1.

aChart Types
Different sets of data are particularly suited to a certain chart type. The following is an
overview of the main chart types and their most common uses.

Bar

A bar chart (also known as a column chart) displays or compares several sets of data.
Two useful bar charts are the Side-by-Side bar chart and the Stacked bar chart.

 Side-by-Side bar chart

A Side-by-Side bar chart displays data as a series of vertical bars. This type of
chart is best suited for showing data for several sets over a period of time (for
example, last year's sales figures for AZ, CA, OR, and WA).

 Stacked bar chart

A Stacked bar chart displays data as a series of vertical bars. This type of chart
is best suited for representing three series of data, each series represented by a
color stacked in a single bar (for example, sales for 1997, 1998, and 1999).

Line

A line chart displays data as a series of points connected by a line. This type of chart is
best suited for showing data for a large number of groups (for example, total sales
over the past several years).

Area

An area chart displays data as areas filled with color or patterns. This type of chart is
best suited for showing data for a limited number of groups (for example, percentage
of total sales for AZ, CA, OR, and WA).

Pie

A pie chart displays data as a pie, split and filled with color or patterns. Pie charts are
typically used for one group of data (for example, the percentage of sales for the entire
inventory); however, you have the option to choose multiple pie charts for multiple
groups of data.

Doughnut
A doughnut chart is similar to a pie chart, displaying data as sections of a circle or
doughnut. If, for example, you charted sales by region on a particular report, you
would see the total number of sales (the figure) in the center of the doughnut and the
regions as colored sections of the doughnut. As with the pie chart, you have the option
to choose multiple doughnut charts for multiple groups of data.

3-D Riser

A 3-D Riser chart displays data in a series of 3-dimensional objects, lined up side-by-
side, in a 3-dimensional plane. The 3-D Riser chart shows the extremes in your report
data. For example, the differences between sales by customer by country are visually
dynamic when presented in this chart.

3-D Surface

3-D Surface charts present a topographic view of multiple sets of data. If, for
example, you need a chart to show the number of sales by customer by country, in a
visually dynamic and relational format, you might consider using the 3-D Surface
chart.

XY Scatter

An XY Scatter chart is a collective of plotted points that represent specific data in a

pool of information. The XY Scatter chart allows the user to consider a larger scope of
data for the purpose of determining trends. For example, if you input customer
information, including sales, products, countries, months, and years, you would have a
collective of plotted points that represents the pool of customer information. Viewing
all of this data on an XY Scatter chart would allow you to speculate as to why certain
products were selling better than others or why certain regions were purchasing more
than others.

Radar

A radar chart positions group data, such as countries or customers, at the perimeter of
the radar. The radar chart then places numeric values, increasing in value, from the
center of the radar to the perimeter. In this way, the user can determine, at a glance,
how specific group data relates to the whole of the group data.

Bubble

A bubble chart displays data as a series of bubbles, where the size of the bubble is
proportional to the amount of data. A bubble chart would be very effective with the
number of products sold in a certain region; the larger the bubble, the greater the
number of products sold in that region.

Stock

A stock chart presents high and low values for data. It is useful for monitoring
financial or sales activities.

Numeric Axis

A numeric axis chart is a bar, line, or area chart that uses a numeric field or a date/time
field as its "On change of" field. Numeric axis charts provide a way of scaling your X-
axis values, thus creating a true numeric X-axis or a true date/time X-axis.

Gauge

A gauge chart presents values graphically as points on a gauge. Gauge charts, like pie
charts, are typically used for one group of data (for example, the percentage of sales
for the entire inventory).

Gantt

A Gantt chart is a horizontal bar chart often used to provide a graphical illustration of
a schedule. The horizontal axis shows a time span, while the vertical axis shows a
series of tasks or events. Horizontal bars on the chart represent event sequences and
time spans for each item on the vertical axis. You should use only date fields when
creating a Gantt chart. The field you choose for the data axis should be set to "For
Each Record," and the start and end-date fields should be added to the "Show
value(s)" area of the Chart Expert's Data tab.

Funnel

Funnel charts are often used to represent stages in a sales process. For example, the
amount of potential revenue shown for each stage. This type of chart can also be
useful in identifying potential problem areas in an organization's sales processes. A
funnel chart is similar to a stacked bar chart in that it represents 100% of the summary
values for the groups included in the chart.

1.
Technical Analysis: bSupport
And Resistance
By Investopedia Staff

By Cory Janssen, Chad Langager and Casey Murphy

Once you understand the concept of a trend, the next major

concept is that of support and resistance. You'll often hear
technical analysts talk about the ongoing battle between
the bulls and the bears, or the struggle between buyers (demand)
and sellers (supply). This is revealed by the prices a security
seldom moves above (resistance) or below (support).

Figure 1

As you can see in Figure 1, support is the price level through

which a stock or market seldom falls (illustrated by the blue
arrows). Resistance, on the other hand, is the price level that a
stock or market seldom surpasses (illustrated by the red
arrows).

Why Does it Happen?

These support and resistance levels are seen as important in
terms of market psychology and supply and demand. Support and
resistance levels are the levels at which a lot of traders are
willing to buy the stock (in the case of a support) or sell it (in the
case of resistance). When these trendlines are broken, the supply
and demand and the psychology behind the stock's movements is
thought to have shifted, in which case new levels of support and
resistance will likely be established.

Round Numbers and Support and Resistance

One type of universal support and resistance that tends to be
seen across a large number of securities is round numbers.
Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be
important in support and resistance levels because they often
represent the major psychological turning points at which many
traders will make buy or sell decisions.

Buyers will often purchase large amounts of stock once the price
starts to fall toward a major round number such as $50, which
makes it more difficult for shares to fall below the level. On the
other hand, sellers start to sell off a stock as it moves toward a
round number peak, making it difficult to move past this upper
level as well. It is the increased buying and selling pressure at
these levels that makes them important points of support and
resistance and, in many cases, major psychological points as
well.
Role Reversal
Once a resistance or support level is broken, its role is reversed.
If the price falls below a support level, that level will become
resistance. If the price rises above a resistance level, it will often
become support. As the price moves past a level of support or
resistance, it is thought that supply and demand has shifted,
causing the breached level to reverse its role. For a true reversal
to occur, however, it is important that the price make a strong
move through either the support or resistance. (For further
reading, see Retracement Or Reversal: Know The Difference.)
 Figure 2

For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has
prevented the price from heading higher on two previous occasions (Points 1 and 2). However,
once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by
propping up the price and preventing it from heading lower again.

