Chapter 7

Reading Special Bar Combinations: Small Patterns

In This Chapter

Keying in on market psychology in simple bar combinations

Comprehending common and uncommon bar combinations

Getting the lowdown on gaps

Understanding the significance of the high-low range

The price bar is the basic building block of technical analysis, and a series of price bars on a chart is your basic workspace. (For the basics of the price bar, see Chapter 6.) Charts contain endless combinations of bar configurations, and you can’t possibly memorize all the combinations and permutations. Being able to identify a few special cases, however, is useful because you see these cases often enough that they serve as signposts to guide your interpretation of what the price is going to do next.

“Special bars” are a small series of two to five bars — called combinations or configurations — that stand out on a chart. You can see them immediately, and so can everyone else. All the special bars and configurations are either trend-confirmation or trend-reversal patterns. Over the years, traders have interpreted these special bar combinations in specific ways, which I describe in this chapter. Knowing how other traders feel toward specific bar configurations can help you make your own trading decisions.

remember.eps As a general rule, you want to “go with the flow” — trade with the conventional wisdom about the meaning of the ...

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