The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
How to Train Your Eyes to See Chart Patterns (Part 1)
06/15/2009 10:34 am EST
I have started to write this article three times now and all three times, the article has taken on a life of its own and evolved into intricate geometry filled with equations like this one:
This is an article about simple objects the human eye sees and finds pleasurable. We are visual beings and we see things many times that aren't even there. How many of you have lay on your backs, looking at the sky in the summer, pointing out shapes in the clouds or the stars? We are a visual race and it pleases us when we are able to identify shapes in seemingly random visual material.
My last two articles, "How to Catch a Trade in a Vertically-Trending Market” and "How I Set Stops and Profits" both focused on 20-minute charts in the Canadian dollar against the US dollar, and it may be that my recent intimate work with this currency pair has colored my own eye, or it may be that some of the classic action is to be found currently when charting this pair, but no matter the case, let's go right back to this currency pair and look at an easily recognizable pattern that is incredibly powerful.
Our eyes are drawn to recognizable structure. We are a visual race of beings and our eyes do not like unfilled spaces. They leave us feeling uncomfortable, as if some necessary task isn't finished. Charts seem more complete if all the gaps are filled, if all the empty voids are closed.
If you look at the first chart, you'll see two areas I have marked. As I said in the beginning of this piece, I want to keep this as simple as possible, so I have named them “Area 1” and “Area 2.” Some of you who already look at market patterns may see something your brain thinks it recognizes in one or more of these structures. One name that may come to mind is associated with a famous shampoo, a second with items you use at the dining room table. The structures I am presenting in this article are much less rigid than the structures most technical analysts work with. These structures are simply voids— curves or uneven shapes under or above a base line. If you have taken calculus, you know them from studying integral functions, but believe me, we won't be talking about math in this article! If this helps keep the discussion simple, think of them as simple “blob shapes,” as one of the traders I mentor calls them. When your eye begins to see them form, you naturally begin to wonder if and when they will be filled.
|More tomorrow in Part 2.||Read Part 2 | Read Part 3 | Read Part 4|
Related Articles on STRATEGIES
The Dow Theory was originally referred to as “Dow’s Theory,” since it was based on...
When stocks are selling at valuation extremes and consumer optimism is at one of the highest levels ...
The stock market is still bullish but it’s flashing yellow caution signals that are even brigh...