The Essentials of Technical Analysis: Part III

By Jack Haddad

When looking for patterns, it's important to keep in mind that they're more of an art than science. Pattern interpretations should be fairly specific, but not overly exacting as to obstruct the spirit of the pattern. A pattern may not fit the exact description, but that should not distract from its robustness. Below are patterns which I have found to be particularly useful and enriching in my personal experience as a professional trader.

A. Bump and Run Reversal: This pattern was developed by Thomas Bulkowski, and introduced in the June-97 issue of Technical Analysis of Stocks and Commodities. As the name implies, the Bump and Run Reversal (BARR) is a reversal pattern that forms after excessive speculation drives up too far, too fast. The pattern can be applied to daily, weekly, and monthly charts.

Bulkowski identified three phases to the pattern: lead-in, bump, and run. The lead-in phase can last 1 to 3 months and forms the basis from which to draw the trendline. During this phase, prices advance in an orderly manner and there is no excess speculation. The trendline should be moderately steep. If it is too steep, then the ensuing bump is unlikely to be significant enough. Bulkowski advises that an angle of 30 to 45 degrees is preferable. As the stock advances during the lead-in phase, volume is usually average and low. When the speculative advance begins to form the left side of the bump, volume expands as the advance accelerates. The bump phase forms with a sharp advance, and prices move further away from the lead-in trendline. Ideally, the angle of the trendline from the bump's advance should be about 50% greater than the angle of the trendline extending up from the lead-in phase. Roughly speaking, this would call for an angle between 45 and 60 degrees. The distance from highest high of the bump to the lead-in trendline should be at least twice the distance from the highest high in the lead-in phase to the lead-in trendline. These distances can be measured by drawing a vertical line from the highest highs to the lead-in trendline. The run phase begins when the pattern breaks support from the lead-in trendline. Prices will sometimes hesitate or bounce off the trendline before breaking through. Once the break occurs, the run phase takes over and the declines continue.

B. Top Head and Shoulders Reversal: This pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head. Low point 2 marks the end of the head and the beginning of the right shoulder. The slope of the neckline will affect the pattern's degree of bearishness. A downward slope is more bearish than an upward slope. Sometimes more than one low point can be used to form a neckline. It is important to establish the existence of a prior uptrend for this to be a reversal pattern. While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend. After making this peak, a decline ensues to complete the formation of the shoulder. The low of the decline usually remains above the trendline, keeping the uptrend intact. From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. After peaking, the low of the subsequent decline marks the second point of the neckline. The advance from the low of the head forms the right shoulder. This peak is lower than the head, and usually in line with the high of the left shoulder. The head and shoulder pattern is not complete and uptrend is not reversed until neckline support.

C. Bottom Head and Shoulder Reversal: The pattern contains three successive troughs with the middle trough (head) being the deepest and the two outside troughs (shoulders) being shallower. Ideally, the two shoulders would be equal in height and width. The reaction highs in the middle of the pattern can be connected to form a neckline. After breaking the neckline resistance, the projected advance is found by measuring the distance from the neckline to reach a price target.

D. Double Top Reversal: The pattern is made up to two consecutive peaks that are roughly equal, with a moderate trough in between. With any reversal pattern, there must be an existing trend to reverse.

In the case of the double top, a significant uptrend of several months should be established. The first peak should mark the highest point of the current trend. After the first peak, a decline takes place that typically ranges from 10% to 20%. Volume on the decline from the first peak is usually inconsequential. The advance off the lows usually occurs with low volume and meets resistance from the previous high. The pattern still needs to be confirmed. The time period between peaks can vary from a few weeks to many months, with the norm being 1-3 months. While exact peaks are preferable, there is some leeway. The subsequent decline from the second peak should witness an expansion in volume and/or an accelerated descent, perhaps marked with a gap or two. Such a decline show that the forces of demand are weaker than supply and that a support test is imminent. Breaking support from the lowest point between the peaks completes the double top.

E. Cup With Handle: The pattern was developed by William O'Neil and introduced in his 1988 book, "How to Make Money in Stocks". There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right hand side, and the handle is formed. A prior trend should exist. Ideally, the trend should be a few months old and not too mature.

