Chart Talk

You know you've immersed yourself in trading when you see chart patterns everywhere you look, and in the unlikeliest of places. To me, the ways in which items are arranged on a grocery store shelf sometimes resembles a stock chart. When I drop my kids off at school, and I see them lined up with their peers to go into class, I can't help but notice "support" at their feet and "resistance" at the head of the tallest kid in the line. The panorama of a city skyline from left to right might as well be the chart for a publicly traded company that has rallied, consolidated at the top, and is beginning a sell-off. Even the step counter on my iPhone, with its colored bars of varying heights lets me know if I'm long or short a good health habit. I wouldn't say I'm obsessed with the markets   (then again one who claims to not be obsessed often is). I'd just say I'm usually tuned-in to trading so much so that I tend to relate it to the world aroun...

A perfectly drawn double bottom on a stock chart resembles a W, for its two matching lows with a brief rally in between, followed by a rally of equal or greater magnitude after the second low. In much the same way, a perfectly drawn double top resembles an M, for its two matching highs with a brief sell-off in between, followed by a sell-off of equal or greater magnitude after the second high. For our purposes here, we'll focus on double bottoms, all the while knowing that the same criteria can be applied to analyzing a double top, just in reverse. Given their symmetrical nature and defined zig-zag movements, the perfect double bottom is perhaps the most appealing formation that chartists base trades off of. They're fairly easy to spot and anticipate on both a daily and intraday chart. Plus, they present consistent ranges that clearly indicate areas to buy and sell. The problem is, these double pleasures are, for lack of a better term, a-dime-a-dozen. You can find double botto...

Bottoming action comes in all shapes and sizes. As we previously discussed, there are plenty of ways to get to a bottom, but how can we be fairly certain an area a stock got to, whether a top or bottom, will hold? A seasoned chartist can rather easily spot a likely area from where a stock can react. The proof in how reliable the area actually is will not necessarily be determined by how a stock acts once it gets there, but in how it acts once it gets back . When a stock revisits an area that it's previously been to, be it recently or at some point far in the past, it can be called a retracement . While you may lament missing the initial move that a stock makes into a good area, you can take solace in knowing that in most cases, the first opportunity to get involved with a stock in a certain area will not necessarily be your last or even best opportunity. Once a stock gets to its area, it will have some sort of reversal, but will then usually revisit the area or retrace back, either...