Stocks & Commodities V. 32:8 (30-35): Exploring Charting Techniques: Basic Chart Trading, Part 2 by Sylvain Vervoort

Stocks & Commodities V. 32:8 (30-35): Exploring Charting Techniques: Basic Chart Trading, Part 2 by Sylvain Vervoort
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Exploring Charting Techniques: Basic Chart Trading, Part 2 by Sylvain Vervoort

Trends, Pullbacks, Reversals...

Pullbacks, swing reversals, breakouts, trend reversals these are some of the things prices do. Heres how you can recognize and trade them.

Last month in part 1 of this six-part article series, I discussed the basic chart types available to the investor, from line charts to bar charts to the modified renko charts that I use in my trading. In this article, Ill provide an overview of how you can trade using charts.

MARKET TRENDS

The market is driven by bulls & bears. The bulls try to push prices higher while the bears try to pull prices lower. Markets have a tendency to continue in the direction that they have been moving and this is probably why more than 80% of breakout attempts in a trend fail.

Bull market

In Figure 1 you see a clear bull trend, but trends are not always this clear. If you are ever in any doubt about a trend, look for a breakout from a trading range. Typically, when you see a breakout like the one seen in the area shaded in green, it suggests a strong trend. Breakouts usually happen because of a result of positive economic news. After a strong trend, the market usually becomes weaker and moves within a channel (yellow shaded area).




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