Technical
Analysis
Technical analysis
is the study of market action primarily through the use of charts, for
the purpose of forecasting future price trends. It assumes three things:
- Market action discounts everything.
- Price moves in trends.
- History repeats itself.
The following patterns are the most recognized and followed. Some of
them are unique, such as Toni's famous Avalanche and Phoenix patterns.
You can learn more about how she identifies and trades each of the
following and much more in her course, The 5 Technical Signals You
Cannot Trade Without, which includes an in depth guide to market timing
detailing entry and exit triggers you will find nowhere else. Learn
more at http://www.swingtrader.net.
Chart Patterns: Select a Pattern
1-2-3
CONTINUATION PATTERN:
Criteria:
1. Wide range bar breaking out of support.
2. Narrow range bar near/at the highs of the previous wide range bar.
Often this narrow range bar is also an inside range bar.
Entry: Switch to a smaller time
frame and take a breakout from the base or use above the highs of the
narrow range bar of bar 2.
Stop: Under the lows of the base or
last major pivot low on the smaller time frame, under the lows of the
narrow range bar, or under the lows of the third bar at the time of the
setup.
Target: Bar 1 = Bar 3
Examples:
2B
& 2T SETUPS:
2T Criteria: A
high followed by a slightly higher high.
Entry: As the high of the first
high breaks on a pullback from the second high. Alternate entry (used
by Toni): Under the prior bar's lows after the second high is made. For
instance if the lows of the bar making the second high is $50, entry is
under $50. The only time it is not under the bar that made the second
high is if that high is followed by an inside range bar, so you would
use a break in the lows of the inside range bar.
Stop: Over the second high.
Target: Price or moving average
support.
Note: The
term "2B" is the generic name for this
pattern at both highs and lows. In the TFMS Trading Room we have coined
the term "2T" to use for this pattern at highs while we use the term
"2B" for the pattern at lows to avoid confusion over it being a buy or
a sell pattern.
Example:
ASCENDING
TRIANGLE:
Criteria:
Equal/Nearly equal highs and higher lows on decreasing volume.
Entry: Breakout from the trend
lines on higher then average volume as the trend lines converge.
Stop: Under the lows of the base or
last major pivot low on the smaller time frame or under the lows of the
setup bar.
Target: Equal distance on a
breakout comparable to the distance between the first high and first
low in the triangle. Ascending triangles tend to
breakout higher.
Example:
AVALANCHE:
Criteria:
1. Uptrend
2. Stronger than average rally.
3. Pullback of 3-5 bars comparable to or stronger than previous rally,
usually on increasing volume, to moving average support (typically the
10, 20 or 30 sma.)
4. Hugs the moving average support on decreasing volume. 4-5 bars
average.
5. Moving averages start to converge (10 and 20 sma if it's setting up
on the 20 sma.)
Entry: Switch to smaller time frame
and enter on a breakdown in support or going into resistance.
Stop: Over previous or current day's
highs. Usually you will use current day's highs or intraday resistance.
Target: Next major simple moving
average.
Example 1:
Example 2:
BASING
/ TRADING RANGE / CONGESTION / CONSOLIDATION
Example:
BEAR
FLAG:
Criteria:
1. Downtrend.
2. Gentle pullback to resistance, such as the 20 sma, on decreasing
volume.
Entry: Below the previous bar's
lows or using an intraday breakdown such as a break in the uptrend line
of the flag. Volume should start to pick up at this time to confirm the
setup.
Stop: Above the previous bar's
highs or above intraday resistance.
Target: New lows, usually on high
volume.
Example:
BREAKOUT:
Criteria:
A base/trading range at highs or lows.
Entry: A breakout in the most
recent section of the trading range or trend line in the direction of
the trend prior to the trading range. Can also take an entry into
moving average support in the case of a long and sma resistance in the
case of a short.
Stop: Under simple moving average
support such as the 15 minute 20 sma in the case of a setup on the 15
minute chart or under the last pivot low within the trading range.
