- Trend can be up, down or sideways
- 30 to 60 degree trendlines are the most reliable
- At least 3 points needed for valid trendline
- Intraday penetration generally not reliable
- Use price or time filters to avoid whipsaws
SPEEDLINES
- At top, draw vertical line down
- Divide bottom to top height in three equal parts, find points 1 and 2
- Draw lines from bottom through points 1 and 2
REVERSAL DAY
- High volume day, makes new intraday high, then closes lower than previous day
- Also called buying climax
- Candlestick pattern is called engulfing
- Works also on weekly and monthly charts
GAPS
- Breakaway gap - usually occurs at completion of pattern, or after breaking a trendline
- Runaway (or measuring) gap - can come in series, usually on moderate volume
- Exhaustion gap - occurs at the end of a move
- Lower edge of gaps is support, higher edge is resistance
- Up gap followed by down gap forms an island reversal
HEAD AND SHOULDERS REVERSAL
- Legs up and down should be confirmed by volume
- Formation is complete when the neckline is broken
- Neckline may slant up on tops, down on bottoms
- Volume most important in last leg of bottoms
- Measure height of formation to determine price objective
OTHER REVERSAL PATTERNS
- Double and triple tops and bottoms are similar to head and shoulders
- Saucer bottoms are only bottoms
- Spike top are only tops
SYMMETRICAL TRIANGLES
- Are continuation patterns
- Four points are needed to define triangle
- Usually 3 to 12 weeks
- Width is measured from first reversal on left to right apex (where boundaries meet)
- Breakout expected between 2/3 and 3/4 of width
- Height is measured from first reversal on left to lower boundary
- Expected move is measured by adding height to breakout level
- Volume should be confirming trend during swings
ASCENDING TRIANGLES
- Are bullish
- Height is measured from second reversal on left to upper boundary
- Everything else is like symmetrical triangles
DESCENDING TRIANGLES
- Are bearish
- Height is measured from second reversal on left to lower boundary
- Everything else is like symmetrical triangles
EXPANDING PATTERN
- Also called megaphone top
- Higher highs and lower lows
- Bearish
FLAGS AND PENNANTS
- Are continuation (consolidation) patterns
- Need a flagpole with high volume
- Usually last between one and three weeks
- Shorter duration in downtrends
- Mark midpoint of market move
WEDGE
- Similar to triangle, but both sides have same slant
- Falling wedge is bullish
- Rising wedge is bearish
- Can be reversal patterns
RECTANGLE
- Consolidation pattern
- Also called trading range or congestion area
- Usually resolves in the direction of previous trend, after a decisive close outside of either boundary
