Chart Pattern Analysis
After studying this chapter, the practitioner and student should be able to:
- Understand how to identify important chart patterns and how to use them to forecast potential reversals and continuations in the market
- Describe the five modes of chart pattern completion including the various price filters that are appropriate for each type of pattern completion
- Calculate the minimum price objectives for various chart patterns
- Distinguish between passive and aggressive trading approaches with respect to chart patterns
Chart pattern analysis is probably one of the most popular forms of technical analysis. Chart patterns help to identify market tops and bottoms as well as trend continuations. Chart patterns also indicate the minimum price movement expected once the pattern is completed. In this chapter, we shall cover various reversal and continuation chart patterns and their characteristics, guidelines for pattern completion, minimum price objectives, and various trading approaches with respect to chart patterns.
13.1 ELEMENTS OF CHART PATTERN ANALYSIS
In this chapter we shall be studying various chart pattern constructs, including the:
- Preconditions required for an effective and reliable chart pattern reversal or continuation
- Minimum measuring objectives (price target projections)
- Characteristics of reversal and continuation patterns
- Expected volume action for a reliable chart pattern reversal or continuation
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