Primary Indicators (Patterns)

 Head and shoulders

As a rule of thumb, look for reversal patterns that involve a comfortable 10 per cent change in
prices – for instance, from the neckline of a head and shoulders to the top of its head. Thus a
head and shoulders spread over a 20p span of the vertical scale should in theory be followed by a
20p fall in price. This could be a worthwhile signal if the share price is 80p – as the percentage
change is 25 per cent. If that works, you will make some money out of it. But if the share price
was 380p, then the expected 20p fall in the share

price is worth only 5 per cent – not worth the risks involved.

Reversals (weeks)

G Head and shoulders (see Figures 3.5 to 3.7): most chartists suggest that the head and shoulders
pattern is (a) ‘reliable’, meaning that on a good fraction of occasions its occurrence is indeed
followed by a fall in price, and (b) frequent.
G Double top (see Figure 3.8).
G Triple top (see Figure 3.9).
G Saucer top (see Figure 3.10) the saucer is inverted – it looks like a shallow hill.
G Descending triangle (see Figure 3.11). G V (again, inverted: see Figure 3.12).

Reversals (days)

How to compute for the target price after a break out (Alistair Blair - Investor's Guide to
Charting Analysis for the Intelligent Investor p.64)
 (Secondary Indicators)

Volume

 if the share or market is in an upward trend, then volume should be relatively high on the
days the market rises, and light when it is reacting or pausing. Likewise, when the trend is
heading down, the market should see high volume on down days. Accordingly, a
significant breakout, that is a major price move occurring within a short period such as a
few days, should be supported by heavy volume. If it is not, say the chartists, it’s wise to
be suspicious about whether it will last.


RSI
 Wilder suggests 70-30 but most traders use 80-20 (better choose what works best)
 Only used when trendless.
 If there is an uptrend or downtrend, it tends to give false signals
 Divergence, for example the share price forms upward slope but the RSI is a downward
slope, the share price is about to go down,
 Stochastic

 Typical periodicity is 10 days

 Not so good if there is an uptrend or downtrend (used for trendless) (However, in page
164, it used stochastic)
 Over-sold and over-bought – 70 and 30, or 80 and 20, or 85 and 15.
 MACD

 Used for stocks with an uptrend or downtrend conditions

 EMA is 26 days and 13
 Signal line is 10-day EMA
 Other Patterns

 Elliot Wave