Many traders who begin using technical analysis find this concept hard to believe and don't
realize that this phenomenon occurs rather frequently, even with some of the most well-known
companies. For example, as you can see in Figure 3, this phenomenon is evident on the Wal-Mart
Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes
from a strong level of support to a level of resistance.

Figure 3

In almost every case, a stock will have both a level of support

and a level of resistance and will trade in this range as it
bounces between these levels. This is most often seen when a
stock is trading in a generally sideways manner as the price
moves through successive peaks and troughs, testing resistance
and support.
The Importance of Support and Resistance
Support and resistance analysis is an important part of trends
because it can be used to make trading decisions and identify
when a trend is reversing. For example, if a trader identifies an
important level of resistance that has been tested several times
but never broken, he or she may decide to take profits as the
security moves toward this point because it is unlikely that it will
move past this level.

Support and resistance levels both test and confirm trends and
need to be monitored by anyone who uses technical analysis. As
long as the price of the share remains between these levels of
support and resistance, the trend is likely to continue. It is
important to note, however, that a break beyond a level of support
or resistance does not always have to be a reversal. For example,
if prices moved above the resistance levels of an upward trending
channel, the trend has accelerated, not reversed. This means
that the price appreciation is expected to be faster than it was in
the channel.

Being aware of these important support and resistance points

should affect the way that you trade a stock. Traders should
avoid placing orders at these major points, as the area around
them is usually marked by a lot of volatility. If you feel confident
about making a trade near a support or resistance level, it is
important that you follow this simple rule: do not place orders
directly at the support or resistance level. This is because in
many cases, the price never actually reaches the whole number,
but flirts with it instead. So if you're bullish on a stock that is
 moving toward an important support level, do not place the trade
at the support level. Instead, place it above the support level, but
within a few points. On the other hand, if you are
placing stops or short selling, set up your trade price at or below
the level of support.

DEFINITION OF C 'GAP ANALYSIS'

1) The process through which a company compares its actual
performance to its expected performance to determine whether
it is meeting expectations and using its resources effectively.
Gap analysis seeks to answer the questions "where are we?"
(current state) and "where do we want to be?" (target state).

2) A method of asset-liability management that can be used to

assess interest rate risk or liquidity risk excluding credit risk.
Gap analysis is a simple IRR measurement method that conveys
the difference between rate sensitive assets and rate sensitive
liabilities over a given period of time. This type of analysis works
well if assets and liabilities are compromised of fixed cash flows.
Because of this a significant shortcoming of gap analysis is that
it cannot handle options, as options have uncertain cash flows.

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INVESTOPEDIA EXPLAINS 'GAP ANALYSIS'
1) Conducting a gap analysis can help a company re-examine its
goals to determine whether it is on the right path to be able to
accomplish them. A company will list the factors that define its
current state, outline the factors that are required to reach the
target state, and then determine how to fill the "gaps" between
the two states.

2) Gap analysis was widely used in the 1980's typically in tandem

with duration analysis. It was found to be harder to use and less
widely implemented than duration analysis but it can still be
used to assess exposure to a variety of term structure
movements.

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d. DEFINITION OF 'TRENDLINE'
A line that is drawn over pivot highs or under pivot lows to show
the prevailing direction of price. Trendlines are a visual
representation of support and resistance in any time frame.

2.NVESTOPEDIA EXPLAINS 'TRENDLINE'

Trendlines are used to show direction and speed of price.
Trendlines also describe patterns during periods of price
contraction.

Technical Analysis: aChart

Patterns
By Investopedia Staff
By Cory Janssen, Chad Langager and Casey Murphy

A chart pattern is a distinct formation on a stock chart that

creates a trading signal, or a sign of future price movements.
Chartists use these patterns to identify current trends and trend
reversals and to trigger buy and sell signals.

In the first section of this tutorial, we talked about the three

assumptions of technical analysis, the third of which was that in
technical analysis, history repeats itself. The theory behind chart
patters is based on this assumption. The idea is that certain
patterns are seen many times, and that these patterns signal a
certain high probability move in a stock. Based on the historic
trend of a chart pattern setting up a certain price movement,
chartists look for these patterns to identify trading
opportunities.

While there are general ideas and components to every chart

pattern, there is no chart pattern that will tell you with 100%
certainty where a security is headed. This creates some leeway
and debate as to what a good pattern looks like, and is a major
reason why charting is often seen as more of an art than a
science. (For more insight, see Is finance an art or a science?)

There are two types of patterns within this area of technical

analysis, reversaland continuation. A reversal pattern signals
that a prior trend will reverse upon completion of the pattern. A
continuation pattern, on the other hand, signals that a trend will
continue once the pattern is complete. These patterns can be
found over charts of any timeframe. In this section, we will
review some of the more popular chart patterns. (To learn more,
check out Continuation Patterns - Part 1, Part 2, Part 3 and Part
4.)
Head and Shoulders
This is one of the most popular and reliable chart patterns in
technical analysis.Head and shoulders is a reversal chart pattern
that when formed, signals that the security is likely to move
against the previous trend. As you can see in Figure 1, there are
two versions of the head and shoulders chart pattern. Head and
shoulders top (shown on the left) is a chart pattern that is formed
at the high of an upward movement and signals that the upward
trend is about to end. Head and shoulders bottom, also known
as inverse head and shoulders (shown on the right) is the lesser
known of the two, but is used to signal a reversal in a downtrend.

Figure 1: Head and shoulders top is shown on the left. Head

and shoulders bottom, or inverse head and shoulders, is on
the right.

Both of these head and shoulders patterns are similar in that

there are four main parts: two shoulders, a head and a neckline.
Also, each individual head and shoulder is comprised of a high
and a low. For example, in the head and shoulders top image
shown on the left side in Figure 1, the left shoulder is made up of
a high followed by a low. In this pattern, the neckline is a level of
support or resistance. Remember that an upward trend is a
period of successive rising highs and rising lows. The head and
shoulders chart pattern, therefore, illustrates a weakening in a
trend by showing the deterioration in the successive movements
of the highs and lows. (To learn more, see Price Patterns - Part
2.)

Cup and Handle

A cup and handle chart is a bullish continuation pattern in which
the upward trend has paused but will continue in an upward
direction once the pattern is confirmed.