Target: Moving average resistance
(like the 15 minute 200 sma), price resistance (such as a previous
pivot), or an equal move to that before the trading range on the move
out of the trading range.
Example:
IBC was mentioned in the Live Trading
Room on 7/16/2002 to watch on 7/17/2002 and again in the morning
on 7/17 as a breakout daytrade.
BULL
FLAG:
Criteria:
1. Uptrend.
2. Gentle pullback to support, such as the 10 or 20 sma, on decreasing
volume.
Entry: Above the previous bar's
highs or using an intraday breakout such as a break in the downtrend
line of the flag. Volume should start to pick up at this time to
confirm the setup.
Stop: Below the previous bar's highs
or below intraday resistance.
Target: New highs
Example:
BULL TRAP -
A gap setup:
Criteria:
1. A bullish daily pattern. Preferably where the market opens at lows
and closes at highs.
2. A gap down in the morning, generally on news, whereby the stock
opens at or under the previous day's lows.
Entry: Break
in 5 minute lows (A) or an intraday setups such as a
breakdown out of a base at lows (B) or a bear flag.
Stop: Depending
on the objective and entry. On a break in 5 minute lows
for a day or swingtrade you can use above the 5 minute highs. For
intraday breakdown setups use a stop over the last 5-7 bars or over
significant intraday moving average resistance. The same goes for
intraday bear flags. For position trades use over the high of the
previous day or over the current day's highs.
Target: Equal
distance on a breakout comparable to the distance between
the first high and first low in the triangle.
Example:
CORE
BUY SETUP:
Criteria:
1. Uptrend.
2. Gentle pullback of 3-5 bars average to the 10-20 simple moving
average zone on decreasing volume.
Entry: Above
the previous bar's highs or using an intraday breakout.
Volume should pick up at this time to confirm the setup.
Stop: Under
the previous bar's lows or under intraday support.
Target: New
highs.
Example:
CBH was given in the Live Trading Room on 4/24 as a Core Buy swingtrade.
Example:
CORE SHORT
SETUP:
Criteria:
1. Downtrend.
2. Gentle pullback of 3-5 bars average to the 10-20 simple moving
average resistance zone on decreasing volume.
Entry: Below
the previous bar's lows or using an intraday breakdown.
Volume should start to pick up at this time to confirm the setup.
Stop: Above
the previous bar's highs or above intraday resistance.
Target: New
lows, usually on high volume.
Example:
CUP
WITH HANDLE:
A
type of Phoenix.
Criteria: A
stock coming out of a downtrend with rounded lows that puts
in a slightly lower high and then pulls back gradually to put in a
higher low.
Entry: On a
breakout higher out of the pullback. There will often be a
moving average crossover (such as a cross in the 10 and 20 sma)
Stop: Under
lows of the pullback.
Target: Highs
of the beginning of the cup or an equal move out of
pullback as compared to move off lows.
Example:
HEAD
& SHOULDERS:
Criteria:
High (left shoulder)
followed by a higher high (head) and then a lower high (right shoulder)
which is comparable to the left shoulder.
Entry:
Breakdown from the neckline. The neckline connects the lows on
either side of the head. Alternative and preferred entry is using a
bear flag breakdown to enter after the right shoulder has formed.
Stop: Over
the past pivot high or 20 simple moving average resistance
Target: Previous
reversal prices and support zones such as a 5 minute
200 sma if the setup occurs on the 15 minute chart.
Example:
The Nasdaq was given in the Live
Trading Room on 5/31 as a Head & Shoulders market alert. (05/31/02
10:41:54 <Toni> Market Alert: 15 minute Nasdaq Head &
Shoulders)
OOPS
DAILY BUY:
Criteria:
Wide range bar on increased volume (preferably at a strong
support level)
Entry: Above
5 minute high on a gap up or an intraday breakout to highs.
Stop: Under
current or previous day's lows
Target: Price
resistance, 5 minute 200 sma, 15 minute 200 sma, 10 &
20 day sma. This is a 1/2 - 1 1/2 day hold, depending on objective.
Examples:
PENNANTS
/ WEDGES
