Technical Analysis Patterns in Trading

Chart Patterns and Trading Strategies

• A pattern consisting of a Broadening pattern followed by a Symmetric Triangle is one of the most profitable patterns.
• Divergence occurs when price is rising (or falling) and an indicator derived from that price is falling (or rising).
• The Donchian Breakout Method is a trading strategy that examines the highest high and lowest low over the past four weeks, buying on a break of the high and selling on the break of the low.

Market Trends

• A Downtrend is identified by Lower Peaks and Lower Troughs on the chart.
• Economic Risk refers to the risk that the economy contracts, cutting government revenue and company earnings.

Moving Averages

• The Drop-Off effect occurs when a traditional Moving Average drops the oldest value, generating signals.
• Envelopes (also called Moving Average Bands) are a type of Moving Average that has been translated up and down by a fixed percentage, often used as a filter to mitigate whipsaw in crossover strategies.

Options and Securities

• An Eve is a rounded top or bottom in relation to Double Tops & Bottoms.
• Exhaustion Gap occurs at the end of a move and is usually filled within a few days.
• Expanded Flat is a variation of an Elliott Flat corrective pattern where wave B retraces beyond the start of wave A, and wave C ends beyond the end of wave A.
• STRIPS (Separate Trading of Registered Interest and Principal Securities) separates the payments and principal to give investors more options and increase liquidity.

Support and Resistance

• Support is a level where declining prices stop falling, where the number of buyers balances the number of sellers.
• Swing Chart is a chart that posts a new vertical line for each change in trend, with different styles based on rules for defining a change in trend.

Treasury Securities and Inflation

• TIPS (Treasury Inflation Protected Securities) have principals adjusted for inflation.

Trading and Risk Management

• Throwback occurs when price breaks upward out of a pattern and then retraces to the breakout level.
• Tick Volume is the count of price changes in a given time period.
• Time Value (Option) is the difference between the total premium of the option and the intrinsic value (if any) of the option.
• Total Volume is the total of all futures contracts for a market added together.
• Trailing Stop is a stop that follows the market, getting closer but never moving away, used to lock in profits when the market turns.

Trend Reversals

• Reversal is a change in the direction of the trend.
• Reversal Pattern is a pattern with a high probability of exiting the pattern on the same side as the entry, with the trend in the opposite direction as the trend at the entry.

Other Concepts

• Right Translation occurs when the cycle peak is to the right of the expected centre of the cycle.
• Runaway or Measuring Gap is a pattern that can be used to project targets.
• Running Flat is a variation of an Elliott Flat corrective pattern where wave B retraces beyond the start of wave A, and wave C fails to extend beyond the end of wave A.
• Seasonality refers to yearly cycles that affect commodities and equities affected by supply and demand.
• Secondary Market is where investors trade already existing securities with each other.
• Secondary or Intermediate Trend is a trend that measures in weeks or months, a term used for any period longer than the business cycle.
• Secular is a term used for any period longer than the business cycle.
• Secured refers to a financial product that has some form of asset guarantee in case of default.
• Sentiment refers to Market Breadth.
• Shadow is the line extending above and beneath the Body of a candle, also called a Whisker.
• Short Selling / Short Trade is a transaction that allows the trader to profit from a falling security.
• Shortfall (Patterns) occurs when price fails to retrace all the way to the expected bounds of the pattern.

Bond Market

• Investment grade bonds exceed the rating thresholds set by the ratings agencies.
• Junk Bonds are below the ratings thresholds set by the ratings companies.

Yield Curves

• Inverted Yields occur when yields on near-term bond maturities are higher than those on longer-term maturities, often preceding an economic slowdown and recessions.

Patterns and Trends

• Island Reversal is a lone bar at the end of a trend that has a gap before and after it.
• Line Chart is a simple chart where the closing price for each period is plotted on a XY chart where X is time and Y is price.
• Pullback occurs when price breaks downward out of a pattern and retraces to the breakout levels.
• Wedge pattern has one peak (or trough) that ends the initial thrust of the move, called the "Climax".

Orders and Risks

• Limit Order is an order established with a broker that will automatically execute when the price reaches the requested level.
• Market Order is an order to buy or sell at whatever price the market is currently trading at.
• Liquidity Risk is the risk that the asset will not be able to be sold for the desired price.
• Market Risk is the risk that prices will move so that the investment reduces in value.

Indicators and Analysis

• Market Breadth is an indicator that measures both positive and negative sentiment in the market.
• Momentum measures the rate of change in price over a defined period of time.
• Ratio Analysis involves creating a ratio from the prices of two securities and comparing that ratio against other ratios.

Cycles and Waves

• Kondratieff Wave is a 54-year economic cycle.
• Primary Trend is a trend measured in months or years.
• Real Estate Cycle is an 18.6 year cycle in the property market that impacts equity and bond markets.

Options and Bonds

• Callable bonds are securities with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date.
• Convertible bonds provide investors with the option to swap debt for equity.
• Coupon Payments are the interest payments made by the bond seller.

Risk and Correlation

• Credit Risk is the risk that a government or company will not be able to meet their debt obligations.
• Currency Risk is the risk that changes in the currency will reduce/increase demand for the securities.
• Correlation measures the relationship between two data sets, ranging from -1 (negatively correlated) to 0 (uncorrelated) to 1 (correlated).