Figure 2

As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by
an upward trend. The handle follows the cup formation and is formed by a generally
downward/sideways movement in the security's price. Once the price movement pushes above
the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging
time frame for this type of pattern, with the span ranging from several months to more than a
year.

Double Tops and Bottoms

This chart pattern is another well-known pattern that signals a trend reversal - it is considered to
be one of the most reliable and is commonly used. These patterns are formed after a sustained
trend and signal to chartists that the trend is about to reverse. The pattern is created when a price
movement tests support or resistance levels twice and is unable to break through. This pattern is
often used to signal intermediate and long-term trend reversals.
 Figure 3: A double top pattern is shown on the left, while a
double bottom pattern is shown on the right.

In the case of the double top pattern in Figure 3, the price

movement has twice tried to move above a certain price level.
After two unsuccessful attempts at pushing the price higher, the
trend reverses and the price heads lower. In the case of a double
bottom (shown on the right), the price movement has tried to go
lower twice, but has found support each time. After the second
bounce off of the support, the security enters a new trend and
heads upward. (For more in-depth reading, see The Memory Of
Price and Price Patterns - Part 4.)

Triangles
Triangles are some of the most well-known chart patterns used in
technical analysis. The three types of triangles, which vary in
construct and implication, are the symmetrical
triangle, ascending and descending triangle. These chart
patterns are considered to last anywhere from a couple of weeks
to several months.
 Figure 4

The symmetrical triangle in Figure 4 is a pattern in which two

trendlines converge toward each other. This pattern is neutral in
that a breakout to the upside or downside is a confirmation of a
trend in that direction. In an ascending triangle, the upper
trendline is flat, while the bottom trendline is upward sloping.
This is generally thought of as a bullish pattern in which
chartists look for an upside breakout. In a descending triangle,
the lower trendline is flat and the upper trendline is descending.
This is generally seen as a bearish pattern where chartists look
for a downside breakout.

Flag and Pennant

These two short-term chart patterns are continuation patterns
that are formed when there is a sharp price movement followed
by a generally sideways price movement. This pattern is then
completed upon another sharp price movement in the same
direction as the move that started the trend. The patterns are
generally thought to last from one to three weeks.

Figure 5

As you can see in Figure 5, there is little difference between

a pennant and aflag. The main difference between these price
movements can be seen in the middle section of the chart
pattern. In a pennant, the middle section is characterized by
converging trendlines, much like what is seen in a symmetrical
triangle. The middle section on the flag pattern, on the other
hand, shows a channel pattern, with no convergence between the
trendlines. In both cases, the trend is expected to continue when
the price moves above the upper trendline.

Wedge
The wedge chart pattern can be either a continuation or reversal
pattern. It is similar to a symmetrical triangle except that the
wedge pattern slants in an upward or downward direction, while
the symmetrical triangle generally shows a sideways movement.
The other difference is that wedges tend to form over longer
periods, usually between three and six months.
 Figure 6

The fact that wedges are classified as both continuation and

reversal patterns can make reading signals confusing. However,
at the most basic level, a falling wedge is bullish and a rising
wedge is bearish. In Figure 6, we have a falling wedge in which
two trendlines are converging in a downward direction. If the
price was to rise above the upper trendline, it would form a
continuation pattern, while a move below the lower trendline
would signal a reversal pattern.

Gaps
A gap in a chart is an empty space between a trading period and
the following trading period. This occurs when there is a large
difference in prices between two sequential trading periods. For
example, if the trading range in one period is between $25 and
$30 and the next trading period opens at $40, there will be a
large gap on the chart between these two periods. Gap price
movements can be found on bar charts and candlestick charts
but will not be found on point and figure or basic line charts.
Gaps generally show that something of significance has
happened in the security, such as a better-than-expected
earnings announcement.

There are three main types of

gaps, breakaway, runaway (measuring) andexhaustion. A
breakaway gap forms at the start of a trend, a runaway gap forms
during the middle of a trend and an exhaustion gap forms near
the end of a trend. (For more insight, read Playing The Gap.)

Triple Tops and Bottoms

Triple tops and triple bottoms are another type of reversal chart
pattern in chart analysis. These are not as prevalent in charts as
head and shoulders and double tops and bottoms, but they act in
a similar fashion. These two chart patterns are formed when the
price movement tests a level of support or resistance three times
and is unable to break through; this signals a reversal of the prior
trend.

Figure 7

Confusion can form with triple tops and bottoms during the
formation of the pattern because they can look similar to other
chart patterns. After the first two support/resistance tests are
formed in the price movement, the pattern will look like a double
top or bottom, which could lead a chartist to enter a reversal
position too soon.
Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-
term reversal pattern that signals a shift from a downward trend
to an upward trend. This pattern is traditionally thought to last
anywhere from several months to several years.

Figure 8
1.
A rounding bottom chart pattern looks similar to a cup and
handle pattern but without the handle. The long-term nature
of this pattern and the lack of a confirmation trigger, such
as the handle in the cup and handle, makes it a difficult
pattern to trade.

We have finished our look at some of the more popular chart

patterns. You should now be able to recognize each chart
pattern as well the signal it can form for chartists. We will
now move on to other technical techniques and examine
how they are used by technical traders to gauge price
movements.
b. Advanced Candlestick
Patterns
By Justin KuepperAAA |
Candlestick patterns can give you invaluable insight into price
action at a glance. While the basic candlestick patterns can tell
you what the market is thinking, they often generate false signals
because they are so common. Here we introduce you to more
advanced candlestick patterns, with a higher degree of reliability,
as well as explore how they can be combined with gaps to
produce profitable trading strategies.

Island Reversal Patterns

Island reversals are strong short-term trend reversal indicators. They are
identified by a gap between a reversal candlestick and two candles on either side of it. Here are two
examples that occurred on the chart of Doral Financial (DRL).

Figure 1
 Figure 2
Here are some important things you need to consider when using
this pattern:

 Entry: Confirming the reversal pattern - When looking for an

island reversal, you are looking for indecision and a battle
between bulls and bears. This type of scenario is best
characterized by a long-ended dojicandle that has high
volume occurring after a long prior trend; it is important to
look for these three elements to confirm any potential
reversal pattern.
 Exit: Defining the target and stop - In most cases, you will
see a sharp reversal (as seen in Figs. 1 and 2) when using
this pattern. This reversal pattern does not necessarily
indicate a medium- or long-term reversal, so it would be
prudent to exit your position after the swing move has been
made. If the next candle ever fills the gap, then the reversal
pattern is invalidated, and you should exit prudently.

