A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
How to Train Your Eyes to See Chart Patterns (Part 2)
06/16/2009 9:58 am EST
What is the common denominator that links all these “blob shapes?” If they are standing on a broad base, they have a base line below them which connects their bottom structure on each side. If they are standing on a rounded or pointed structure, they have a broad base above them, and that broad base will have a base line above it which connects their top structure on each side. Let's look at another example:
This chart continues on, and you can see that after the first two broad-based areas, an upside-down structure with a broad base at its top forms. Does it meet our “blob shape” criteria? Yes it does! Take a close look and you can see how price formed the left side of the structure, traded lower, and tested the base line from the prior blob and found support at that area. Price then headed up in an orderly fashion to close the blob by testing the prior highs, or double tops, that formed its left side. Are you surprised that after finishing the shape to the tick, price began to head lower?
These three blob shapes worked so well in helping me visually sort out price that I am tempted to give these shapes a name. But I have to choose a name that evokes many different shapes, because the inside sizes and shapes of these open voids vary. In the free Monday morning live charting session I hold each week via the Internet, we have thrown names like “chimney,” “cave,” “tent,” and “blob” around, but most people seem to like the term “cathedral,” because it evokes a sense of value in their minds when they think of these open spaces and there are so many cathedrals in the world with so many different sizes and shapes. If any of you have any suggestions for a better name, feel free to join in on the fun by e-mailing me your naming suggestions!
Let's look at another Canadian dollar chart:
Now we have a grand cathedral! This structure broke above the inverted base line of cathedral 3, made new highs (leaving double tops), and then traded back lower to fill in the open void. And if you look carefully, you'll see price tested the base line area and is now beginning to head higher.
|More tomorrow in Part 3.||Read Part 1 | Read Part 3 | Read Part 4|
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