Reading chart patterns is a lot like the childhood game of connecting the dots. Any
investor can learn a lot about a stock and where it is probably going to go in the future just by breaking the chart
down in to pieces and drawing lines between them. Here is what you need to do.
First, you have to understand what an inflection point is. An inflection point top occurs where stock price stops going up and starts going
down. Inflection point
lows can be seen at the point where the stock stops going
down and starts going up. Look at a chart and draw dots at the
highs and
lows, the inflection points.
Now, take out a ruler and try to connect the dots. Look for a way to draw a line that can go through the dots at the tops. Do the same at the bottoms, the inflection point
lows. Some lines will be longer than others and you may have lines inside the range of others. What is important is how price moves around those lines and how the lines relate to one another.
Chart Pattern Rule 1 - if the line across the inflection point bottoms is rising from left to right, the buyers are in control of the market.
Chart Pattern Rule 2 - if the line across the inflection point tops is falling from left to right, the sellers are in control of the market.
Chart Pattern Rule 3 - if the line across the tops is converging toward the line across the bottoms then price
volatility is lessening over time.
lowering price
volatility in a sideways price pattern means that the buyers and sellers are coming to consensus on the value of the company.
Chart Pattern Rule 4 - the line across the inflection point tops is called resistance. It acts as a psychological ceiling price for
investors.
Chart Pattern Rule 5 - the line across the inflection point bottoms is called support. It acts as a psychological floor price for
investors.
Chart Pattern Rule 6 - a breakout occurs any time a stock’s price breaks up through resistance. Ideal breakouts are from sideways ranges of
lowering price
volatility with
higher
volume supporting the breakout and rising bottoms before the breakout.
Chart Pattern Rule 7 - a breakdown occurs any time a stock’s price breaks
down through support. Ideal breakdown are from sideways ranges of
lowering price
volatility with falling tops before the breakdown.
Chart Pattern Rule 8 - a break of support where support is rising from left to right is a break of an upward trend line, an indication that the buyers may be losing control of the market to the sellers.
Chart Pattern Rule 9 - a break of resistance where resistance is falling from left to right is a break of a
downward trend line, an indication that the sellers may be losing control of the market to the buyers.
Chart Pattern Rule 10 - the patterns created over the longer term or more important that those that stand up in the short term.
Cheers!
Ed
Barsano Creator