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We introduce you
to the basics and procedures of technical analysis
and pass on expert advice and commentaries from the “gurus” in this
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Head and Shoulders
This formation is generally seen at the end of long trends. Completion
of the formation changes from 1 month to 1 year and it is a very important
signal for trend reversal.
Volume is very important for Head and Shoulders
formation. The most of the volume occurs under left shoulder and decreases
significantly during correction. After pull back, prices start to increase again
but the volume is less than that of left shoulder which indicates a weakness .
Since the volume is not enough to carry the prices to new highs, a new correction
starts. Decreasing volume is the first warning signal for the formation.
The right shoulder is the last attempt with lower volume . Breaking of the neck
line confirms the Head and Shoulders formation and down trend starts....
Sometimes the reverse of the Head and Shoulders formation can be seen at the end of
bear market, this is an early signal for an uptrend.
Sometimes multiple head and shoulders formation can be seen.
Interpretation
is the same with the head and shoulder.
Symmetrical Triangles
All triangle formations are consolidation formations. In symmetrical triangle direction
of the trend is not known. It is only can be identified after one of the line broken.
Prices go up if upper line broken, and go down if lower line broken.
Volume is very important for triangle formations. Volume should decrease during the
formations.
Descending Triangles
It is a signal for down trend. Price target can be found approximately by drawing
a parallel line to descending line.
Ascending Triangles
It is a signal for uptrend. By drawing a parallel line to descending line, price target
can be calculated approximately.
Double Bottoms
Double bottoms formations are generally seen at the end of down trends and it
is an early signal for a rally.
Double Tops
Double tops point out a weakness of the uptrend and warn for a change of trend.
Generally a selling crazy starts when this formation is indicated.
Rising Wedges
Rising wedges are reaction formations appears in down trends and and they are
generally traps. Volume is a very important parameter to identify rising wedges.
It decreases while the prices are going up and shows the weakness of the rising
attempt. When the prices break down the bottom line, a selling crazy may start.
So, it is required to be careful for this kind of formation.
Falling Wedges
Falling wedges are opposite of the rising wedges and pull back reactions during the
up trends. Sellers continue to believe the securities in their hand and do not want
to sell so, volume decreases significantly. When the upper line is broken,
generally a rally starts. So this formation is a chance to buy a security with available
prices in an uptrend.
