TECHNICAL ANALYSIS(CHARTS AND PATTERNS)BY: MR. GERRY O. GATAWA, MBA

LINE CHART

BAR CHART

KAGI CHART

THE HEAD AND SHOULDERS

8-5

The head and shoulders formation can be bullish or bearish, it’s typical formation is the following 

BEARISH

BULLISH

Let us examine the bearish formation in detail:

the neckline may be horizontal as in the figure or ascending / descending, the shoulders may be at the same price level or at different levels, these variations to respect to the typical formation gives the trader additional information as to the degree of probability that the formation will follow up with a break through, i.e. a descending neckline as well as a lower right shoulder raises the probability of a successful pattern formation, on the other hand an ascending neckline as well as a higher right shoulder decreases the probability of a successful formation.

neckline

head l.shoulder

r.shoulder

M PATTERN

W PATTERN

WEAKENING UPWARD PATTERNS

WEAKENING DOWNWARD PATTERNS

J AND REVERSE J PATTERNS

WEAKENING TRIANGLE PATTERNS

STRENGTHENING TRIANGLE PATTERNS

DOW THEORY

DOW THEORY

AN UPWARD TREND IN DOW THEORY IS A SERIES OF SUCCESSIVELY HIGHER PEAKS AND HIGHER TROUGHS.

A downward trend is a series of successively lower peaks and lower troughs.

In this situation, the market has gone from a period of successively higher highs and lows to successively lower highs and lows, which are the components of a downward primary trend.

THE REVERSAL OF A DOWNWARD PRIMARY TREND OCCURS WHEN THE MARKET NO LONGER FALLS TO LOWER LOWS AND HIGHS. This happens when the market establishes a peak that is higher than the previous peak followed by a trough that is higher than the previous trough, which are the components of an upward trend.

THE ELLIOT WAVE

Mr. Elliott contends that social, or crowd behavior trends can be recognized in the price trend activity in the financial markets.

Elliott came up with thirteen patterns or "waves," that he suggested recur in the markets.

The basic patterns in Elliott's theory is what is known as impulsive waves and corrective waves.

An impulsive wave is made up of five sub waves and moves in the same direction as the larger price trend.

A corrective wave is made up of three sub waves and moves against the trend of the next larger size.

FLAGS AND PENNANTS

THESE TWO SHORT-TERM CHART PATTERNS ARE CONTINUATION PATTERNS THAT ARE FORMED WHEN THERE IS A SHARP PRICE MOVEMENT FOLLOWED BY A GENERALLY SIDEWAYS PRICE MOVEMENT.

THIS PATTERN IS THEN COMPLETED UPON ANOTHER SHARP PRICE MOVEMENT IN THE SAME DIRECTION AS THE MOVE THAT STARTED THE TREND.

THE PATTERNS ARE GENERALLY THOUGHT TO LAST FROM ONE TO THREE WEEKS.

THE MAIN DIFFERENCE BETWEEN THESE PRICE MOVEMENTS CAN BE SEEN IN THE MIDDLE SECTION OF THE CHART PATTERN.

IN A PENNANT, THE MIDDLE SECTION IS CHARACTERIZED BY CONVERGING TRENDLINES, MUCH LIKE WHAT IS SEEN IN A SYMMETRICAL TRIANGLE.

THE MIDDLE SECTION ON THE FLAG PATTERN, ON THE OTHER HAND, SHOWS A CHANNEL PATTERN, WITH NO CONVERGENCE BETWEEN THE TRENDLINES.

IN BOTH CASES, THE TREND IS EXPECTED TO CONTINUE WHEN THE PRICE MOVES ABOVE THE UPPER TRENDLINE.