Flag & Pennant Chart Patterns by Kent Kofoed p. 2

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The Benefits of Advantage Linesby Heather Rich p. 5

Off The Wallby Spike p. 7

PitNews.com Magazine April 2013 1

In this issue...Flag & Pennant Chart Patterns by Kent Kofoed

Review: “Technical Analysis” by Kent Kofoed

Off The Wallby Spike

The Benefits of Advantage Linesby Heather Rich

PitNews.com Magazine April 2013 2

he Pennant pattern and the Flag pattern are both consolidation patterns where rangebound price action is followed by a continuation of the current major price trend. This pattern will typically be preceded by strong price movement in the direction of the current trend. The consolidation that occurs after this strong price movement is what causes the formation of both of the patterns. Both of these patterns are relatively short-term patterns (especially when compared to the triangle and wedge patterns talked about in previous articles) and they will typically only last a couple of weeks. Flag Pattern The Flag pattern can occur in both a downtrend and an uptrend, and the direction of the flagpole represents the direction of the primary price trend. When it occurs in an uptrend it will look like a normal flag, but when it occurs in a downtrend it will be upside-down instead of right-side-up. In figure 1-1, shown below, prices are in a downtrend so the flag pattern that is shown is right-side-up. There was a strong move to the downside and, after which, prices consolidated briefly before resuming in the direction of the major price trend. Lastly, this pattern has a parallel price range (i.e., there are both lower highs and lower lows,

which results in two parallel trendlines) that is in the opposite direction of the major price trend. A strong move through the resistance trendline (or, depending on the direction of the current trend, the support trendline), which is formed during consolidation, will typically be a signal of a resumption of the major price trend.

Pennant Pattern

The Pennant pattern is very similar to the Flag pattern (it also

occurs in both downtrends and uptrends, and the direction of the flagpole represents the direction of the major price trend), with the main difference being that the price range converges as prices consolidate (i.e., the price range narrows due to higher lows and lower highs)

Flag and Pennant Chart Patterns

By Kent Kofoed

Figure 1-1

PitNews.com Magazine April 2013 3

By Kent Kofoed

instead of maintaining a constant range throughout the entire consolidation period. In figure 1-2, shown below, you can see that this Pennant pattern is upside-down, due to the current price trend being in a downtrend. After a strong move to the downside, the price range narrowed as prices consolidated sideways (indicating that a Pennant pattern was in the process of forming) and, after which, there was a breakout to the downside through support and a resumption of the major price trend.

Summary The Flag and Pennant patterns are typically viewed as a short "breather" that occurs in-between major price moves (both before and after the pattern formation). The only difference between the two patterns is that the Pennant pattern has a converging range, whereas the Flag pattern has a parallel range. Both of the patterns will occur in both downtrends and uptrends, and whenever they occur in a downtrend it will look like they are upside down because their pole is used to represent the direction of the major price trend. Similar to most breakout signals, both the Pennant and the Flag tend to be a more reliable signal when volume is strong as prices break out of their consolidation range. Kent Kofoed is a technical analysis specialist, as well as an individual trader, who has a Bachelor's degree in Business Administration from Utah State University and a Masters of Security Analysis and

Figure 1-2

Portfolio Management degree from Creighton University. Additionally, Kent is a level II candidate in the CFA program, a graduate student in the Masters of Science in Predictive Analytics program at Northwestern University and a contributing author for PitNews Magazine.

PitNews.com Magazine April 2013 4

Technical Analysis: The Complete Resource for Financial Market Technicians, written by Charles Kirkpatrick II and Julie R. Dahlquist, is one of the most widely read books on technical analysis. This book is a required reading assignment, selected by the Market Technicians Association, for all technical analysts who are studying for the Chartered Market Technician (CMT) designation, and it covers a wide variety of technical analysis topics, ranging from the various technical analysis methods to the general theory of technical analysis. This book starts out by presenting an introduction to the field of technical analysis, covering the most basic tenet of technical analysis (i.e., the "trend"), the history of technical analysis, and some of the controversy surrounding technical analysis (e.g., Random Walk Theory). After the basics of technical analysis have been thoroughly covered, a brief overview of the financial markets is provided in order to give the reader an understanding of the financial system in which technical analysis is used. This includes information on both market structure (i.e., how the markets work and the type of contracts that are traded) and on actual technical analysis of the general markets (i.e., Dow Theory, sentiment analysis, market strength, etc.). After providing an

