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PricePattern
(Charting)
Technical analysis is the
study of market action primarily through the use of
charts, for the purpose of forecasting future price
trends. It assumes three things:
Market action discounts everything.
Price moves in trends.
History repeats itself.
The following patterns are the most recognized and
followed. We actively follow and call them all in our
Live Trading Room.
1-2-3 CONTINUATION PATTERN:
Criteria:
1. Wide range bar breaking out of support.
2. Narrow range bar near/at the highs of the previous
wide range bar. Often this narrow range bar is also an
inside range bar.
Entry: Switch to a smaller time frame
and take a breakout from the base or use above the highs
of the narrow range bar of bar 2.
Stop: Under the lows of the base or
last major pivot low on the smaller time frame, under
the lows of the narrow range bar, or under the lows of
the third bar at the time of the setup.
Target: Bar 1 = Bar 3
Examples:
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THE 2B SETUP:
Criteria: A high followed by a
slightly higher high.
Entry: As the high of the first high
breaks on a pullback from the second high. Alternate
entry (used by Toni): Under the prior bar's lows after
the second high is made. For instance if the lows of the
bar making the second high is $50, entry is under $50.
The only time it is not under the bar that made the
second high is if that high is followed by an inside
range bar, so you would use a break in the lows of the
inside range bar.
Stop: Over the second high.
Target: Price or moving average
support.
Example:
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ASCENDING TRIANGLE:
Criteria: Equal/Nearly equal highs
and higher lows on decreasing volume.
Entry: Breakout from the trend lines on
higher then average volume as the trend lines converge.
Stop: Under the lows of the base or
last major pivot low on the smaller time frame or under
the lows of the setup bar.
Target: Equal distance on a breakout
comparable to the distance between the first high and
first low in the triangle. Ascending triangles tend to
breakout higher.
Example:
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AVALANCHE:
Criteria:
1. Uptrend
2. Stronger than average rally.
3. Pullback of 3-5 bars comparable to or stronger than
previous rally, usually on increasing volume, to moving
average support (typically the 10, 20 or 30 sma.)
4. Hugs the moving average support on decreasing volume.
4-5 bars average.
5. Moving averages start to converge (10 and 20 sma if
it's setting up on the 20 sma.)
Entry: Switch to smaller time frame and
enter on a breakdown in support or going into
resistance.
Stop: Over previous or current day's
highs. Usually you will use current day's highs or
intraday resistance.
Target: Next major simple moving
average.
Example1:
Example 2:
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BASING / TRADING RANGE / CONGESTION /
CONSOLIDATION
Example:
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BEAR FLAG:
Criteria:
1. Downtrend.
2. Gentle pullback to resistance, such as the 20 sma, on
decreasing volume.
Entry: Below the previous bar's lows or
using an intraday breakdown such as a break in the
uptrend line of the flag. Volume should start to pick up
at this time to confirm the setup.
Stop: Above the previous bar's highs or
above intraday resistance.
Target: New lows, usually on high
volume.
Example:
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BREAKOUT:
Criteria: A base/trading range at
highs or lows.
Entry: A breakout in the most recent
section of the trading range or trend line in the
direction of the trend prior to the trading range. Can
also take an entry into moving average support in the
case of a long and sma resistance in the case of a
short.
Stop: Under simple moving average
support such as the 15 minute 20 sma in the case of a
setup on the 15 minute chart or under the last pivot low
within the trading range.
Target: Moving average resistance (like
the 15 minute 200 sma), price resistance (such as a
previous pivot), or an equal move to that before the
trading range on the move out of the trading range.
Example:
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BULL FLAG:
Criteria:
1. Uptrend.
2. Gentle pullback to support, such as the 10 or 20 sma,
on decreasing volume.
Entry: Above the previous bar's highs
or using an intraday breakout such as a break in the
downtrend line of the flag. Volume should start to pick
up at this time to confirm the setup.
Stop: Below the previous bar's highs or
below intraday resistance.
Target: New highs
Example:
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BULL TRAP - A gap setup:
Criteria:
1. A bullish daily pattern. Preferably where the market
opens at lows and closes at highs.
2. A gap down in the morning, generally on news, whereby
the stock opens at or under the previous day's lows.
Entry: Break in 5 minute lows (A) or an
intraday setups such as a breakdown out of a base at
lows (B) or a bear flag.
Stop: Depending on the objective and
entry. On a break in 5 minute lows for a day or
swingtrade you can use above the 5 minute highs. For
intraday breakdown setups use a stop over the last 5-7
bars or over significant intraday moving average
resistance. The same goes for intraday bear flags. For
position trades use over the high of the previous day or
over the current day's highs.
