Chart Study - Forex Forum

Warning, this chart is not about currency, it will serve as a case study for a lesson in chart patterns, entry/exit

In order to understand this case study of Nokia Corp. (NOK), please pay attention to the top left hand side of the chart ; it will give you the settings I use.
We shall follow this study in 7 steps (see chart numbers)
1) Triple sell signal activated, short term average goes below a declining wave.
2) 5 day average is below the 200 day average. (Major sell)
3) Gap up is not followed by high volume ........warning .......
4) Price reverses right at the 200 day average and in the same time, the middle line of the wave crosses below the LT average.
5) Level 1 buy signal goes into a sell signal , you get a GVN action right after (Gap, Volume, and News).
6) Fake move ; and the short term average does not even enter level 1 (lower band of the wave).
7) Another GVN action ; main problem is still the downtrending wave .....as long as we remain inside the wave .....and move above 28 ; in a few weeks , I will be more bullish.
Chart courtesy of www.stockcharts.com

Warning, not about currencies but could easily be used in trading forex

We now have a clear resistance level (200 day moving average) ; stands around 165.
Target for Apple Inc. (AAPL) ? Probably that recent low.
About that low ; I got some great questions regarding charts and how I use them.
First, I started to look at charts about 18 years ago .......... in the beggining, charts for me where like my little secret box ...... telling me what stocks will do next ........right ........charts do not do that, your brain does ; it gives you a probable scenario based on very RECENT price / volume events.
I use charts (mostly moving averages) to spot an entry/exit level ; that's it !
The rest is only my mind trying to figure out where we may go next !
I use moving averages since they act like filters ; so the rules are simple ; shoul I buy a lot ? a little ? very little ?
On the chart you see of Apple Inc. (AAPL), I added a comment ; how did traders decide that this point will be the support level ? Well here is some basic logic ; some chartist will tell you that price has memory ......mmmm....right ......it does not ....... if price really had memory, I would not be writing this blog, I would be spending my money (earned in the forex trading the eurodollar at a 200:1 leverage) on the beach in Fiji
Its us chartist trying to find a logical explanation for why the low was there !!!!
Like when the press sees prices going up or down ......they need to write something !
Can moving averages predict something ? NO
Can moving averages help you make money ? YES
That's all you need to know ; you need basic rules of entry and exit (specially with crossovers).
Should you go out there and buy newsletters and books on charts ? NO !!!!!!!
Wow, I cannot beleive I actually wrote that Really, just take the time to observe ; spend some hours online looking at charts ....... analyse news price/volume reactions ........
Is Apple Inc. (AAPL) a great company ? Of course it is ........so why is it not trading at 240$ ??
The market, and the banks ruined our day !
Once you did find a quality company you want to own, let moving averages tell you when to buy or sell.

Cut your losses .........

Chart study ; Citigroup set up

Call this pattern what ever you wish ; I call it a 1,2,3 set up ; it usually works this way ;
1) Good news (usually followed by a gap up), price goes up fast
2) People digest the news
3) Price is able to maintain a higher lows pattern, heading back towards (1).
(3) is your buy trigger
PS ; if you bought right now ; focus on that stop loss level

Today's study ;Dell
This tread focuses mainly on learning how to use charts
Ok, today, back to basics , meaning back to simple charting to review Dell Inc. (DELL).
Observations ;
1) Higher lows pattern is intact (bullish)
2) 50 day moving average went above the 200 day (very bullish)
3) Price broke the main resistance channel (very bullish)
So why did Dell Inc. (DELL) go down yesterday while everyone and his cousin went up ?
Overbought ....... see stochastic indicator below
And, if you look carefully, the LT moving average is still heading down ..... it needs to be flat.
Conclusion ;
See that trend line ? its our probable target ; Dell Inc. (DELL) will probably trade sideways for a few days / weeks ; then shoot up breaking above that channel trade (I hope).
If it does not ; then use that trend line as your exit/stop loss

Quick analysis of Google Inc. (GOOG) ; pay attention to these three facts ;
1) That support levelwas not confirmed by price/volume ; meaning ? pay attention to the arrow pointing from the number "1" ; price did rise with no increase in volume ..... as if Google Inc. (GOOG) was rising because the rest of the market was .....
2) See that candle breaking above that resistance ? where is the volume ???
3) 510 to 520 is a real resistance level .....
Conclusion ? 500 seems to be the magical round number that most traders are looking at ; a break below that level will scare investors. A break below 500 is ok as long as Google Inc. (GOOG) remains above 480 ; confirming a higher lows pattern.
If you do not own any shares, stay out, and wait for a real confirmed price/volume break out above 520.

Quick analysis of the Dow Jones Industrial Average (INDEX) ;
1) Bottom confirmed (see price/volume action)
2) Red trend broken (July 14 trend) ; do not attempt to draw other trends ; this is the "only trend" ; why ? it connects the lowest low to the low prior to highest high without "intergerences".
3) Friday's bullish price action was not followed by an increase in volume ...... why ? most traders are still not convinced (Blame the same usual suspects ; the Fed, Fannie and Freddie), plus the fact that the 50 day moving average is still pointing down ....
4) Clear ABC patten !
Conclusion ; your real STRONG buy signal is a close above 12000

Warning ; this is a weekly chart.
Many readers ask me to comment on "other" tools when it comes to charting ; I use those "other tools" only in weekly settings. Experience teaches me that they are reliable ONLY when looking at weekly and monthly charts ; thus avoiding erratic swings.
I do not use those tools to pull the trigger (buy or sell); price/volume (daily) makes me pull the trigger !
Before we comment this chart pattern ; I suggest you first read this ;
The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks.
As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
Cup: The cup should be "U" shaped and resemble a bowl or rounding bottom. A "V" shaped bottom would be considered too sharp of a reversal to qualify. The softer "U" shape ensures that the cup is a consolidation pattern with valid support at the bottom of the "U". The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
You can read more about this pattern on Stockcharts.com
When looking at this pattern, I like to know where the MACD and the Stochastic indicators are.
Pay attention to the "examples" I drew on the chart (red lines) they show you how and when to apply those settings ; again, I prefer those settings only with weekly charts.
Read more about the MACD here.
About the Stochastic here.
Cup & Handle Pattern target ; Over 240$ ?
Yes, but first we need to complete that target and get over $180

www.gicharts.blogspot.com