The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential. The cup should be "U" shaped and resemble a bowl or rounding bottom. A "V" shaped bottom would be considered too sharp of a reversal to qualify. The softer "U" shape ensures that the cup is a consolidation pattern with valid support at the bottom of the "U". Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the maximum retracement could be 2/3. After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement is, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup. The cup can extend 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 to many weeks, and ideally completes within 1 to 4 weeks.

F. Ascending Triangle: The ascending triangle is a bullish formation that usually forms during an up trend as a continuation pattern. Because of its shape, the pattern can also be referred to as a right-angle triangle. Two or more equal highs form a horizontal line at the top.

Two or more rising troughs form an ascending trendline that converges on the horizontal line as it rises. At least two reaction highs are required to form the top horizontal line. The highs do not have to be exact, but should be within reasonable proximity of each other. There should be some distance between the highs, and a reaction low between them. At least two reaction lows are required to form the lower ascending trendline. These reaction lows should be successfully higher and there should be some distance between the lows. If a more recent reaction low is equal to or less than the previous reaction low, then the ascending triangle is not valid.

Final thoughts:

While technical analysis can be a great help in trading the market, no technical indicator is infallible. Further, technical analysis is only as good as its interpreter. Finally, a significant of time must be spent in learning the principles of technical analysis, and in how to properly interpret the various charts and other technical indicators.In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately. - 23196

About the Author:

Dr. Jack Haddad, MD, MBA has been professionally trading the stock market since 1997 and had an annualized return of 39.4%. Dr. Haddad has recently launched MD Capital Management, an Investment Fund with Charles Schwab. The fund utilizes option hedging techniques to generate returns while minimizing risks. For more info, visit Jack's online group: MD Capital Management.

Forex Charts

By Montblanc Askalaphus

If you are selling forex products online you need to develop a good strategy for getting customers to your site. For an organic search strategy you want to get some good placement for the right keyword phrases. You will do well if you can be found when people search "Forex Trading Training", "Forex News", or "Forex Broker".

Since the weaker self belief scanning aids the topic that the US economy might be diminishing, extra promoting interest might manifest and steel to farther cost declines in the USD. In other cases, the input report might soar in the face of the triumphing market topics, leading to an primary response in the counterpart direction of the current topic.

The pip value is denominated in USD. Surplus and loss amass in USD. For a 100,000 AUD/USD position dimension, each pip is worth USD la, and each pip on a 10,000 AUD/USD position is worth USD. Spread estimations are usually in USD on online exchanging stands. Due to AUD's lower pertinent value to USD, the portion of spread demanded each lot of AUD/USD is one of the lowest of the dollar sets. At an AUD/USD rate of 0.7800, for illustration, a 100,000 AUD/USD position dimension demands USD 780 of spread, and a 10,000 AUD/USD position needs only USD 78

The core input reports out of the Euro sector are extraordinarily just like those of the US. The key variance is that individual European nations report nationwide financial input, which comes out alongside Euro sector-wide reports from the European Fee or other pan-European reporting firms, like the European Medial Bank (ECB) Don't worry, albeit - you don't have to start monitoring Irish CPI and Dutch market sales unless you're exchanging securities of those nations. Since the Euro sector has a ordinary currency and medial bank, the Forex market concentrates mostly on Euro sector pointers that cover the complete zone, like Euro sector industrial production and trade balance.

Month end and quarter end fixings normally see the biggest portions. Temporary dealers need to precisely follow live market comments to see while there is a significant purchasing or marketing interest for a fixing. Mainly in USD/JPY, where Japanese traders usually have big portions of USD/JPY to sell: Japanese traders acquire dollars for their imports, which should then be transformed into JPY (sell USD/purchase JPY)

We recommend becoming acquainted with few variant approaches and pointers, and settling on a diversified model that engages some of each. Technical examination could be busted down into 3 core approaches. Graphic examination of cost charts to discover cost swings, ranges, aid, and opposition levels.

The utter dimension of the interbank market is what helps make it such a awesome exchanging market, since backers of every dimension are eager to act in the market, typically without considerably influencing costs. Its one market where we could affirm dimension seriously doesn't matter. We've seen spot dealers be right with million-dollar risks, and advanced hedge funds be incorrect with half billion dollar gambles. Everyday exchanging volumes are astronomical by some measure, dwarfing global stock exchanging volumes numerous times over. The most current Bank of Global Settlement (BIS) report, discharged in 2004, guesstimated everyday FX exchanging volumes of over two trillion USD.