Island reversals can also occur in "clusters" - that is, in a multi-

candle reversal pattern, such as an engulfing, as opposed to a
single candle reversal. Clusters are easier to spot, but they often
result in weaker reversals that are not as sharp and take longer
to occur.

Hook Reversal Patterns

Hook reversals are short- to medium-term reversal patterns. They are identified by a higher low
and a lower high compared to the previous day. Figures 3 and 4 are two examples that occurred on the
chart of Microsoft Corp. (MSFT).

Figure 3

Figure 4
There are several important things to remember when using this
pattern:
  Entry: Confirming the reversal pattern - If the pattern occurs
after an uptrend, then the open must be near the prior high,
and the low must be near the prior low. If the pattern occurs
after a downtrend, then the opposite is true. As with the
island reversal pattern, we are also looking for high volume
on this second candle. Finally, the stronger the prior trend,
the more reliable the reversal pattern.
 Exit: Defining the target and stop - In most cases, you will
see a sharp reversal (as seen in Figs. 3 and 4) when using
this pattern. If the next candle shows a strong continuation
of the prior trend, then the reversal pattern is invalidated,
and you should exit quickly, but prudently.

San-Ku (Three Gaps) Patterns

San-ku patterns are anticipatory trend reversal indicators. In other words, they do not indicate
an exact point of reversal; rather, they indicate that a reversal is likely to occur in the near future. They
are identified by three gaps within a strong trend. Here is an example that occurred on the chart of
Microsoft Corp. (MSFT).
 Figure 5
Here are some important things to remember when using this
pattern:

 Entry: Confirming the reversal pattern - This pattern

operates on the premise that prices are likely to retreat
after sharp moves because traders are likely to start
booking profits. Therefore, this pattern is best used with
other exhaustion indicators. So, look for extremes being
reached in indicators such as the RSI (relative strength
index), MACD (moving average convergence
divergence) crossovers, and other such indicators. It is also
useful to look for volume patterns that suggest exhaustion.
 Exit: Defining the target and stop - In most cases, when
using this pattern, you will see a price reversal shortly after
the third gap takes place (as seen in Fig. 5). However, if
there are any breakouts on high volume after the last gap,
 then the pattern is invalidated, and you should exit quickly,
but prudently.

Kicker Patterns
Kicker patterns are some of the strongest, most reliable candlestick patterns. They are
characterized by a very sharp reversal in price during the span of two candlesticks. Here's an example
that occurred on the Microsoft (MSFT) chart.

Figure 6
Here are some important things you need to remember when
using this pattern:

 Entry: Confirming the reversal pattern - This kind of price

action tells you that one group of traders has overpowered
the other (often as a result of a fundamental change in the
company), and a new trend is being established. Ideally, you
 should look for a gap between the first and second candles,
along with high volume.

 Exit: Defining a target and stop - When using this pattern,

you will see an immediate reversal, which should result in
an overall trend change. If the trend instead moves sideways
or against the reversal direction, then you should exit
quickly, but prudently.

Using Gaps with Candlesticks

When gaps are combined with candlestick patterns and volume,
they can produce extremely reliable signals. (For further reading,
see Playing The Gap.) Here is a simple process that you can use to combine these powerful
tools:

1. Screen for breakouts using your software or website of choice.

2. Make sure that the breakouts are high volume and significant (in terms of length).
3. Watch for reversal candlestick patterns (such as the ones mentioned above) after the
gap has occurred. This will typically happen within the next few bars, especially if the
bars are showing indecision after a long trend.

4. Take a position when such a reversal occurs.

Attempting to play reversals can be risky in any situation
because you are trading against the prevailing trend. Do make
sure that you keep tight stops and only enter positions when
trades meet the exact criteria. (To learn more, see Retracement
Or Reversal: Know The Difference.)

Conclusion
Now you should have a basic understanding of how to find
reversals using advanced candlestick patterns, gaps and volume.
The patterns and strategies discussed in this article represent
only a few of the many candlestick patterns that can help you
better understand price action, but they are among the most
reliable. For further reading, see The Art Of Candlestick Charting
- Part 1, Part 2, Part 3 and Part 4.
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3.

Technical Analysis:a Indicators

And Oscillators
By Investopedia Staff

By Cory Janssen, Chad Langager and Casey Murphy

Indicators are calculations based on the price and the volume of

a security that measure such things as money flow, trends,
volatility and momentum. Indicators are used as a secondary
measure to the actual price movements and add additional
information to the analysis of securities. Indicators are used in
two main ways: to confirm price movement and the quality of
chart patterns, and to form buy and sell signals.

There are two main types of indicators: leading and lagging. A

leading indicator precedes price movements, giving them a
predictive quality, while a lagging indicator is a confirmation tool
because it follows price movement. A leading indicator is thought
to be the strongest during periods of sideways or non-trending
trading ranges, while the lagging indicators are still useful during
trending periods.

There are also two types of indicator constructions: those that

fall in a boundedrange and those that do not. The ones that are
bound within a range are calledoscillators - these are the most
common type of indicators. Oscillator indicators have a range, for
example between zero and 100, and signal periods where the
security is overbought (near 100) or oversold (near zero). Non-
bounded indicators still form buy and sell signals along with
displaying strength or weakness, but they vary in the way they do
this.

The two main ways that indicators are used to form buy and sell
signals in technical analysis is
through crossovers and divergence. Crossovers are the most
popular and are reflected when either the price moves through
the moving average, or when two different moving averages cross
over each other.The second way indicators are used is through
divergence, which happens when the direction of the price trend
and the direction of the indicator trend are moving in the
opposite direction. This signals to indicator users that the
direction of the price trend is weakening.

Indicators that are used in technical analysis provide an

extremely useful source of additional information. These
indicators help identify momentum, trends, volatility and various
other aspects in a security to aid in the technical analysis of
trends. It is important to note that while some traders use a
single indicator solely for buy and sell signals, they are best used
in conjunction with price movement, chart patterns and other
indicators.

Accumulation/Distribution Line
The accumulation/distribution line is one of the more popular
volume indicators that measures money flows in a security. This
indicator attempts to measure the ratio of buying to selling by
comparing the price movement of a period to the volume of that
period.

