Support & Resistance

Support: once broken, may become resistance

Resistance: once broken, may become support

The longer support or resistance holds, the greater the strength

When price breaks support and resistance, the size of the break is related to the
strength broken
TREND

Peaks and trough’s define the trend

Uptrend: peaks and troughs higher than the previous

Downtrend: peaks and troughs lower than the previous

PARALLEL CHANNEL

We can identify parallel channels by drawing 2 trendlines: one above and one
below
A way of trying to identify where levels of support and resistance may lie.
Sideways channel
Ranging markets, peaks at same levels, parallel lines horizontal

Ascending channel, descending channel

Ascending channel: What Is an Ascending Channel?

An ascending channel is the price action contained between upward sloping
parallel lines. Higher highs and higher lows characterize this price pattern.
Technical analysts construct an ascending channel by drawing a lower trend
line that connects the swing lows, and an upper channel line that joins the
swing highs.

Understanding Ascending Channels

Within an ascending channel, price does not always remain entirely
contained within the pattern’s parallel lines but instead shows areas of
support and resistance that traders can use to set stop-loss orders and profit
targets. A breakout above an ascending channel can signal a continuation of
the move higher, while a breakdown below an ascending channel can
indicate a possible trend change.

Ascending channels show a clearly defined uptrend. Traders can swing

trade between the pattern’s support and resistance levels or trade in the
direction of a breakout or breakdown.

Trading the Ascending Channel

 Support and Resistance: Traders could open a long position when a
stock's price reaches the ascending channel’s lower trend line and exit
the trade when price nears the upper channel line. A stop-loss
order should be placed slightly below the lower trend line to prevent
losses if the security’s price abruptly reverses. Traders who use this
strategy should ensure there is enough distance between the pattern’s
parallel lines to set an adequate risk/reward ratio. For example, if a
trader places a $5 stop, the width of the ascending channel should be
a minimum $10 to allow for a 1:2 risk/reward ratio.
 Breakouts: Traders could buy a stock when its price breaks above
the upper channel line of an ascending channel. It is prudent to use
other technical indicators to confirm the breakout. For example,
traders could require that a significant increase in volume
accompanies the breakout and that there is no overhead resistance
on higher time frame charts.
 Breakdowns: Before traders take a short position when price breaks
below the lower channel line of an ascending channel, they should
look for other signs that show weakness in the pattern. Price failing to
reach the upper trend line frequently is one such warning sign.
Traders should also look for negative divergence between a popular
indicator, such as the relative strength index (RSI), and price. For
instance, if a stock’s price is making higher highs within the ascending
channel, but the indicator is making lower highs, this suggests upward
momentum is waning.
What is a Descending Channel?
A descending channel is drawn by connecting the lower highs and lower
lows of a security's price with parallel trendlines to show a downward trend.
Officially, the space between the trendlines is the descending channel, which
falls under the broad category of trend channels.

Understanding Descending Channels

Overall, channels are used broadly by technical traders to identify and follow
the trends of securities over time. A descending channel is one such
charting pattern that technical analysts will use to evaluate the trend of a
security. A channel is drawn from trendlines charted along the support and
resistance levels of a security’s price series. In general, channels can be
used to pinpoint optimal support and resistance levels to buy or sell
securities.

Traders who believe a security is likely to remain within its descending

channel can initiate trades when the price fluctuates within its channel
trendline boundaries. The descending channel trendlines can be extended to
provide an expected path for the security to traverse, should its current trend
hold.
A more potent signal occurs with a breakout, which is when a security's price
breaches an established channel's boundaries, either on the upper or lower
side. When this happens, a security's price can move quickly and sharply in
the direction of that breakout. If this move is in the direction of the prior trend
then the descending channel would have been a continuation pattern. If the
move is counter to the prior trend then the descending channel would have
been a prelude to a reversal.

Within a descending channel, a trader could make selling bets when the
security price reaches its resistance trendline. Conversely, long buying
trades could be entered into when a security begins to reach its support
trendline. These trading strategies can be beneficial when a security has low
to moderate volatility that keeps its price action constrained. Trading on
channel analysis can also be profitable after a security’s price shows a
reversal and breakout, which is usually followed by a series of runaway gaps
and an exhaustion gap all in the same direction.

An ascending channel is the opposite of a descending channel. Both

ascending and descending channels are primary channels followed by
technical analysts. The trendlines in an ascending channel would be positive
sloping at the resistant and support levels.

2 CANDLESTICK PATTERNS

Bearish engulfing
Green candlestick followed by a red cadlstick, where the body of the second
candlestick is larger than the first one and completely engulfs the first candle
(the open and the close of the first candle lies within the range of the open and
the close of the second)

Sign of possible bearish reversal

Bullish engulfing

Red candle first, green candle second

The body of the green candle completely engulfing the body of the preceding
candle

After bearish run, reversal pattern

Dark cloud cover

Reversal pattern, after a rising market

Strong green candle and then red candle that opens above previous sessions
close, the close `pretty close to the low of the day
Tweezer tops & bottoms

Matching highs or matching lows so it looks like a pair of tweezers

Tweezer tops: rising market and matching highs; tweezer bottoms: falling market,
matching lows
Harami

Ressembles a pregnant woman, reverse of the engulfing pattern

Larger candlestick body first, top and bottom above and below of the bottom and
top of the second candle
The open and close second candle lies within open and close of the preceding
candle

Represents a break of an existing trend

Harami cross: big body followed by a doji

Hammer

Bullish reversal, showing price rejection of lower prices

Sign of strength
Shooting star

It’s the opposite, shows you rejection of higher prices

Dragonlfy & Gravestone doji

Sign of price rejection, no body, large wick

Morning and evening star

Morning star: bullish reversal pattern

Evening star: bearish reversal pattern

TAE FRAMEWORK

T: trend
A: area of value
E: entry target

Trend:
Higher Highs and Higher Lows (Uptrend) BUY
Lower Highs and Lower Lows (Downtrend) SELL

Area of value
Support and Resistance
Trend Line
Moving Average: price above 200 MA, LONG
Price below 200 MA, SHORT
Average True Range Indicator (ATR) 

 The average true range (ATR) is a market volatility indicator

used in technical analysis.
 It is typically derived from the 14-day simple moving average of
a series of true range indicators.

How to Calculate the Average True Range (ATR)

Traders can use shorter periods than 14 days to generate more trading signals,
while longer periods have a higher probability to generate fewer trading signals.
For example, assume a short-term trader only wishes to analyze the volatility of a
stock over a period of five trading days. Therefore, the trader could calculate the
five-day ATR. Assuming the historical price data is arranged in reverse
chronological order, the trader finds the maximum of the absolute value of the
current high minus the current low, the absolute value of the current high minus
the previous close, and the absolute value of the current low minus the previous
close. These calculations of the true range are done for the five most recent
trading days and are then averaged to calculate the first value of the five-day
ATR.