Keep in mind that swing-line cost values can switch over time based on the slant of the swing line. If you've discovered a swing line that's slanting steeply higher, for example, its cost value can be higher in later intervals. You could run the cursor up the swing line and note the cost level and time period to gauge how much it can change over time.

If the Normal Directional Index is underneath 25, postpone to what the propulsion pointers are signaling. Most charting systems can permit you to spare charts containing multiple technical examines, like MACD, RSI, stochastics, and ADX/DMI. We recommend layering the tests so only one is noticeable at a time, leaving the maximum portion of space to exhibit the cost chart, which is unconditionally the major concentrate. You might then toggle between variant examines at your comfort.

We set the job market at the top of our financial model, and the assorted work-market reports are what we use to keep tabs on the job market. The biweekly US work report, the highlight of which is the non-farm payrolls (NFP) report, gets the most focus. Non-farm Fridays, as they're semi lovingly known, are amid the most unstable exchanging days each month.

If you are interested in the Foreign Exchange (Forex) markets, to some searches. You can find Forex websites by searching with "Forex Book" or "Forex Managed Accounts". You will find a wealth of data about Forex from the sites that these searches expose you to. - 23196

About the Author:

Real estate letter advertising is an underutilized. Options Trading For it fetches you the complete essential details when you are unwinding at home. That is extra business for bob, with no expense of sales attainment expense at all.

A Stock Market History Guide

By Matt Harris

In today's world, it seems that almost any topic is open for debate. While I was gathering facts for this article, I was quite surprised to find some of the issues I thought were settled are actually still being openly discussed.

In 1929, one of the darkest times in stock market history, as well American history took place. During the famous "Black Tuesday" the ticker tape fell behind by two and a half hours. But if we the church in America will stand in the gap and humble ourselves and pray we will see the biggest explosion in stock market history. Every nation is either under a blessing or a curse depending upon the condition of the church of Jesus Christ within it. Yes, we've even included a relatively recent addition in this article on stock market history. And that's because we recognize the importance of this particular exchange.

That's because while most bear markets more or less track the business cycle, this one began with a broken financial system. That makes the current bear more like the one that snarled from 1929-32 than others of the past 100 years. This was, as far as we know, the first software designed to analyze any price series in relationship to planetary cycles. The program introduced composite cycles and a facility to analyze the effect of aspects on any market. There are many characteristics of stock market that are revealed by the chart history like stock market matrix, significant swings, secular cycles, Generation returns, distorted averages etc. Various mutual funds and institutional investors study the chart history comprehensively, before making any investment.

Then, when the cycle turns against them and the risks turn sour, they try to cover it up and begin lying to their customers, to regulators and to each other. Trust erodes, and the whole thing collapses. We appear to be entering one of these historic cycles at this seminal point in the maturation of the human race.

Now that we've covered those aspects of stock market, let's turn to some of the other factors that need to be considered.

The main reason is that people are naturally cautious, especially with their own money, and the return on stocks is highly volatile from day to day. This inclination toward caution is perfectly reasonable, reflecting an intuitive understanding of an important financial truth: the average return is not the only thing that matters when evaluating an investment. Shiller, a respected expert on market volatility, offers an unconventional interpretation of recent U.S. He warns that poorer performance may be in the offing and tells us how we--as a country and individually--can respond.

The inclusion of the names of certain stocks is only for educational purposes and not as a recommendation to buy, sell, hold, or short the stock. Trademarks mentioned are owned by their respective trademark holders. If such a time comes, and your stock is close to your buy in- sell it. Then when everyone is preaching hellfire and damnation, saying the next depression is here, buy the hell out of it. Even before the market opened, major securities houses were being flooded with sell orders. By the time the market closed for lunch at midday the Nikkei average of 225 stocks was down a record 1,873.80 yen to 23,872.80, a drop of about 7.3 percent.