Calculated:

Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) *

Period\'s Volume

This is a non-bounded indicator that simply keeps a running sum over the period of the security.
Traders look for trends in this indicator to gain insight on the amount of purchasing compared to
selling of a security. If a security has an accumulation/distribution line that is trending upward, it
is a sign that there is more buying than selling.

Average Directional Index

The average directional index (ADX) is a trend indicator that is used to measure the strength of a
current trend. The indicator is seldom used to identify the direction of the current trend, but can
identify the momentum behind trends.

The ADX is a combination of two price movement measures: the positive directional
indicator (+DI) and the negative directional indicator (-DI). The ADX measures the strength of a
trend but not the direction. The +DI measures the strength of the upward trend while the -DI
measures the strength of the downward trend. These two measures are also plotted along with the
ADX line. Measured on a scale between zero and 100, readings below 20 signal a weak trend
while readings above 40 signal a strong trend.

Aroon
The Aroon indicator is a relatively new technical indicator that was created in 1995. The Aroon
is a trending indicator used to measure whether a security is in an uptrend or downtrend and the
magnitude of that trend. The indicator is also used to predict when a new trend is beginning.

The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroon down" line
(red dotted line). The Aroon up line measures the amount of time it has been since the highest
price during the time period. The Aroon down line, on the other hand, measures the amount of
time since the lowest price during the time period. The number of periods that are used in the
calculation is dependent on the time frame that the user wants to analyze.
 Figure 1
Aroon Oscillator
An expansion of the Aroon is the Aroon oscillator, which simply
plots the difference between the Aroon up and down lines by
subtracting the two lines. This line is then plotted between a
range of -100 and 100. The centerline at zero in the oscillator is
considered to be a major signal line determining the trend. The
higher the value of the oscillator from the centerline point, the
more upward strength there is in the security; the lower the
oscillator's value is from the centerline, the more downward
pressure. A trend reversal is signaled when the oscillator crosses
through the centerline. For example, when the oscillator goes
from positive to negative, a downward trend is confirmed.
Divergence is also used in the oscillator to predict trend
reversals. A reversal warning is formed when the oscillator and
the price trend are moving in an opposite direction.

The Aroon lines and Aroon oscillators are fairly simple concepts
to understand but yield powerful information about trends. This is
another great indicator to add to any technical trader's arsenal.
Moving Average Convergence
The moving average convergence divergence (MACD) is one of
the most well known and used indicators in technical analysis.
This indicator is comprised of two exponential moving averages,
which help to measure momentum in the security. The MACD is
simply the difference between these two moving averages
plotted against a centerline. The centerline is the point at which
the two moving averages are equal. Along with the MACD and the
centerline, an exponential moving average of the MACD itself is
plotted on the chart. The idea behind this momentum indicator is
to measure short-term momentum compared to longer term
momentum to help signal the current direction of momentum.

MACD= shorter term moving average - longer term moving

average

When the MACD is positive, it signals that the shorter term moving average is above the longer
term moving average and suggests upward momentum. The opposite holds true when the MACD
is negative - this signals that the shorter term is below the longer and suggest downward
momentum. When the MACD line crosses over the centerline, it signals a crossing in the moving
averages. The most common moving average values used in the calculation are the 26-day and
12-day exponential moving averages. The signal line is commonly created by using a nine-day
exponential moving average of the MACD values. These values can be adjusted to meet the
needs of the technician and the security. For more volatile securities, shorter term averages are
used while less volatile securities should have longer averages.

Another aspect to the MACD indicator that is often found on charts is the MACD histogram. The
histogram is plotted on the centerline and represented by bars. Each bar is the difference between
the MACD and the signal line or, in most cases, the nine-day exponential moving average. The
higher the bars are in either direction, the more momentum behind the direction in which the bars
point. (For more on this, see Moving Average Convergence Divergence - Part 1and Part 2,
and Trading The MACD Divergence.)

As you can see in Figure 2, one of the most common buy signals is generated when the MACD
crosses above the signal line (blue dotted line), while sell signals often occur when the MACD
crosses below the signal.
 Figure 2

Relative Strength Index

The relative strength index (RSI) is another one of the most used and well-known momentum
indicators in technical analysis. RSI helps to signal overbought and oversold conditions in a
security. The indicator is plotted in a range between zero and 100. A reading above 70 is used to
suggest that a security is overbought, while a reading below 30 is used to suggest that it is
oversold. This indicator helps traders to identify whether a security's price has been unreasonably
pushed to current levels and whether a reversal may be on the way.

Figure 3

The standard calculation for RSI uses 14 trading days as the

basis, which can be adjusted to meet the needs of the user. If the
trading period is adjusted to use fewer days, the RSI will be more
volatile and will be used for shorter term trades. (To read more,
see Momentum And The Relative Strength Index,Relative
Strength Index And Its Failure-Swing Points and Getting To Know
Oscillators - Part 1 and Part 2.)

On-Balance Volume
The on-balance volume (OBV) indicator is a well-known technical
indicator that reflect movements in volume. It is also one of the
simplest volume indicators to compute and understand.

The OBV is calculated by taking the total volume for the trading
period and assigning it a positive or negative value depending on
whether the price is up or down during the trading period. When
price is up during the trading period, the volume is assigned a
positive value, while a negative value is assigned when the price
is down for the period. The positive or negative volume total for
the period is then added to a total that is accumulated from the
start of the measure.

It is important to focus on the trend in the OBV - this is more

important than the actual value of the OBV measure. This
measure expands on the basic volume measure by combining
volume and price movement. (For more insight, seeIntroduction
To On-Balance Volume.)

Stochastic Oscillator
The stochastic oscillator is one of the most recognized momentum indicators used in technical
analysis. The idea behind this indicator is that in an uptrend, the price should be closing near the
highs of the trading range, signaling upward momentum in the security. In downtrends, the price
should be closing near the lows of the trading range, signaling downward momentum.

The stochastic oscillator is plotted within a range of zero and 100 and signals overbought
conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two
lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of
momentum behind the oscillator. The second line is the %D, which is simply a moving average
of the %K. The %D line is considered to be the more important of the two lines as it is seen to
produce better signals. The stochastic oscillator generally uses the past 14 trading periods in its
calculation but can be adjusted to meet the needs of the user. (To read more, check out Getting
To Know Oscillators - Part 3.)

