Sticky Stock Charts Flashcards
Medium-term trendlines extend across at least a _____ and probably more like several _____.
You must have at least _____ touches. The more touches, the better.
- Month
- Months
- Three
What is this kind of line called?
- Horizontal Trendline
Drawing the medium-term trendlines is the first step. Next, extend the trendlines to the right of the chart. See Example. Why do you do this??
The answer: Whenever the price approaches a ________, the most likely outcome is for it to ________ off.
- Trendline
- Bounce
In this example, we would expect the price to continue down until it meets the lower trendline and then bounce up.
***Note: Do not go long in a downtrend
Since charts tend to bounce off trendlines, when caught between two of them, the chart will often follow the _____.
- Channel (The trendlines tell us to expect a near-term bounce followed by a continuation downwards, in the channel)
In the Example, the upper trendline turned into a rough _____ trendline for the chart once it broke out of the channel. You will see that happen a lot.
- Lower
Pretend that you own $100,000 worth of stock in the example below. Choose one:
- Do nothing
- Buy $100,000 more stock
- Sell your $100,000 of stock
- If you did nothing, you made $10,000 in seven weeks.
- If you bought more stock, you made $20,000
- If you sold, you made nothing
*
In the Example below, the upper trendline has been invalidated and the chart has returned to the lower trendline.
Pretend you have $100,000 of stock. What will you do now?
- Nothing
- Buy $100,000 more stock
- Sell your $100,000 of stock
A Strong Bounce!
- If you did nothing, you made $30,000
- If you bought more, you made $60,000
- If you sold, you made nothing
A horizontal line underneath a chart like this is called a “Support Line” since it seems to support the price at that level.
Forcast the most likely next move.
- A bounce off the support line
Support and resistance are ________ when they occur at round numbers like $30. Why? Perhaps because many investors use them as trigger points: “I’ll sell if it ever falls to $30.”
In the example, for 3 years the Dow kept coming back to the 10,000 level, often hesitating there or changing direction.
- Stronger
What type of trendline is this?
- Upper Trendline
What type of trendline is this?
- Lower Trendline
What type of trendline is this?
- Channel (Both upper and lower trendlines forming a Channel)
What is it called when you have an upper trendline that is horizontal?
- Resistance
What is it called when you have a lower trendline that is also horizontal?
- Support
When you have both upper and lower trendlines that are horizontal, the pattern is called a _________. (Quite a rare pattern)
The Example shown is not valid. It does not have enough touches on the horizontal lines.
- Rectangle
Using the example, pretend that you own $100,000 worth of stock. Will you:
- Hold the stock you have
- Buy $100,000 more stock
- Sell the stock you have
- If you held, you lost $35,000 in seven months
- If you bought more stock, you lost $70,000
- If you sold, you lost nothing
You can use volume bars to see the strength of each side in the tug of war between buyers and sellers.
Rising volume means there is confidence in whatever the stock chart is doing at that point. It is a _____ trend.
For example, volume is rising in April, when the stock chart price moves down. So the _________ trend is strong.
- Strong
- Downward
Falling volume means there is little confidence in whatever the stock chart is doing at that point. It is a ______ trend.
In the example: the falling volume in March, when the stock price moves up, suggests that the _______ trend is weak.
- Weak
- Upward
When both upper and lower trendlines are broadening, what pattern is this?
- Megaphone (both side are shouting - not a predictable outcome)
When one line is horizontal and the other slopes upwards
This pattern is called __________.
- Ascending Triangle. It looks like the buyers (the up-sloping line) are stronger than the sellers (the flat line). So the most likely outcome is for the buyers to win and the price to move up.
When one line is horizontal and the other slopes downward.
This pattern is called __________.
- Descending Triangle. Here the sellers (the downsloping line) are more assertive than the buyers (the flat line). So the most likely outcome is for the sellers to win and the price to move down.
When there is both an up-sloping and a down-sloping trendline.
This pattern is called _________.
- Symmetrical Triangle. The breakout from a symmetrical triangle could go either way.
These two patterns commonly mark the top of a trend. If you see them after an uptrend, the most likely next move is down.
What are the 2 patterns? (The 1st one is on this page. The 2nd is on other side)
- Double Top. Forms when an up-trending chart first fails to match the last high and then drops lower than the valley between the two highs.
- Head and Shoulders. Forms when an up-trend forms a lower high and then drops below the neckline between the two shoulders.
**Note: These patterns are only fully formed when the chart drops below the valley or neckline.
*** No “Drop”, no “Top”
Notice that the chart attempted and (succeded / failed) to form a new high after the double top.
Quite a common follow-up to a double top.
- Failed
If volume falls when the chart climbs, it suggests buyers are not strong.
The pattern could break to the (upside / downside).
* Note: Also notice the very low volume at the right. Low volume often comes before a big move.
- Downside
What is your forecast for this chart?
- A Significant Decline
Too many people got on this bandwagon and it gave way.
Perhaps the first people off the bandwagon who made money actually read the chart and noticed the symmetrical triangle.
What is most fascinating here is that the dramas in the stock chart unfolded weeks after the dramas in the world (NAFTA, Zapatistas).
