Chartist patterns – Lesson 10

One of the keys to operate in the stock market are the figures that appear in the graph and that are repeated over time, the Charist Patterns. When you have spent many hours in front of the graph everything starts to make more sense and becomes the eye of the operator in avid discoverer of potential figures. The important thing here is not to see a past bull that has made a figure but have them so recorded in the mind that when it starts to be formed already have in the head the identification of the figure and the characteristics own of each one.

At first the rookie will have to split his head to discover determined figure, but with the technology that exists today even this effort will have to be made.

Many brokers have systems that draw figures as they appear and that is of great help to those who suffer from an inexperienced eye. Let’s see now the considerations and typology of the Charist Patterns:

A) SHOULDER HEAD SHOULDER

  1. First Phase

The price increases. Thus, reaches the first ridge, suffering then a descent with a smaller volume until completing the first “shoulder”.

  1. Second Phase

The price rises again, this time to a level higher than the first peak. Then, the bearish correction arrives, stopping at the line where the first descent at that level it is called the neck line. It is about really a support that slows the subsequent drops in prices. At the end from this movement the head” of the figure is configured.

  1. Third phase

The third increase in prices occurs, but this time it starts to have less strength, since it rises to the same level as in the first figure, it is say first “shoulder”. Prices continue in the direction of the support line. Yes, is exceeded, by at least 3%, there will be a change in the trend with strong level of hiring, which will confirm the rupture and that change of trend.

DOUBLE ROOF OR DOUBLE FLOOR

This type of figure is very simple and works in many cases, not always makes a brutal turn, but if it does not pass over a maximum or a minimum it is very probably the price will turn. It has a very simple answer, the market places numerous orders at those significant levels to close orders, as well as for open them and not only at the exact point but also 10 pips up and 10 pips up down.

These are the so-called expansion filters in which the price reaches a point, it is passed or falls short by the number of operators that have estimated the deviation that maximum or that minimum. It is then when you start to see that the operational is not so bad technique floors or ceilings. It is also true that there are assets in which this type is easier of operative and as an example we will put the USDCAD pair.

In said pair the price before going over the maximums usually make supports or horizontal resistors and that’s when we can try some short entry for being against trend. Once you have done twice the floor or the ceiling is then when the third it is the vanquished one and it is when it passes above said levels. Double roofs and double floors are also quite common in the indices as per example the S & P, this index does perform many horizontal levels that tend to work pretty well. This index moves by technical levels so that we will be able to observe how in the past this operation has worked perfectly.

Let’s see in a chart expanded in time what would be a practical application. I would also like to remind you that these figures work better in the medium term that in the short for intraday but also in one way or another we can use it.

In the double roof and double floor there is a change in the main trend, consisting of two peaks or valleys respectively.

  1. First Phase

The first movement is a price increase. This volume reaches maximum values ​​when the price is almost at maximum. This is due to the large amount of supply that is located in the theoretical line of resistance, willing to satisfy all existing demand.

  1. Second Phase

Slight fall to a level not too far from the previous maximum (no> 15% on the price), and there is also a considerable decline in the contracting volume. At this point you will find all the investors who, knowing the market’s upside potential, have put their demands in a theoretical support line, being satisfied by the recent fall in prices.

  1. Third Phase

New recovery and almost reaches the maximum of the first phase. Go back to meet the resistance. The volume also increases with respect to second phase. Vendors who are located in the resistance line can meet all demand near the maximum, which will force a second drop in prices to the zone of the first valley.

TRIPLE ROOF AND TRIPLE FLOOR

They are also figures of change. They are harder to find than double roofs and double floors. They are confused with other figures such as rectangles and with shoulder -head shoulder.

In the daily EURUSD, you can see how there many cases of double and triple floors over have been the last few years and they are very easy to observe.

B) 1. ROUNDED FLOORS OR “SAUCER”

This type of figure also resembles the previous one, but with its small variants because the formation and deceleration of prices is not done in a way perfect and violent.

They are figures that indicate a slowdown in price and may be the end of a small setback and the beginning of a new impulse wave whatever the address. Let’s see its characteristics of said figure.

They are formations that indicate a change in the bearish or bullish trend. It’s about a very slow process that requires a lot of time and volume for your training be completed of all the forms of trend change, this is the least violent.

In this figure there are no phases, but a slow and constant downward movement of prices, until they touch the bottom of the floor with a volume that is almost non-existent.

From that moment, from the bottom of the ground or “soup” begin to rise prices gradually until reaching the right edge of the “saucer” where they are going reaching increasing volumes. It is a long-term figure, which can last up to three months, for what the best way to detect it is through weekly quotes. If it is formed after a long bearish trend, it is expected to assume a change to bullish positions.

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Forex managed accountsChartist patterns – Lesson 10

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