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. Here’s 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, I’ll provide an overview of how you can trade using charts.
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.
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).