introduction to the field of technical analysis (which makes up about one-third of the book), other technical analysis topics are covered in much greater detail. The main topics covered in the rest of this book include an in-depth look at trend analysis (breakouts, retracements, moving averages, etc.), chart analysis (bar chart patterns, point-and-figure chart patterns, candlestick patterns, etc.) and trend confirmation (i.e., using volume, open interest and other metrics to confirm the trading signals that are generated), as well as other technical analysis theories (ranging from the Elliot Wave Theory to Fibonacci retracements) and the various types of technical analysis methods used (i.e., Top-Down Overall Market Analysis vs. Bottom-Up Asset-Specific Analysis). In the last section of this book, all of the technical analysis topics covered in earlier sections are efficiently combined with a comprehensive discussion of testing and managing technical analysis systems (i.e., how to design, test and optimize a trading system, as well as how to manage risk and monitor positions once that system is built). The authors of Technical Analysis: The Complete Resource for Financial Market Technicians, Charles Kirkpatrick II and Julie R. Dahlquist, did an amazing job at covering a wide-range of technical analysis topics while still being able to provide the depth of information that is needed to truly understand the topics covered. This book isn't an "easy read" (which wouldn't be expected based on the topics that are covered in the book), but the authors truly do a great job explaining complex topics in a way that is much more comprehensible to the average trader. Whether you are just a beginner, or a seasoned trader, this book should definitely be included in every trader's personal collection. Click Here to pick up your copy today.

PitNews.com Magazine April 2013 5

magine an indicator that has the advantages of a short term moving average system (early entry signals) plus, the advantages of a long term moving average system (limited whipsaw), an indicator that is simple enough for a beginning trader, yet powerful enough for even the most advanced trader. The Track 'n Trade proprietary Advantage Lines Indicator, created by Lan H. Turner, CEO and President of Gecko Software, is just that! In this article, we're going to take an up close look at exactly what this indicator does and how it can help you find greater success in your daily trading. You may ask yourself, why use Advantage Lines? While there are many tools to help the everyday trader make their trading decision, tools such as Fibonacci, Elliot Wave, Gann retracements, Pitch Fork levels of support and resistance, Stochastics, Zig Zag, and the list goes on and on. While the indicators mentioned above are wonderful and used successfully by traders every single day, many of them are advanced trading methods that have a steep learning curve, and were not designed for the average trader. Advantage Lines are a simple tool that can be extremely effective for any level of trader. To better understand how Advantage Lines can be of used, let's first take a look at a simple moving

average system. A simple moving average represents the average of the last user defined closing prices of any specified market time frame. Moving averages are considered to be an indication of the overall market trend. For example, if prices move from below the moving average to above, the trend is considered up, or bullish. On the contrary, if price moves from above the moving average to below, the market is considered to be in a downtrend, or bearish. The purpose is simple, which is, to track the progress of the overall movement of the market from bullish to bearish. A moving average system, whether long-term or short-term, gives you an indication of the trend being up or down, but gives you no indication of the length or duration of the trend. Using a short term moving average system provides the trader with early entry signals to potential trading opportunities and trend reversals. These early signals are also the Achilles heel of this trading system. Due to the early entry notification, traders often receive a lot of false signals, also known as Whipsaw. This jumps traders in and out of the market way too often, chewing up their profits by taking too many small losing trades. In an attempt to fix this problem, traders started extending the time frame of the moving averages to be a long term moving average system. The advantage of doing so reduced the amount of whipsaw, but now we have late

The Benefits of

Advantage Lines By Heather Rich

entry points, and we end up leaving a significant amount of our profits on the table. After a considerable amount of time considering this dilemma, Mr. Turner created what he calls the Advantage Lines. He wanted a system that had the advantages of a short term moving average cross over system (early entry points), plus the advantages of a long term moving average system (limited whipsaw). Mr. Turner manipulated the mathematics of these two very powerful systems, combined them into a single proprietary indicator, which pretty much solved this long-time dilemma, and Advantage Lines were born.Mr. Turner named them Advantage Lines, simply because they incorporate the advantages of both the short term trading system, early entry & exit signals, as well as the advantages of the long-term moving average system, limited whipsaw, while they significantly reduce the disadvantages of both systems. One additional advantage to using Advantage Lines is they give traders one buy signal for each and

PitNews.com Magazine April 2013 6

every sell signal. You'll never be confused as to which side of the market you should be on, as you are with some of the more traditional indicators. Using Advantage Lines properly can provide traders with some of the most accurate entry points possibly able to be obtained, with very little whipsaw, or late entry and exit signals. Getting into the market is only half the battle, but getting out of the market at the right time is the key to our overall success. Using the same exit strategies that Mr. Turner teaches with the Bulls 'n Bears System also holds true when trading Advantage Lines. Mr. Turner firmly believes that using multiple contracts with split exit points placed on both mathematically calculated stop placement points, along with traditional areas of support and resistance is the best way of trading a market for maximum price protection and profit potential. You can find out more about Advantage Lines at: www.AdvantageLines.com & www.TracknTrade.com Heather Rich, Editor PitNews Magazine www.PitNews.com

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Off The Wall Pulled off the wall From: The Pitnews.com ForumsVisit The Wall at: Forums at: http://thewall.pitnews.com

The Wall is PitNews.com’s trading forum, found on the web at http://thewall.pitnews.com or from the tab link on the front page of PitNews.com. Each month, we highlight a chart submitted by one of our users. This Month’s Off the Wall Chart comes from Spike

July Hogs Play between the lines...

Get into the action! Start posting on The Wall, and maybe you’ll see your article or chart highlighted here in our next issue of PitNews.com Magazine! http://thewall.pitnews.com

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