Disk 2.1 Chart Patterns

The first part of Disk 2 is an introduction to the three main techniques necessary for all traders namely, technical, fundamental and news analysis. Thankfully, he quickly identifies that the technical analysis is reduced to the recognition of bull and bear flags while fundamental analysis barely figures at all and news is more a matter of ensuring that there isn't any for a flag trader to be successful.

The section on chart pattern recognition is mainly intended for those new to trading and covers a number of areas.
These include the recognition of:

• continuation patterns;
• reversals;
• support and resistance – both in the general market trend as well as within the flag and those occasions when apparently suitable flags can collapse back into double bottoms and double tops.The recognition of volume patterns supporting or indicating against a proposed trade is also covered as well as the significance of volume spikes.

Having covered the generalities, Guy moves on to deal in detail with the flag chart patterns of most relevance to this trading strategy particularly the clear recognition of what constitutes a good bull or bear flag. He lumps pennants and triangles into the general flag category as they have the same significance provided that they meet the quality criteria.

The larger chart patterns of bowl and cup and cup and handle are also dealt with to indicate how significant they can be in the larger picture especially when they occur in conjunction with a flag to reinforce the trading signal.

Volume patterns are also dealt with showing and how they generally represent the overall market sentiment and how they can support or indicate against a potential trade.

As remarked earlier, these are all basic chart patterns known to every trader. However, it is the discipline demanded by Guy in recognising the difference between good, bad and indifferent flags that keeps his students away from bad trades.

Summary

A comprehensive review of the chart patterns relevant to Flag-Trader and how they should be evaluated.