Chart Your Way to Profits: The Online Trader's Guide to Technical Analysis with ProphetCharts, Second Edition

Chapter 14. Pattern Recognition

The basis of a large portion of technical analysis is pattern recognition—that is, the ability to spot one of the classic technical patterns (such as a wedge, a head and shoulders, or a triple bottom) and estimate in what direction and by what amount the price is likely to move.

There are a couple of disadvantages to looking for patterns manually. First, it takes a lot of experience. Getting the ability to look at a chart and accurately discern what pattern, if any, is present, takes years of experience as a technical analyst. Second, it takes a lot of time. Going through hundreds of charts to look for a handful of high-probability patterns could easily consume hours of your time, and even if you decided to make a serious time commitment, you could not as a practical matter go through all the stocks that trade on the major exchanges.

Fortunately, ProphetCharts has a couple of tools that automatically find patterns in stock charts. One tool locates the classic technical analysis patterns over the course of many years of stock data, and the other tool finds short-term candlestick patterns. This chapter will introduce you to both of these tools and their effective use.

HOW TO FIND PATTERNS

The ProphetCharts historical price database automatically keeps track of patterns as they emerge. Getting to this information is simply a matter of establishing the parameters of your search so the qualifying symbols can be delivered to your copy of ProphetCharts.

Figure 14.1. You ...