Group Discussion - Chart Patterns

[Administrator]

What do you look for in a chart? Cup with a handle, or do you like a good old wedge? What makes certain patterns more affective than others? With so many out there, how do you even know which one to use?

Note: Please do not simply state what pattern you like to use, but explain why it is effective for your personal trading style. Remember that not everyone is in your same shoes, so make sure your post is understandable for any level of trader.

Discussion Leader - Stocktrading101

Enjoy !

-The FIO Team

[Stocktrading101]

I am definately most familiar with the Cup with Handle charting pattern. To my knowledge it is the main pattern that is used for the CANSLIM strategy. The best way to see it is probably in a weekly chart if you can get your hands on one. The pattern literally looks like a cup, then a handle at the end of it. Some aspects come into play though with how the cup was formed and most importantly how the handle is formed. Volume becomes a major factor as the stock starts to create the handle. Then, eventually the stock "breaks out" of the handle and this is technically when the stock will surge to potentially new highs. Interesting for sure, I will have to pull of some examples on this.

Regards,

[Yee Sian]

Ahhh, chart patterns? Here's a good link , http://mysite.verizon.net/resppzq7/index.html.

I like the cup with handle base, it's distinct and easy to spot. Other than that, i enjoy drawing lines for wedges, channels, triangles and the like .

[Stocktrading101]

...Other than that, i enjoy drawing lines for wedges, channels, triangles and the like .

Please explain in more details. If you were showing me a wedge, channel, and triangle for the first time, what would I be looking for? Can you give us visual examples? What is the concept behind the wedge, channel, or triangle?

[Yee Sian]

I guess i have some explaining to do. A picture speaks a thousand words .

Take a rising triangle, for example. I am not sure if this example is valid(i dont think so, but it's the main idea) Take a look at XLE(below)

XLE1.GIF

Another example might be the chart of nasdaq. This one, i suppose is a rising wedge? http://mysite.verizon.net/resppzq7/risewedge.html

nasdaq1.GIF

*I am in a rush for time, and the examples i raised may not be valid. But the main idea is that the upper line shows resistance, while the lower line shows support. So, when the price hits the line of resistance, it is likely to go down, unless it "breakout"(which i'll explain another time). And when the price touches the support, it will bounce back up, unless of course, it breaks down or something.

Usually, when the price breaks out above the resistance(on high volume), it is a good sign of a bull. And when the price goes below the support line, it is a sign of a bear.

[FirstConsul]

Flags are great stuff. Check out this one.
O'Neil likes high tight flags.
The best thing about flags, is if there's a huge down day the next day, you have good chances of making the wrong decision, and the flag will be unsuccessful. Especially if the downday is on huge volume. The best thing about that is that you can sell then for a 3-5% loss and cut losses early.