Traditional chart analysis: A neglected tool?
by Thomas Aspray
With the virtual explosion of computerized technical analysis over the past few years, some basic
methods of analysis are often forgotten or at least neglected. I confess that I have even contributed to the
outbreak of "oscillatoritis" by focusing my research and writing on developing new, computerized
technical indicators. Despite this, traditional chart analysis does play an important role in my own
Traditional chart analysis is a proven method of analysis and I feel it can be very useful, even for the
sophisticated trader. The two primary advantages, in my view, are the additional discipline it can add to a
trading plan and the ability to calculate reasonable price objectives and protective stops from the chart
In the ideal head and shoulders top (Figure 1), the left shoulder usually has the peak volume. Volume
then decreases during the formation of the head, indicating that demand is weakening. Volume, typically,
will be weakest during the development of the right shoulder. On the breakout below the neckline, the
volume should expand as sellers take control of the market. The objective after the breakout is the
distance, D, from the peak of the head to the neckline.
An ideal double top (Figure 2) has peak volume during the first drive toward resistance. On the second
attempt to break resistance, volume is low, which indicates demand is weak. After the breakout below the
support line, the minimum objective is the distance, D, from the peak in prices to the support line.