technical analysis at cgq
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Classic Chart Patterns
Two types of patterns Reversal patterns which identify changes in market trend
Key reversal
Double and triple tops and bottoms
Head and shoulder tops and bottoms
Saucer bottoms
Continuation patterns which represents midcourse corrections
Flags
Pennants
Triangles
Wedges
Volume and open interest Confirmation of all the patterns.
Most patterns have measuring techniques which great
objectives for the next move.
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Reversal Patterns
Common to all reversal patterns
There must be an identifiable trend.
Bottoms often have gradual basing and move with increased
volume
Topping patterns are much more volatile than bottoms.
The longer the trend is in place the more substantial the reversal
move.
First signal of a reversal is the violation of a trendline.
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Double and Triple Tops
Very similar to the head and shoulders top.
Triple top has three peaks and two troughs as does the
head and shoulder.
The neckline connects the two troughs usually very little
slope.
Breakdown is achieved by braking the neckline and testing
the breakdown point and holding it.
Distance from top to neckline provides a downside
objective for both double and triple top.
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Head and Shoulders
The top formation has three high peaks with the middle
peak higher than the other two.
Characteristics
The is symmetry in the shoulders either simple or complex.
Neckline can have an up or down slope.
Neckline slope is normally not very steep.
Breakout of the pattern is penetration of the neckline on high
volume and a test of the neckline which must hold.
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Source: chartpatterns.com
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Rounded Bottom or Saucer Bottom
Saucer bottom is gradually rounding bottom.
According to Investors Business Daily, a very high
percentage of stock bottom with this formation.
Bullish reversal pattern.
Price curves up to a level closed to the congestion level at
the beginning of the saucer.
Retraces down to form the handle of cup and takes out the
recent high with high volume to start bull move.
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Continuation Patterns
Triangles
Symmetrical
Ascending
Descending
Flags
Pennants
Rectangular Formations
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Symmetrical Triangle
Forms two trendlines the descending line has lower highsand the ascending line has higher lows.
Usually breaks out of the triangle in the same direction itentered the triangle. Continuation.
There are normally three waves within the triangle. The closer the price gets to the apex of the triangle the
higher the probability of a false breakout.
Volatility get lower as the trading ranges get smaller.
Volume also recedes, The distance from the beginning of the trend to the entry
into the triangle creates a profit objective upon exit from thetriangle.
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Source: chartpatterns.com
Source: chartpatterns.com
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Ascending Triangle
The triangle is create by horizontal top and an ascending
upward trendline.
Breakout is upward through the horizontal line.
Also has a three wave count within the triangle.
Breakout should be accompanied by high volume.
Often the breakout point will be tested on a retracement
and holds.
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Source: chartpatterns.com
Source: chartpatterns.com
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Descending Triangle
Descending triangle is created by a horizontal trendlinealong the bottoms and a down sloping trendline connecting
highs.
Market usually enters in a downward direction and exits to
the down side. Continuation pattern. There is usually a three wave count within the triangle
formation.
Breakout is normally accompanied by high volume.
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Flags and Pennants
Flags and pennants represent a rest after a sharp move. This createsthe flag or pennant pole.
Pennants then form a symmetrical triangle at the top of the pole. As a
continuation pattern the breakout is in the same direction as the price
entered the pennant.
Flags then form a small trend channel. Bullish trend is a declining trend
channel and a bearish trend forms an ascending trend channel.
Both tend to have a three wave formation, breakout with higher volume,
and test the breakout point.
All trends need to take a rest, this behavior results in these continuation
patterns.
Within the consolidation period volume and volatility tends to contract.
Expands on breakout.
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Source: chartpatterns.com
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Rectangular or Sideways Market
A rectangle is a continuation pattern in which there is ahorizontal trading range where the highs and lows are at
the same level. A horizontal trend channel describes the
market action.
Volume and volatility consolidate within the rectangle andexpands as the market exits the formation.
The rectangle can also be a high or low the key is to trade
in the direction of the breakout of the trading bracket, either
direction.
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