Target: Equal distance on a breakout
comparable to the distance between the first high and
first low in the triangle.
Example:
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CORE BUY SETUP:
Criteria:
1. Uptrend.
2. Gentle pullback of 3-5 bars average to the 10-20
simple moving average zone on decreasing volume.
Entry: Above the previous bar's highs
or using an intraday breakout. Volume should pick up at
this time to confirm the setup.
Stop: Under the previous bar's lows or
under intraday support.
Target: New highs.
Example:
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CORE SHORT SETUP:
Criteria:
1. Downtrend.
2. Gentle pullback of 3-5 bars average to the 10-20
simple moving average resistance zone on decreasing
volume.
Entry: Below the previous bar's lows or
using an intraday breakdown. Volume should start to pick
up at this time to confirm the setup.
Stop: Above the previous bar's highs or
above intraday resistance.
Target: New lows, usually on high volume.
Example:
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CUP WITH HANDLE:
A type of Phoenix.
Criteria: A stock coming out of a
downtrend with rounded lows that puts in a slightly
lower high and then pulls back gradually to put in a
higher low.
Entry: On a breakout higher out of the
pullback. There will often be a moving average crossover
(such as a cross in the 10 and 20 sma)
Stop: Under lows of the pullback.
Target: Highs of the beginning of the
cup or an equal move out of pullback as compared to move
off lows.
Example:
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HEAD & SHOULDERS:
Criteria: High (left shoulder)
followed by a higher high (head) and then a lower high
(right shoulder) which is comparable to the left
shoulder.
Entry: Breakdown from the neckline. The
neckline connects the lows on either side of the head.
Alternative and preferred entry is using a bear flag
breakdown to enter after the right shoulder has formed.
Stop: Over the past pivot high or 20
simple moving average resistance
Target: Previous reversal prices and support zones such
as a 5 minute 200 sma if the setup occurs on the 15
minute chart.
Example:
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OOPS DAILY BUY:
Criteria: Wide range bar on
increased volume (preferably at a strong support level)
Entry: Above 5 minute high on a gap up
or an intraday breakout to highs.
Stop: Under current or previous day's lows
Target: Price resistance, 5 minute 200
sma, 15 minute 200 sma, 10 & 20 day sma. This is a 1/2 -
1 1/2 day hold, depending on objective.
Examples:
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PENNANTS / WEDGES
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PHOENIX
Criteria:
1. Downtrend
2. Pullback higher of 3-5 bars comparable to or stronger
than previous decline, usually off lows on high volume,
to 20 simple moving average resistance
3. Hugs the moving average support on decreasing volume.
4-5 bars average.
4. Moving averages start to converge (10 and 20 sma if
it's setting up on the 20 sma.)
Entry: Switch to smaller time frame and
enter on a breakout in resistance and/or the 20sma.
Stop: Under previous or current day's
lows on a daily setup. Usually I will use current day's
lows or a break in intraday support.
Target: Next major simple moving
average. For example, a setup on the 2 minute chart has
a target of 5 minute 20 sma and a setup on the 5 minute
chart has a target of the 15 minute 20 sma. Also watch
for equal moves.
Example:
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REVERSE HEAD AND SHOULDERS
General Criteria: Low (left
shoulder) followed by a lower low (head) and then a
higher low (right shoulder) which is comparable to the
left shoulder.
Entry: Break higher from the neckline.
The neckline connects the highs on either side of the
head. Alternative and preferred entry is using a Phoenix
to enter after the right shoulder has formed.
Stop: Under the past pivot low or 20
simple moving average support
Target: Previous reversal prices and
resistance zones such as a 5 minute 200 sma if the setup
occurs on the 15 minute chart. Also whole number
resistance.
Example:
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SYMMETRICAL TRIANGLE
Criteria: Lower highs and higher
lows on decreasing volume.
Entry: Breakout from the trend lines on
higher then average volume as the trend lines converge.
Stop: Under the lows of the base or
last major pivot low on the smaller time frame or under
the lows of the setup bar in the case of a buy.
Target: Equal distance on a breakout
comparable to the distance between the first high and
first low in the triangle. Symmetrical triangles tend to
resolve themselves in the direction of the overall
trend. There are exceptions, mainly at strong resistance
in the case of an uptrend or strong support in the case
of a downtrend. This tends to be one of the more
difficult patterns for trader's to learn to use
successfully.
Example:
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