IBD MEETUP/NORTHRIDGE LET’S MEETUP TO FINALIZE OUR REVIEW OF THE ART OF STOCK CHART PATTERN RECOGNITION; AND REVIEW SOME STOCKS FOR CONSIDERATION TO ADD TO OUR WATCHLIST. JUNE 20, 2015

DISCLAIMER During the course of this meeting we will review stocks that could be considered as additions to your watch list. These are not trade recommendations. These are candidate trades.   Do your own research, keep position sizes modest, and stay diversified.  Also past performance is no indication of future stock trends. We will also discuss Trading Strategies we believe to be effective; however keep in mind that nothing works100% of the time so there is no guarantee these strategies will work for you.

WHY ARE CHART PATTERNS SO IMPORTANT? For many analysts, the chart of a security is the starting point for all future analysis. Chart patterns play a critical role in usefulness technical analysis. Chart patterns are a result of human nature and trading psychology. Human psychology and investor emotional cycles never fade. The markets change but human emotion does not! Chart patterns are just a series of price action that occurs in a stocks trading. They occur: on any time frame really; monthly, weekly, daily and intra-day.  The great thing about chart patterns is that they repeat themselves over and over again.  If you can learn to recognize patterns early you can also learn to profit from breakouts and reversals.

CHART INFORMATION A single chart has the ability to display a significant amount of information. Conceptually, charts are an illustration of the struggle between buyers and sellers. Technical analysis assumes that: a) prices discount everything, b) prices moves in trends c) history repeats itself.  Assuming the above tenets are true, charts can be used to formulate trading signals and can even be the only tool a trader utilizes. 

PATTERNS ON A CHART  Chart patterns signal to traders that the price of a security is likely to move in one direction or another when the pattern is complete.  There are two types of patterns in this area of technical analysis: reversal and continuation. A reversal pattern signals that a prior trend will reverse on completion of the pattern. Conversely, a continuation pattern indicates that the prior trend will continue onward upon the pattern's completion.  The difficulty in identifying chart patterns and their subsequent signals is that chart use is not an exact science. In fact, it's often viewed as more of an art than a science. While there is a general idea and components to every chart pattern, the price movement does not necessarily correspond to the pattern suggested by the chart. This should not discourage potential users of charts - once the basics of charting are understood, the quality of chart patterns can be enhanced by looking at volume and secondary indicators. 

1. PENNANT

2. CUP AND HANDLE

3. ASCENDING TRIANGLE

4. TRIPLE BOTTOM

5. DESCENDING TRIANGLE

6. INVERSE HEAD AND SHOULDERS

7. BULLISH SYMMETRIC TRIANGLE

8. ROUNDING BOTTOM

9. FLAG CONTINUATION

10. DOUBLE TOP

11. BEARISH SYMMETRIC TRIANGLE

12. FALLING WEDGE

13. HEAD AND SHOULDERS TOP

PATTERN ANALYSIS Pattern analysis may seem straightforward, but it is by no means an easy task. Richard Schabacker, in his 1932 classic, Technical Analysis and Stock Market Profits, states: ”The science of chart reading, however, is not as easy as the mere memorizing of certain patterns and pictures and recalling what they generally forecast. Any general stock chart is a combination of countless different patterns and its accurate analysis depends upon constant study, long experience and knowledge of all the fine points, both technical and fundamental, and, above all, the ability to weigh opposing indications against each other, to appraise the entire picture in the light of its most minute and composite details as well as in the recognition of any certain and memorized formula.”

HERE ARE TWO SCANS, MOMENTUM STOCKS ON THE LEFT AND STOCKS FORMING A DOJI ON THE RIGHT. YOU CAN LOOK AT THESE AND POSSIBLY CONSIDER SOME FOR AN ADDITION TO YOUR WATCH LIST.