Figure 4

b.other chart indicators

DEFINITION OF 'BOLLINGER BAND'

A band plotted two standard deviations away from a simple
moving average, developed by famous technical trader John
Bollinger.
 In this example of Bollinger Bands®, the price of the stock is
banded by an upper and lower band along with a 21-day simple
moving average.

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INVESTOPEDIA EXPLAINS 'BOLLINGER BAND'
Because standard deviation is a measure of volatility, Bollinger
Bands® adjust themselves to the market conditions. When the
markets become more volatile, the bands widen (move further
away from the average), and during less volatile periods, the
bands contract (move closer to the average). The tightening of
the bands is often used by technical traders as an early
indication that the volatility is about to increase sharply.

This is one of the most popular technical analysis techniques.

The closer the prices move to the upper band, the more
overbought the market, and the closer the prices move to the
lower band, the more oversold the market.

Want to know more? Read The Basics Of Bollinger Bands

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Parabolic Indicator
AAA |

DEFINITION OF 'PARABOLIC INDICATOR'

A technical analysis strategy that uses a trailing stop and
reverse method called "SAR," or stop-and-reversal, to determine
good exit and entry points.

Also known as Parabolic Stop And Reverse (PSAR)

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INVESTOPEDIA EXPLAINS 'PARABOLIC
INDICATOR'
This method was developed by J. Wells Wilder. Basically, if the
stock is trading below the parabolic SAR (PSAR) you should sell.
If the stock price is above the SAR then you should buy (or stay
long).

DEFINITION OF 'STOCHASTIC OSCILLATOR'

A technical momentum indicator that compares a security's
closing price to its price range over a given time period. The
oscillator's sensitivity to market movements can be reduced by
adjusting the time period or by taking a moving average of the
result. This indicator is calculated with the following formula:

%K = 100[(C - L14)/(H14 - L14)]

C = the most recent closing price

L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.

%D = 3-period moving average of %K

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INVESTOPEDIA EXPLAINS 'STOCHASTIC
OSCILLATOR'
The theory behind this indicator is that in an upward-trending
market, prices tend to close near their high, and during a
downward-trending market, prices tend to close near their low.
Transaction signals occur when the %K crosses through a three-
period moving average called the "%D".

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Exploring Oscillators and

Indicators: RSI
By Investopedia Staff

By Chad Langager and Casey Murphy, senior analyst

of ChartAdvisor.com

The relative strength index (RSI) is another one of the most

frequently used and well known momentum indicators
in technical analysis. It is used to
signaloverbought and oversold conditions in a security.

The indicator is plotted between a range of zero to 100 where 100

is the highest overbought condition and zero is the highest
oversold condition. The RSI helps to measure the strength of a
security's recent up moves compared to the strength of its recent
down moves. This helps to indicate whether a security has seen
more buying or selling pressure over the trading period.

The standard calculation uses 14 trading periods as the basis for

the calculation which can be adjusted to meet the needs of the
user. If the trading periods used is lowered then the RSI will be
more volatile and is used for shorter term trades.

Calculation

How the RSI is used

Like most indicators there are two general ways in which the indicator is used to generate signals
- crossovers and divergence. In the case of the RSI, the indicator uses crossovers of its
overbought, oversold and centerline.
The first technique is to use overbought and sold lines to generate buy-and-sell signals. In the
RSI, the overbought line is typically set at 70 and when the RSI is above this level the security is
considered to be overbought. The security is seen as oversold when the RSI is below 30. These
values can be adjusted to either increase or decrease the amount of signals that are formed by the
RSI.

A buy signal is generated when the RSI breaks the oversold line
in an upward direction, which means that it goes from below the
oversold line to moving above it. A sell signal is formed when the
RSI breaks the overbought line in a downward direction crossing
from above the line to below the line. A more conservative
approach can be used by setting the overbought and oversold
levels at 80 and 20, respectively.

Another crossover technique used in formulating signals is using

the centerline (50). This technique is exactly the same as using
the overbought and oversold lines to formulate signals. This
technique will often form signals after a movement in the
direction they are predicting but are used more as a confirmation
then a signal compared to the other techniques. A downward
trend is confirmed when the RSI crosses from above 50 to below
50. An upward trend is confirmed when the RSI crosses above
50.

Divergence can be used to form signals as well. If the RSI is

moving in an upward direction and the security is moving in a
downward direction it signals to technical traders that buying
pressure is increasing and the downtrend may be coming to an
end. Divergence can also be used to signal a reversal in an
upward trend where the RSI is decreasing signaling increasing
selling pressure in an upward trend.

The RSI is a standard component on any basic technical chart.

Therelative strength indicator focuses on the momentum
underlying the security and is a great secondary measure to be
used by traders. It is important to note that the RSI is often not
used as the sole generation of buy-and-sell signals but used in
conjunction with other indicators and chart patterns.

4a DEFINITION OF 'MOVING AVERAGE - MA'

A widely used indicator in technical analysis that helps smooth
out price action by filtering out the “noise” from random price
fluctuations. A moving average (MA) is a trend-following or
lagging indicator because it is based on past prices. The two
basic and commonly used MAs are the simple moving average
(SMA), which is the simple average of a security over a defined
number of time periods, and the exponential moving average
(EMA), which gives bigger weight to more recent prices. The most
common applications of MAs are to identify the trend direction
and to determine support and resistance levels. While MAs are
useful enough on their own, they also form the basis for other
indicators such as the Moving Average Convergence Divergence
(MACD).
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INVESTOPEDIA EXPLAINS 'MOVING AVERAGE -
MA'
As an SMA example, consider a security with the following
closing prices over 15 days:

Week 1 (5 days) – 20, 22, 24, 25, 23

Week 2 (5 days) – 26, 28, 26, 29, 27

Week 3 (5 days) – 28, 30, 27, 29, 28

A 10-day MA would average out the closing prices for the first 10
days as the first data point. The next data point would drop the
earliest price, add the price on day 11 and take the average, and
so on as shown below.
As noted earlier, MAs lag current price action because they are
based on past prices; the longer the time period for the MA, the
greater the lag. Thus a 200-day MA will have a much greater
degree of lag than a 20-day MA because it contains prices for the
past 200 days. The length of the MA to use depends on the
trading objectives, with shorter MAs used for short-term trading
and longer-term MAs more suited for long-term investors. The
200-day MA is widely followed by investors and traders, with
breaks above and below this moving average considered to be
important trading signals.

