-Jan-
22
Chart Pattern Recognition Series - Double Bottom Reversal Pattern (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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The double bottom is probably the most popular technical pattern of all time and thus worthy of your attention to help better understand its opportunities and correctly judge buying points. One of the most attractive attributes of the double bottom patter is its 35% average rise after confirmation. So lets start with the identification guidelines of the pattern.

  • A downward stock motion leading into the pattern
  • Two distinct V-shaped (or price spikes) bottoms
  • At least 10% rise BETWEEN bottoms
  • Bottom prices that do not vary more than 3% apart
  • Valley should be approximately 5-weeks apart (for best performance)
  • Volume usually higher on the left valley formation

Confirmation of the double bottom is confirmed once the price closes above the peak between the two valleys. This means there are TWO good buying opportunities here. My favorite is that of the second valley bottom with a tight stop just below that the low of the first valley. This maximizes opportunity and limits your downside risk. A seemingly simple objective for any trade but one that too many traders fail to do on a regular basis. The other opportunity is a upon the confirmation of the close above the peak between the two valleys. However, with a 65% pattern throwback rate, taking a position at this point in time serves both opportunity and risk to the investor.

-Jan-
07
Chart Pattern Recognition Series - Ascending Triangles (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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Chart pattern trading is something that takes a lot of discipline. By this I mean stock charts cannot look "kinda" like a pattern or have certain elements of a pattern. They need to match the pattern's characteristics by 100% or they will not work. Think of it like you are taking a test and the only way to pass is to get exactly a 100%. Anything less and you could be setting yourself up for danger.

The Ascending Triangle chart pattern is one of the most easily identifiable patterns and also one of my favorites to trade upon a confirmed breakout. Correctly identifying this pattern has made me a lot of money in the past and continues to prove itself as one of most profitable trades. The pattern is a bullish pattern sporting a triangle shape with a horizontal top and upward sloping bottom.

-Oct-
08
Chart Pattern Recognition Series - Cup and Handle - Short-term Bullish Continuation (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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The Cup and Handle pattern has long been my favorite patterns to trade. This short-term bullish continuation pattern gets its name from looking like a rounded cup with a handle on the right side. The primary reason that I like this pattern so much is the low failure rate it sports compared to other chart patterns. This is especially true when dealing with industry leaders. The average rise for this pattern is an appetizing 34%.

One of biggest mistakes that amateur traders make is being quick to jump to the conclusion that just because a pattern they found is rounded, that it is a cup and handle. The cup and handle pattern has a lot of criteria and should not be confused with several other patterns out there that look similar to it. Lets run through the some very important criteria to make a pattern a true cup and handle. If the pattern fails to meet anyone of these, it should not be considered a cup and handle.

-Aug-
23
Chart Pattern Recognition Series - Double Top : Adam & Adam - Short-term Bearish Reversal (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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Let me introduce you to the classic Adam & Adam Double Top (AADT). The hardest part of this pattern is finding and correctly identifying them. Amateurs too often confused (mis-read) this pattern because they do not pay enough attention to the identification guidelines. Amateurs often times will mistake the top of an ascending triangle as a double top and its not until the stock breaks upward (and they lose money) that the truth is revealed to them.

They primary key to this pattern is the twin Adam peaks must look similar to each other. Two well-defined peaks that are narrow and pointed (Adam peaks) whose price are very close to one another. This should not be confused with two peaks where one is rounded or wider in any way thus forming an Eve peak and should be traded differently. This downward breaking pattern requires two price spikes touching near the same price and sporting heavy volume near the two peaks. The volume pattern should form a U-shape between the peaks, with volume usually being heavier on the left peak.

-Aug-
05
Chart Pattern Recognition Series - Pennants - Short Term Bullish / Bearish Continuation (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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The pennant pattern is fun to trade, easy to identify and one that I often look for to make quick money. Pennant trades are for short-term (swing) traders, not for buy-and-hold investors. There are four main identification guidelines when it comes to pennants. Here they are:

1.) Price is bounded by an upper and lower trend line. The price here usually goes against the trend: The price will rise in a downtrend and fall in an uptrend.

2.) Three-week Maximum. Pennants are short term patterns and thus should not last more than 3 weeks. Even three weeks is really pushing it. I prefer pennants to last only seven to eleven days. Longer than 3 weeks and the pattern turns into a symmetrical triangle or wedge.

3.) Steep, quick price trend. Pennants should have a very steep price move (up or down) leading into the pattern.

4.) Downward volume trend. Volume will usually trend downward until the break out move occurs.

-Jul-
19
Chart Pattern Recognition Series - Head and Shoulders Tops - Short Term Bearish Reversal (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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The head and shoulders top is a short-term bearish reversal pattern that gives way to short opportunities. The price enters the pattern from the bottom and breaks out to the bottom thus reversing the prevailing price trend.

This pattern is among the most popular patterns to trade in the market for reasons that stem from the patterns reliability, performance and easy identification. It is a fairly simply pattern to recognize in that there will be three spikes with the center spike being the highest. More often then not the left shoulder will carry the highest volume as well.

A trend line drawn along the bottoms of the two troughs and between the three peaks is known as the neckline. The neckline is nothing more than an indicator used to predict how severe the price decline is going to be. This line slopes up half the time and down half the time. An upward sloping trend line would could suggest the stock might have a slight pullback before continuing its decline. These trend lines will serve as a new resistance point. The neckline also serves as a confirmation point. Should the price decline pierce the neckline, assuming no pullback, prices will continue to move downward to the next resistance level.

-May-
07
Chart Pattern Recognition Series - Price Channel (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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The price channel pattern is one of the simplest, easy to recognize chart patterns I use. This continuation pattern slopes up (bullish) or down (bearish) while bouncing off the upper and lower trend lines. The upper trend line marks resistance and the lower trend line marks support. What I really like about this pattern is that it can be traded a variety of different ways. You could trade it short term, buying on the bottom trend line support and selling at resistance or you could also "buy and hold" the pattern. Regardless of which you choose, a key point you want to remember is to buy on specific injection points, or points where the price touches the bounding support and resistance levels. Price channels will not last forever, but the underlying trend remains in place until proved otherwise.

-Apr-
04
Technical Analysis - Chart Pattern Recognition Series (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comment

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I have had many requests from virtually all my colleagues to further explain what I look for in a stock in terms of technical fundamentals and chart patterns. I am far from an expert in this subject but I do not like seeing many of friends fail to maximize profits (or worse, loose money) because they don't recognize proper stock injection points, the only time I will buy a stock.

I have thus decided to start a stock chart pattern recognition series. In this series I will show you basic stock patterns and how they certain patterns tend to resolve bullish while other patterns will resolve bearishly. Recognizing these before they happen can make you a considerable amount of money.

I will talk about chart patterns such as Double Top/Bottom, Head and Shoulders, Falling/Rising Wedge Triple Top/Bottom, Flag Pennant, Symmetrical, Ascending & Descending Triangles and Price Channels. Oh and did I mention my personal favorite - The Cup and Handle.

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