Advanced Stock Market Trading - Level 1_6. Practical Technical Analysis

Lesson 6: Practical Technical Analysis

Technical analysis is a procedure of visualization of the price time chart beside an
easy mathematical calculation on the graph. However, most traders repeatedly look
at the visualization portion on the graph and disregard the mathematical portion of it.
In smart finance, practical technical analysis and prolonged research tells us that we
develop the easy mathematical way to confirm graphs, charts and patterns; thus,
they are equally important in trade decisions.

Technical Analysis

1. Discounts from Market action
2. Trends moved by Prices
3. History always repeats
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➢ Reversal Patterns:
The reversal or wedge or continuation pattern is comparable to the symmetrical
triangle except that it angles upward or downward. 

✓ Bullish: Describing an indicator that prices of certain stocks are likely to rise.
Reversal of current downtrend hinting at a new uptrend,

✓ Morning DojiStar: On a graph, using a 3-candle representation or 3
colors for price information, traders use the 3-candle representation, also
called the Morning DojiStar to analyze the Boring or Bearing of a stock
over a 3-day period.

✓ Bullish Engulfing – this patter happens on the candlestick chart when a
big white candlestick completely “engulfs” a smaller black candlestick from
the period prior to now. This pattern happens when a trend is low and it is
probably though to be the start of a bullish trend in the trade.

✓ Morning Star- The morning star is centered on three candlesticks. The
first candlestick in a morning star pattern is an extended, bearish candle
signifying a big drop in price. The second candle is a little bullish or
bearish candle signifying indecision. The third candlestick is a big bullish
candle signifying a big increase in price.

✓ Hammer- a bullish reversal pattern that shows that a stock is clos to
bottom in a downtrend.

✓ Piercing Line -  A piercing pattern frequently implies the completion of a
small to moderate downward trend.

✓ Stick Sandwich - A bullish reversal pattern with two black forms
surrounding a white form. The closing prices of the two black forms must

be equal. A support price is evident and the prospect for prices to reverse
is quite possible.

✓ Three White Soldiers - A bullish reversal pattern entailing of three
successive long white forms. Each should open inside the previous form
and the close should resemble the high of the day.

✓ Bearish: rising reversals are bearish patterns when the current trend is
moving higher and the prices are uniting, and the current trend is losing drive.

✓ Evening DojiStar- A three-day bearish reversal pattern comparable to the
Evening Star. The uptrend resumes with a large white body. The next day
opens greater, trades in a small range, then closes at its open (Doji). The
next day closes beneath the midpoint of the body of the first day.

✓ Three Black Crows - A bearish reversal pattern involving three
consecutive long black forms where each day closes near or at its low and
opens inside the body of the previous day.

✓ Evening Star - An evening star is a bearish candlestick pattern
involving three candles that have shown the following characteristics: the
first bar is a large white candlestick positioned within an uptrend; the
middle bar is a small-bodied candle, red or white, that closes above the
first white bar; and, the last bar is a large red candle that opens below the
middle candle and closes near the center of the first bar's body. This
pattern is used by traders as an early signal the uptrend is about to
reverse.
Dark Cloud Cover - A bearish reversal pattern that maintains the uptrend
with a long white form. The next day opens at a new high then closes
beneath the midpoint of the body of the first day.

✓ Bearish Engulfing - A reversal pattern that may be bearish or bullish,
contingent upon whether it seems at the end of an uptrend (bearish
engulfing pattern) 

✓ Shooting Star- A single day pattern that may emerge in an uptrend. It
opens higher, trades much higher, then closes near its open. It looks just
like the Inverted Hammer except that it is bearish.

http://stockcharts.com/ to actually see the patterns go here for simple
examples candlestick pattern dictionary

● Identifying the Reversal Points

➢ Price Patterns: By definition, a price pattern is an identifiable arrangement
of price movement that is recognized using a succession of trendlines and/or
curves.

✓ Break out Patterns: A breakout is a price movement of a security through

an identified level of resistance, which is usually followed by heavy volume
and an increased amount of volatility. 
Seven Common Break outs are:

a. Parabolic Breakout and Symmetrical Triangle
b. Bull Flag
c. Ascending Triangle
d. Failed Descending Triangle
e. Rounded Bottom
f. Flat Base
g. Measured Move

✓ Bullish: Describing an indicator that prices of certain stocks are likely to

rise

✓ Cup & Handle: The cup and handle is a continuation and a reversal
pattern. The reversal pattern shows the finishing of a downtrend and
shows the price transitioning into an uptrend. 

The continuation pattern happens during an uptrend; a cup and handle
forms, then the price resumes its rise. 

The cup and handle is like a rounded bottom, except that with the cup and
handle the price delays near the breakout point and moves sideways or
lower for a moment of time. The U-shaped price action creates the cup,
and the sideways or downside movement that follows forms the handle.

✓ Head &shoulders: this formation happens when a market trend is in the

course of reversal either from a bearish or bullish trend; a
characteristic pattern takes form and is identified as reversal formation.

✓ Double Bottom: This formation is a charting pattern used in technical

analysis. It illustrates the drop of a stock or index, a rebound, another drop
to the same or similar level as the original drop, and finally another
rebound. The double bottom looks like the letter "W". The twice-touched
low is considered a support level.

✓ Triple Bottom: A triple bottom is a bullish chart pattern used in technical

analysis that's characterized by three equal lows followed by a breakout
above resistance.

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