MAs also impart important trading signals on their own, or when

two averages cross over. A rising MA indicates that the security
is in an uptrend, while a declining MA indicates that it is in a
downtrend. Similarly, upward momentum is confirmed with a
bullish crossover, which occurs when a short-term MA crosses
above a longer-term MA. Downward momentum is confirmed with
a bearish crossover, which occurs when a short-term MA crosses
below a longer-term MA.

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B. Fibonacci
Retracement
AAA |

DEFINITION OF 'FIBONACCI RETRACEMENT'

A term used in technical analysis that refers to areas of support
(price stops going lower) or resistance (price stops going higher).
The Fibonacci retracement is the potential retracement of a
financial asset's original move in price. Fibonacci retracements
use horizontal lines to indicate areas of support or resistance at
the key Fibonacci levels before it continues in the original
direction. These levels are created by drawing a trendline
between two extreme points and then dividing the vertical
distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%
and 100%.
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INVESTOPEDIA EXPLAINS 'FIBONACCI
RETRACEMENT'
Fibonacci retracement is a very popular tool used by many
technical traders to help identify strategic places for
transactions to be placed, target prices or stop losses. The
notion of retracement is used in many indicators such as Tirone
levels, Gartley patterns, Elliott Wave theory and more. After a
significant price movement up or down, the new support and
resistance levels are often at or near these lines.

5.A. Elliott Wave Theory

By Investopedia StaffAAA |
Ralph Nelson Elliott developed the Elliott Wave Theory in the late
1920s by discovering that stock markets, thought to behave in a
somewhat chaotic manner, in fact traded in repetitive cycles.

Elliott discovered that these market cycles resulted from

investors' reactions to outside influences, or
predominant psychology of the masses at the time. He found that
the upward and downward swings of the mass psychology always
showed up in the same repetitive patterns, which were then
divided further into patterns he termed "waves".

Elliott's theory is somewhat based on the Dow theory in that

stock prices move in waves. Because of the "fractal" nature of
markets, however, Elliott was able to break down and analyze
them in much greater detail. Fractals are mathematical
structures, which on an ever-smaller scale infinitely repeat
themselves. Elliott discovered stock-trading patterns were
structured in the same way.

Market Predictions Based on Wave Patterns

Elliott made detailed stock market predictions based on unique
characteristics he discovered in the wave patterns. An impulsive
wave, which goes with the main trend, always shows five waves
in its pattern. On a smaller scale, within each of the impulsive
waves, five waves can again be found. In this smaller pattern, the
same pattern repeats itself ad infinitum. These ever-smaller
patterns are labeled as different wave degrees in the Elliott Wave
Principle. Only much later were fractals recognized by scientists.

In the financial markets we know that "every action creates an

equal and opposite reaction" as a price movement up or down
must be followed by a contrary movement. Price action is divided
into trends and corrections or sideways movements. Trends show
the main direction of prices while corrections move against the
trend. Elliott labeled these "impulsive" and "corrective" waves.
Theory Interpretation
The Elliott Wave Theory is interpreted as follows:

 Every action is followed by a reaction.

 Five waves move in the direction of the main trend followed
by three corrective waves (a 5-3 move).

 A 5-3 move completes a cycle.

 This 5-3 move then becomes two subdivisions of the next

higher 5-3 wave.

 The underlying 5-3 pattern remains constant, though the

time span of each may vary.

Let's have a look at the following chart made up of eight waves (five up and three down) labeled 1, 2, 3,
4, 5, A, B and C.

You can see that the three waves in the direction of the trend are impulses, so these waves also have five
waves within them. The waves against the trend are corrections and are composed of three waves.
Theory Gained Popularity in the 1970s
In the 1970s, this wave principle gained popularity through the
work of Frost and Prechter. They published a legendary book on
the Elliott Wave entitled "The Elliott Wave Principle – The Key to
Stock Market Profits". In this book, the authors predicted the bull
market of the 1970s, and Robert Prechter called thecrash of 1987.
(For related reading, see Digging Deeper Into Bull And Bear
Markets and The Greatest Market Crashes.)

The corrective wave formation normally has three distinct price movements - two in the direction of the
main correction (A and C) and one against it (B). Waves 2 and 4 in the above picture are corrections.
These waves have the following structure:

Note that waves A and C move in the direction of the shorter-

term trend, and therefore are impulsive and composed of five
waves, which are shown in the picture above.

An impulse-wave formation, followed by a corrective wave, form

an Elliott wave degree consisting of trends and countertrends.
Although the patterns pictured above are bullish, the same
applies for bear markets where the main trend is down.

Series of Wave Categories

The Elliott Wave Theory assigns a series of categories to the
waves from largest to smallest. They are:
  Grand Supercycle
 Supercycle

 Cycle

 Primary

 Intermediate

 Minor

 Minute

 Minuette

 Sub-Minuette

To use the theory in everyday trading, the trader determines the

main wave, or supercycle, goes long and then sells or shorts the
position as the pattern runs out of steam and a reversal is
imminent.

B. Harmonic Patterns In
The Currency Markets
By Cory MitchellAAA |
Harmonic price patterns take geometric price patterns to the
next level by usingFibonacci numbers to define precise turning
points. Unlike other trading methods, Harmonic trading attempts
to predict future movements. This is in vast contrast to common
methods that are reactionary and not predictive. Let's look at
some examples of how harmonic price patterns are used to trade
currencies on the forex market. (Extensions, clusters, channels
and more! Discover new ways to put the "golden ratio" to work.
See Advanced Fibonacci Applications.)
TUTORIAL: The Ultimate Forex Guide
Combine Geometry and Fibonacci Numbers
Harmonic trading combines patterns and math into a trading
method that is precise and based on the premise that patterns
repeat themselves. At the root of the methodology is the primary
ratio, or some derivative of it (0.618 or 1.618). Complementing
ratios include: 0.382, 0.50, 1.41, 2.0, 2.24, 2.618, 3.14 and 3.618.
The primary ratio is found in almost all natural and environmental
structures and events; it is also found in man-made structures.
Since the pattern repeats throughout nature and within society,
the ratio is also seen in the financial markets, which are affected
by the environments and societies in which they trade. (Don't
make these common errors when working with Fibonacci
numbers - check out Top 4 Fibonacci Retracement Mistakes To
Avoid.)