That's right folks, you have just lived through the 20 best sessions for gains in US stock market history. Even as I sit here in my bear fur coat - not seriously - I still have to admit that it's pretty incredible. Finally, seven months ago, the collapse of Lehman Brothers ushered in one of the worst sell offs in stock market history, and a near-implosion of banks and other financial institutions around the world. - 23196

About the Author:

Learn more about the stock market history and find out how does the stock market work at ForexMomentum.info

How to Buy Penny Stocks

By Mark Boucher

Are you willing to gamble a little bit of disposable income to possibly earn a big return? If so, penny stocks might be an option for you to consider. While you should always use caution and not invest money you can't afford to lose, penny stocks offer you the opportunity to become involved in the trading world for an affordable amount.

What is a penny stock? It is simply a stock that is selling for less than five dollars for each share. These stocks are not traded on the major exchanges (AMEX, NASDAQ and NYSE), but rather over Pink Sheets (so called because of the original color of the paper used). This is often known as OTCBB, or Over the Counter Bulletin Board. This is simply an electronic system that reports changes. Be aware that it is regulated by the NASD, but is not considered a NASDAQ stock exchange.

Buying penny stocks is considered a high-risk investment, meaning that you may lose big. But this also means that you can earn extremely high returns in a short time. The risk and potential earnings are what keep people trading these stocks. Sometimes the return can be several hundred percent a day. Risks with these stocks are limited liquidity, the lack of financial reports and potential fraud.

When buying penny stocks, the lack of buyers may make it difficult to sell stocks. The lack of reporting and volatility of these stocks make it easy for brokers to manipulate as well. This is why fraud is so rampant for these trades. There is no regulatory listing requirement for these stocks either.

The news is not all dismal, though. Penny stocks are popular because of the huge returns some investors find. In order to get started in penny stocks, first find a brokerage who offers this type of service. Your stock shares will be drawn from your investment account through the brokerage. You set the amount you want to invest, and decide how much of your investment will go into the high risk stocks.

Having a broker is important for sound advice, just do your research to find the one best for you. Make sure you have someone reputable that wants to see you earn good returns. The best advice when investing money after making sure you can afford the investment is to spread your money over different types of stocks. If you like the gamble and want a high return, absolutely put some money in penny stocks. You are able to see the highest returns on these stocks, but risk higher losses. Make sure you keep some money in a safer market while you play the penny stock game. - 23196

About the Author:

Buying Penny Stocks, 1000 Penny Stocks, Best Charts for Penny Stocks, Best Free Penny Stocks, Bot Software For Penny Stocks, Chinese Penny Stocks, Finding Penny Stocks, 1000 Penny Stocks, Free Daily Stock Picks information at pennystocks.theinfostop.info

Knowing Currency Correlations

By Hass67

Everything is interrelated in the forex markets. It is important for you to understand that the price action of each currency pair is not mutually exclusive.

Most of the currency pairs move relative to one another. Understand that different currency pairs are correlated. These correlations can be positive or negative.

Knowledge of the strength of this relationship and its direction can help you in developing your trading strategies. Correlation numbers have the potential to become a great trading tool for you.

Correlations are numbers that range between +1 and -1. These numbers are calculated based on past pricing data between different currency pairs. They can provide you with information that can maximize returns, minimize risk and avoid counter productive trading.

Lets make it clear with an example. Suppose USD/JPY and USD/CHF had a positive correlation of +0.83 last month. This number is close to +1 and means that both pairs are moving together most of the time in the same direction.

Now, if you are trading USDJPY and USDCHF at the same time, it will double up your position if you take long positions or short positions on both at the same time. If you lose a trade on USDJPY, the chances are that you will also lose the trade on USDCHF 83% of the times.

Take another example. Suppose EUR/USD and USD/CHF have a negative correlation of -0.9 in the past month. Both the pairs are moving in opposite directions. If you go long on one, it is not a good strategy to go short on the other. It will only double up your position and increase your risk.

When investing in two pairs at the same time, try to choose such pairs that have correlations close to zero. This will make the two pairs almost independent of each other and you can invest in both of them safely.

Keep this in mind that forex markets are constantly changing. These correlation numbers also keep on changing. It is a good idea to calculate the correlations of the pairs that you invest in on monthly basis. - 23196

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service. Download Forex Scalping Cheat Sheets!