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 3)
06/17/2009 12:01 am EST
Once again, there is no high-level math involved here. In fact, there is no math involved at all. There aren't many rules, actually. We are looking for things that please our eyes and objectively trying to analyze if these things have any use and any meaning. I know most people think that “no rigid rules” equals “useless,” and that's OK with me. But sometimes, you learn a lot by lying on your back and looking at the shape of the clouds in the sky.
You can see I added a red, down-sloping Median Line and its parallels. The fate of price at this point is tied to two areas: the support marked by the multiple bottoms and base line of the grand cathedral and the overhead resistance marked by the multiple tops that also served as the inverted base line for the third cathedral. Because price made a larger, higher cathedral after the third instance, all eyes have to be focused on the base line of this new, grand cathedral. If its base line holds and price turns higher from here, price will be making higher structures after building a more formidable base. On the other hand, if price breaks through the base line of the grand cathedral, major support will have been broken and the entire right side of the grand cathedral can be viewed as lower highs and lower lows, instead of a pullback to support (and as a pullback to fill an open void).
Let me go on with another chart in this set of Canadian dollar charts and we'll see how these two base lines came into play:
I didn't mark cathedral 5 on the chart—can you see it? If you can't, run outside and lie on your back and look at the clouds! Can you see it now?
There is an inverted cathedral right next to the grand cathedral, and I have marked its base line. Note that its base line matches that of the inverted cathedral just to the left of the grand cathedral.
Then, a new cathedral forms and its base line builds on the same one used by cathedrals to the left of the grand cathedral. We've seen prior base lines act as both support and resistance now. Maybe these “blobs” are more than simply staring at clouds and looking for shapes.
Now look at the far left of the current chart. Price has zoomed through the blue multiple tops and base line and is trading higher. And this happened after the grand cathedral formed and its base line held the prior support formed by earlier cathedrals. Support held and now resistance is failing to hold. Does that help us analyze the probable path of price of this market in any way?
|More tomorrow in Part 4.||Read Part 1 | Read Part 2 | Read Part 4|
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