Validea is an advisory service which assesses stocks based on the investing criteria of many of the ...
Learn to Recognize Chart Patterns
06/21/2011 4:00 pm EST
Practice is key, says Anne-Marie Baiynd, but viewing charts as an ongoing battle between buyers and sellers can also help traders more clearly recognize patterns as they unfold on the charts.
Talking with Anne-Marie Baiynd about developing pattern recognition skills, and Anne-Marie, it’s very difficult for me to see things on a chart. How do you develop pattern recognition skills?
You know, it’s kind of like anything else that you really want to focus on and get good at. It takes a lot of practice, and a lot of times we really don’t know what we’re looking for. We don’t treat the charts as dynamic; as things that are moving and telling a story.
So, the best way to develop pattern recognition skills really is to look at the charts and imagine that they’re telling you a story, and see if you can tell from the length of the red candles, or the length of the green candles, or the wicks of the red candles, see what they’re saying in terms of buyers and sellers.
Remember, a technical chart is nothing but a portrait of the struggle between buyers and sellers. So, if you look at a chart—and bring it down to something emotional, because that’s what trading is, an emotional event. Even though we try not to be, we can’t help because we’re human.
So, look at the chart like it’s telling you a story of how the buyers and sellers are arguing. Who’s winning?
Take a look at that volume and see, alright, are my buyers in charge here; are my sellers in charge here, and once you see that, you can go “Oh, OK, it means the buyers are sitting down there waiting to buy, or the sellers are sitting up here waiting to sell.”
You’ve got to make the chart more physically understanding to you, rather than just a sheet of paper with a bunch of candles.
You have to relate to it, almost.
That’s exactly right. You have to use those relation skills, and if you do, you’ll start seeing, “Oh you know what, when it gets to this level, they start chopping around; or when it gets to this level, they really like to break out; or when it gets down here, they like to do this.”
Once you take a look at a chart over and over and over again, you will begin to see that it has a temperament because of the people that trade it, and if you just keep focusing on a few charts—which is why I have a basket of stocks that I just look at—you’ll get to learn that and you’ll get to see those things, and that will really, really help you. But it takes a long time. It takes a lot of practice.
You’re inundated with a lot of noise all during the day. How do you cancel that noise?
Well, for me, I don’t listen to the news. I don’t have the Internet, I mean, news Internet up. I don’t really look at the Twitter feed.
I’m about filtering noise. Filtering noise is the most important thing that you can do, because it helps you make decisions.
The better you make decisions, the better you trade, and a lot of people are addicted to the news, and the fact is, by the time the news comes out, for the daytrader, we’re all done.
And, it would also influence how you recognize your patterns.
That’s exactly right. We are very prone to suggestion.
Related Articles on STRATEGIES
The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
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 ...