By finding patterns of varying lengths and magnitudes, the trader

can then apply Fibonacci ratios to the patterns and try to predict
future movements. The trading method is largely attributed to
Scott Carney, although others have contributed or found patterns
and levels that enhance performance.

Issues with Harmonics

Harmonic price patterns are extremely precise, requiring the
pattern to show movements of a particular magnitude in order for
the unfolding of the pattern to provide an accurate reversal point.
A trader may often see a pattern that looks like a harmonic
pattern, but the Fibonacci levels will not align in the pattern, thus
rendering the pattern unreliable in terms of the Harmonic
approach. This can be an advantage, as it requires the trader to
be patient and wait for ideal set-ups.

Harmonic patterns can gauge how long current moves will last,
but they can also be used to isolate reversal points. The danger
occurs when a trader takes a position in the reversal area and
the pattern fails. When this happens, the trader can be caught in
a trade where the trend rapidly extends against them. Therefore,
as with all trading strategies, risk must be controlled.

It is important to note that patterns may exist within other

patterns, and it is also possible that non-harmonic patterns may
(and likely will) exist within the context of harmonic patterns.
These can be used to aid in the effectiveness of the harmonic
pattern and enhance entry and exit performance. Several price
waves may also exist within a single harmonic wave (for instance
a CD wave or AB wave). Prices are constantly gyrating; therefore,
it is important to focus on the bigger picture of the time frame
being traded. The fractal nature of the markets allows the theory
to be applied from the smallest to largest time frames.

To use the method, a trader will benefit from a chart platform

that allows the trader to plot multiple Fibonacci retracements to
measure each wave.

The Visual Patterns and How to Trade Them

There is quite an assortment of harmonic patterns, although
there are four that seem most popular. These are the Gartley,
butterfly, bat and crab patterns.

The Gartley was originally published by H.M. Gartley in his book Profits in the Stock Market and the
Fibonacci levels were later added by Scott Carney in his book The Harmonic Trader.

Figure 1: The Gartley Pattern

 Source: Harmonictrader.com
The bullish pattern is often seen early in a trend, and it is a sign
the corrective waves are ending and an upward move will ensue
at point D. All patterns may be within the context of a broader
trend or range and traders must be aware of that (see Elliott
Wave Theory). Point D is a 0.786 correction of the XA wave, and it is a 1.27 or 1.618 extension of
the BC wave. The area at D is known as the potential reversal zone (PRZ). This is where long positions
could be entered, as some price confirmation of reversal is encouraged. A stop is placed just below the
PRZ.

Figure 2: The Butterfly Pattern

Source: Harmonictrader.com
The butterfly pattern is different than the Gartley in that it focuses on finding reversals at new lows
(bullish) or new highs (bearish). D is a new low and a potential reversal point if the Fibonacci figures align
with the structure. D would need to be an extension of BC in the magnitude of 1.618 or 2.618. This
should align with an extension of XA in the magnitude of a 1.27 or 1.618. Entry is taken near D with price
confirmation of the reversal encouraged. Stops are placed slightly below the potential reversal area
(bullish).

Figure 3: The Bat Pattern

Source: Harmonictrader.com
The bat pattern is similar to Gartley in appearance, but not in measurement. Point B has a smaller
retracement of XA of 0.382 or 0.50 (less than 0.618), but the extension of the BC wave into D is at
minimum 1.618 and potentially 2.618. Therefore, D will be a 0.886 retracement of the original XA wave.
This is the PRZ: when selling has stopped and buying enters the market, enter a long position and take
advantage of the bullish pattern. Place a stop just below the PRZ.

Figure 4: The Crab Pattern

Source: Harmonictrader.com
The crab is considered by Carney to be one of the most precise of
the patterns, providing reversals in extremely close proximity to
what the Fibonacci numbers indicate. This pattern, similar to the
butterfly, looks to capture a high probability reversal at a new
(recent) low or high (bullish or bearish respectively). In a bullish
pattern, point B will pullback 0.618 or less of XA. The extension
of BC into D is quite large, from 2.24 to 3.618. D (the PRZ) is a
1.618 extension of XA. Entries are made near D with a stop-loss
order just outside the PRZ.

Fine-Tuning Entries and Stops

Each pattern provides a PRZ. This is not an exact level, as two
measurements - extension or retracement of XA - creates one
level at D and the extension of BC creates another level at D. This
actually makes D a zone where reversals are likely. Traders will
also notice that BC can have differing extension lengths.
Therefore, traders must be aware of how far a BC extension may
go. If all projected levels are within close proximity, the trader
can enter a position at any area. If the zone is spread out, such
as on longer-term charts where the levels may be 50 pips or more
apart, it is important to wait to see if the price reaches further
extension levels of BC before entering a trade.

Stops can be placed outside the largest potential extension of

BC. In the crab pattern, for example, this would be 3.618. If the
rate reversed before 3.618 was hit, the stop would be moved to
just outside the closed Fibonacci level to the rate low (bullish
pattern) or rate high (bearish pattern) in the PRZ.

Figure 5 is an intra-day example of a butterfly pattern from May 3, 2011.

Figure 5. Bearish Butterfly Pattern - EUR/USD, 15 Minute

Source: Freestockcharts.com
The price touches almost exactly the 1.618 extension level of XA
at 1.4892 and the extension of BC to 2.618 is very close at 1.4887
(there are two Fibonacci tools used, one for each wave). This
creates a very small PRZ, but it may not always be the case.
Entry is taken after the rate enters the zone and then begins to
retreat. The stop is placed just outside the most significant level
that was not reached by the rate, in this case a few pips above
the 1.618 XA extension. Targets can be based on support
levels within the pattern; therefore, an initial profit target would
be just above point B. (Crowd psychology is the reason this
technique works. Find out how to make it work for you. To learn
more, refer toCandlesticks Light The Way To Logical Trading.)

The Bottom Line

Harmonic trading is a precise and mathematical way to trade, but
it requires patience, practice and a lot of study to master the
patterns. Movements that do not align with proper pattern
measurements invalidate a pattern and can lead traders astray.
The Gartley, butterfly, bat and crab are the better-known
patterns that traders can watch for. Entries are made in the
potential reversal zone when price confirmation indicates a
reversal, and stops are placed outside the nearest significant (for
the pattern) Fibonacci level that was not hit by the BC or XA
extensions/retracements into the D (PRZ) area. (All trading
platforms have benefits and drawbacks - master the fake trade
before making a real one. Check out Forex: Demo Before You Dive
In.)