A Handbook of Technical Analysis: The Practitioner's Comprehensive Guide to Technical Analysis

CHAPTER 7

Bar Chart Analysis

LEARNING OBJECTIVES

After studying this chapter, the practitioner and student should be able to:

• Understand the significance of bar chart analysis and its use in forecasting potential tops and bottoms in the market
• Recognize the early indications of potential trend change via commonly used bar chartpatterns
• Identify buy and sell signals via single, double, triple, and multiple bullish and bearish bar formations
• Read bar action behavior more effectively via the 16 price and volume reversal characteristics

The study of bar chart patterns forms the basis of pure price action analysis. It represents the most fundamental skill that every technician should possess in order to be adept in technical analysis. In this chapter we shall cover various single, double, triple, and multiple bullish and bearish price bar patterns commonly used by practitioners of technical analysis.

7.1 PRICE BAR PATTERN CHARACTERISTICS

Construction of a Price Bar

A standard price bar comprises of an open (O), high (H), low (L), and close (C) price, normally referred to by its acronym, OHLC. Price activity may be quantized over a specified duration or time interval and summarized into OHLC data. For example, Figure 7.1 depicts five minutes of price activity, which may be represented by a bar. The range of the bar is simply the absolute distance between the high to low, |H – L|.

To summarize price activity over longer durations, comprising of multiple intervals, simply use the ...