What are the Charts Forecasting Now?
by Kevin MatrasApril 09, 2010 | Comments : 0 Recommended this article: (0)
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Professional traders have been using charts for years.
And nowadays, you'll find that even the most casual trader wouldn't even think of buying or selling a stock without at least first glancing at a chart.
In fact, if you've ever looked at a chart, you've just practiced technical analysis. But you have to know what you're looking at.
The price action on a chart can form meaningful patterns. These chart patterns reflect the collective buying and selling sentiment of the market. And these patterns can in turn be used in trying to forecast future price direction and the timing surrounding it.
Research has proven that certain chart patterns have high forecasting probabilities.
And these chart patterns can be found in some of the biggest market moves.
Clear Objective Analysis
Charts can help cut through the clutter and provide sound objective analysis.
Earlier in 2009 when everyone was expecting the stock market to go to 'zero' (not really, but you know what I mean), the market was quietly forming one of the most bullish bottoming patterns out there the Inverted Head and Shoulders pattern.
(They call this an Inverted Head and Shoulders pattern because if you flipped the chart around, the silhouette of the pattern would look like a person's head and shoulders.)
Can you see it?
This set up one of the biggest one-year stock market rallies in history.
If you didn't see it, don't despair.
The good news is that these types of chart formations happen all the time in thousands of stocks everyday!
These patterns include the:
- Symmetrical Triangle
- Ascending & Descending Triangles
- Flags & Pennants
- and the Head and Shoulders & Inverted Head and Shoulders patterns
Bullish or Bearish?
Chart patterns can be classified into two main categories: continuation patterns and reversal patterns.
Continuation patterns are called that because they will typically continue the direction of the trend that's in place.
For example: if a stock is in an uptrend and then pauses or enters into a period of consolidation (i.e., trading is temporarily confined to a well-defined pattern or range), the expectation is that the market will ultimately breakout to the upside and continue the direction of the trend.
If the trend was down prior to the consolidation, the expectation would be for the stock to breakout to the downside and continue the direction of the downtrend.
Reversal Patterns have a tendency of reversing the trend.
These consolidation patterns can signal a reversal in both uptrends and downtrends.
Once you learn how to spot these different patterns, you'll know you've just learned a powerful money making secret for smarter and more timely trading decisions.
Don't Forget the Fundamentals
Fundamentals of course are still an important key in ultimately determining the price or value of a stock.
However, just because you've found a solid company, doesn't necessarily mean it's ready to go straight up right away.
But chart patterns can help signal future price direction and the timing surrounding it.
So combining both fundamental analysis and technical analysis (chart pattern analysis) together makes for a very potent combination.
The Right Time
Currently, there's an abundance of chart patterns (consolidation patterns) forming in the market right now.
Both bullish and bearish. Continuation patterns and reversal patterns.
And that's because consolidation patterns are basically areas of indecision. Pauses, while the market (stocks) look for additional information or a catalyst to propel a stock even higher or send it lower.
The market is at a crossroads. Something big is about to happen.
So now is the time to better understand what chart patterns are forming on what stocks. Know what to buy and when, and when to sell. Chart patterns can help you get long on the right stocks and short the ones ready to fall.
Keep in mind, nothing is foolproof. But a basic understanding of charts and chart patterns will give you an edge in beating the market.
To get started profiting with charts, you may want to check out our Chart Patterns Trader service. Follow along as we apply all of the principles above and select the best chart pattern stocks. Both bullish and bearish. Feel what it feels like to be in on the right side of a breakout and gain a level of confidence in your trading that you may never have experienced before.
This is a particularly good time to look into this because the service has been cranking out double-digit winners as the market poises for a major move. There's also a special savings offer that expires this Saturday at 11:59 pm.
Thanks and good trading.
Vice President, Zacks Investment Research
Kevin is Zacks' stock screening and technical expert. He runs the Chart Patterns Trader which combines Zacks Rank fundamentals with price-action timing to pinpoint stocks just before they break out.
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