channel-Inclining
An up-trending price bar pattern in which inclining parallel lines can be
drawn through or against price bar highs and lows respectively. |
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Channel-Declining
A down-trending price bar pattern in which declining parallel lines can be
drawn through or against price bar highs and lows respectively. |
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Channel-Horizontal or Sideways
A horizontal or "sideways" price bar pattern in which horizontal parallel
lines can be drawn through or against price bar highs and lows
respectively. Chartists frequently "buy" or (go-long) on a break up and out
of the Channel or "sell" (go-short) on a break down and out of the Channel. |
TRIANGLES
Symmetrical |
Triangles-Symmetrical
A price bar pattern in which the
slope of price bar highs and lows are converging to a point so as to outline the pattern in a
symmetrical triangle. Chartists frequently "buy" or (go-long) on a break up and out of the Symmetrical Triangle or "sell" (go-short)
on a break down and out of the Symmetrical Triangle. |
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Ascending |
Ascending Triangle
A price bar pattern in which the
slope of price bar highs and lows are converging to a point so as to outline the pattern in
Right Triangle. The hypotenuse in an Ascending Triangle should be sloping from lower to higher and from left to
right. Chartists frequently buy or (go-long) on a break up and out of the Ascending Triangle or sell (go-short) on a break down and
out of the Ascending Triangle. However, Ascending Triangles are generally thought to
demonstrate a stronger bias towards predicting a break up and out of the Triangle, particularly when
the trend leading up to the formation has been up. |
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Descending |
Descending Triangle
A price bar pattern in which the
slope of price bar highs and lows are converging to a point so as to outline the pattern in
Right Triangle. The hypotenuse in an Descending Triangle should be sloping from higher to lower and left to right.
Chartists frequently buy or (go-long) on a break up and out of
the Descending Triangle or sell (go-short) on a break down and out of the Ascending Triangle.
However, Descending Triangle are generally thought to demonstrate a stronger bias towards
predicting a break down and out of the Triangle, particularly when the trend leading to the formation has been down. |
Non-Symmetrical
A price bar pattern in which the slope of price bar highs and lows are converging to a point so as to outline the pattern in a
non-symmetrical triangle. Chartists frequently "buy" or (go-long) on a break up and out of the Non-Symmetrical Triangle or "sell"
(go-short) on a break down and out of the Non-Symmetrical Triangle.
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Non-Symmetrical (B) |
PENNANTS
Pennants
Similar to a Symmetrical Triangle but generally "stubbier" or not as
elongated. A price bar pattern in which the slope of price bar highs and lows are converging to a point so as to outline the pattern in a symmetrical
triangle. Chartists frequently "buy" or (go-long) on a break up and out of the Pennant or "sell" (go-short) on a break down and out of the Pennant.
WEDGES & FLAGS
Rising/Inclining |
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Wedges-Rising or Inclining
A price bar pattern in which the slope of price bar highs
and lows are converging to a point so as to outline the pattern in a triangle that points diagonally higher. The
slope of both converging lines is up, the lower one being steeper than the higher one. Chartists frequently buy or
(go-long) on a break up and out of the Wedge or sell (go-short) on a break down and out of the Wedge.
Rising Wedges, in the context of a prior downtrend are generally considered to have a stronger bias toward
breaking down and out, as opposed to up and out. |
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Falling/Declining |
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Wedges-Falling or Declining
A price bar pattern in which the slope of price bar highs and
lows are converging to a point so as to outline the pattern in a triangle that points diagonally lower. The slope of both
converging lines is down, the higher one being steeper than the lower one. Chartists frequently buy or (go-long) on a break up
and out of the Wedge or sell (go-short) on a break down and out of the Wedge. Falling Wedges, in the context of a prior
uptrend, are generally considered to have a stronger bias toward breaking up and out, as opposed to down and out. |
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Bull Flag |
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Bull Flag
A price bar pattern consisting of a relatively small
number of price bars in which the slope of price
bar highs and lows are parallel and declining, or in
which the slopes converge to a point in the shape of a small Pennant. Bull Flags are identified by
their characteristic pattern and by the context of the prior trend. In the case of a Bull Flag the trend
leading to the formation of the Bull Flag is up. Chartists frequently "buy" or (go-long) on a break
up and out of a Bull Flag formation. Bull Flags are generally considered to have a stronger bias toward
breaking "up and out," as opposed to "down and out." |
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Bear Flag |
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Bear Flag
A price bar pattern consisting of a relatively small
number of price bars in which the slope of price bar
highs and lows are parallel and inclining, or in which the slopes converge to a point in the shape of a small
Pennant. Bear Flags are identified by their characteristic pattern and by the context of the prior
trend. In the case of a Bear Flag the trend leading to the formation of the Bear Flag is down. Chartists frequently
"sell" or (go-short) on a break down and out of a Bear Flag formation. Bear Flags are generally considered to
have a stronger bias toward breaking "down and out," as opposed to "up and out." |
TOP/BOTTOM FORMATIONS
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| 1-2-3 (A-B-C) Top
Anticipates a change in trend from up to down on a break below the number "2" point. |
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1-2-3 (A-B-C) Bottom
Anticipates a change in trend from down to up on a break
above the number "2" point. |
TOP/BOTTOM FORMATIONS II
Head And Shoulders
Anticipates a decline on a break below the "Neckline."
Inverted Head and Shoulders
Anticipates a rise in prices on a break above the "Neckline."
| Double Top
Anticipates a change in trend from up to down. |
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Double Bottom
Anticipates a change in trend for down to
up. |
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| Triple Top
Anticipates a change in trend from up to down. |
Triple Bottom
Anticipates a change in trend from down to up. |
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| Rounded Top
Anticipates a change in trend from up to down. |
Rounded Bottom
Anticipates a change in trend from down to up. |
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