Chapter 4

Seeing Patterns and Drawing Trendlines

In This Chapter

arrow Getting the basics on patterns

arrow Recognizing continuation and classic reversal patterns

arrow Drawing support, resistance, and linear regression lines

Securities prices move in regular ways that professional traders expect and respond to. Chart patterns are powerful indicators, and having some basic knowledge of patterns and pattern jargon is a good idea for all traders.

We use patterns and trendlines to identify support and resistance and breakouts of support and resistance. Even a rough application of these two concepts can save you a bundle or help you make profits, because they're among the top technical ruling concepts in the market and you can expect others to heed the meaning of the patterns in consistent ways. This chapter illustrates a few of the many common patterns and tells you how to use them.

Introducing Patterns

Chart patterns are indicators consisting of shapes, such as triangles, drawn on the chart. Although most patterns employ straight lines (such as triangles), a few use semi-circles or semi-ellipses (such as head-and-shoulders). Pattern lines generally follow either the highs or the lows rather than the ...

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