Getting Started in Chart Patterns, 2nd Edition

Chapter 7

Special Situations

Special situations can provide trading opportunities or signs of things to come. Some situations are worth looking for, and some are just informational. I discuss them in this chapter, sorted alphabetically.

Bull and Bear Markets

One of the keys to making money trading chart patterns is to trade with the trend. If you've been in the markets for long, you will have heard the phrase, trade with the trend. But what does that mean?

Buy when the market is rising, such as in a bull market, and sell or sell short when the market is falling, such as in a bear market.

It also applies to the industry. Research on my trades found that the industry movement was more important than the market movement.

For example, when both the industry and market were rising, I made 15% on my trades. When both the industry and market were trending lower, my trades lost 10%. If the industry was down but the market was up, I still lost money. In the reverse situation (industry up, market down), I made money.

In other words, the industry trend was more important to the performance of the stock than the market, and the trend of each (industry and market) affected performance.

• Trade with the market and industry trends.

short sale

selling a security you don't own on the expectation that you can buy it later at a lower price.

Once you become familiar with chart patterns, you can look ...