October 5, 2008

How to Find Chart Patterns

By Planet Wealth

Technical Analysis is essentially looking at the history of charts and recognising that certain patterns consistently result in a high probability outcome.

Though you can take any chart without knowing what stock it is, apply the same principles and receive a similar outcome, “getting to know” stocks on a individual level can result in you seeing that some stocks tend to produce “favourite patterns”.

With this in mind let’s take a look at IAG (Insurance Australia Group), and we notice the stock seems to trend with parallel lines. Take a look at the chart below. Though at first glance it looks like someone has done the pleased dance with their trend line tool, you will see that the stock is really validating these lines by bouncing off them. Notice that all up trend lines are of the same angle and all down trend line are of the same angle.

What’s the point? With experience, you get to know your stocks in more of a personal level, and you may be surprised at how you can read the charts with a small more predictability.

(click on image to enlarge)