Presentation on theme: "Basic Chart Patterns Everyone Should Know Michael Kahn, CMT February 2011."— Presentation transcript:
Basic Chart Patterns Everyone Should Know Michael Kahn, CMT February 2011
Who am I? Chartered Market Technician (CMT) trained and certified in market analysis trained and certified in market analysis Columnist – Barron's Online Newsletter Editor – Quick Takes Pro Fund Co-Manager – (the silence of compliance) Former charting software designer …and beaten up enough by the markets
What can I do for you? Help investors assess risk and reward. no crystal ball no tea leaves no chicken entrails
No Guarantees! Owning a hammer does not make you a carpenter. Buying P90X does not make you a swim suit model. Using charts does not make you money. …..but they all can – if you work at them.
Types of Patterns 1. Market at rest…………...continuations 2. Market finished …………reversals 3. Market uncommitted……directionless
Types of Patterns Most patterns have simple names based on what they look like. A Double Reverse Whirligig, if it existed, would be far too complex to be useful. K.I.S.S!
Continuation Patterns Triangles Triangles Rectangles (aka trading ranges) Rectangles (aka trading ranges) Flags Flags Gaps Gaps But look at the next slide….
Reversal Patterns Triangles Triangles Rectangles (aka trading ranges) Rectangles (aka trading ranges) Flags (well, not so much ) Flags (well, not so much ) Gaps GapsHuh?
Key Points The shape of a pattern yields clues to what is going on in terms of market psychology. The position of the pattern in the context of what came before it is also critical. Patterns lean one way or the other but the market decides which way it breaks.
Directionless Patterns Volatile swings Volatile swings Dead calm Dead calm Real-looking patterns but with fuzzy borders Real-looking patterns but with fuzzy borders If you cannot eyeball the pattern in half a second then there is no pattern. Move on.
The Everything Chart
Gaps Four Types Breakaway Measuring (continuation) Exhaustion Unclassified
Directionless - or is it?
Summary Chart patterns exist when the trend is in transition. Basically, the market is resting. Our job is to determine if it is resting in preparation for the next leg or in preparation to turn around. The shape of the pause gives us clues but we must wait for the market to make the final decision by moving out decisively from the pattern.
Summary Other than gaps, most patterns are variations of the others. Flags sag because during the decline the bears were more aggressive than they were in rectangles In triangle, both bulls and bears become increasingly more uncertain.
The real reason we do this: To make the buy, sell or hold decision. Not to predict the future
Quick Takes Prowww.QuickTakesPro.com Getting Technicalwww.Barrons.com Month Aheadwww.MarketWatch.com Books (www.QuickTakesPro.com/education.html) Beginners Guide to Charting Financial Markets Technical Analysis: Plain and Simple – 3 nd edition Real World Technical Analysis …plus my favorites from other authors
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