Every day when I turn on the computer, one of the first things I do is go through my stock charts. I like it more than a kid likes ice cream.
The world is full of potential as I view the various setups and consider how I’m going to approach a trade.
I use technical analysis – the study of stock charts – to make sense of all of the price data that bombards traders and analysts every second of the trading day.
Analysts can make technical analysis incredibly complicated, and they often do. There are endless ways of analyzing price data.
But the truth is, I don’t use 90% of it. What I find most useful when analyzing stock charts is pattern recognition.
I’ve streamlined everything you need to know into a free three-part technical analysis training series, How to Trade Like a Champion.
Today, I’ll review two of the patterns that I discussed in the first and second lessons of my series. I’ll also reveal my favorite chart pattern, which is featured in the third lesson of How to Trade Like a Champion.
The “World Record Pattern”
The first is the World Record Pattern, or the bull flag pattern.
It starts with a sharp move higher (the flagpole), then consolidates for a short period. Once it breaks out of that consolidation, it typically moves higher by the same distance as the flagpole.
Here’s a chart of Tesla (Nasdaq: TSLA). In early July 2020, the stock jumped from about $216 to $285 in a matter of days (the flagpole). It took a breather for a few days, forming the flag, and then continued higher. The flagpole was $69 high ($285 – $216).
To figure out a price target, you take the distance of the flagpole and add it to the breakout point. In this case, we’d expect the stock to reach $354 ($285 + $69). The day after Tesla broke out, it reached $359. The stock continued the rally, reaching $500 in late August.
Without a doubt, the breakout of the World Record Pattern is one of the clearest indicators of when a trader should buy…
But what about selling?
Old Reliable, or the head and shoulders pattern, is bearish. It’s valuable for taking the emotion out of the decision to sell.
Old Reliable has been ranked the most consistent chart pattern - and for good reason. This chart pattern is 83% accurate in predicting a stock’s downward slide.
It gives you a clear warning sign before your stock begins its dive…
The head and shoulders pattern features three high points. The second, or the head, is the highest. The third, or the right shoulder, occurs on lower volume. Failure to hit a higher point than the head on lower volume suggests that buying interest is drying up.
If you draw a line from the bottom of the left shoulder to the bottom of the right shoulder, that is called the neckline. Once the stock breaks the neckline, it usually slides lower.
While the World Record Pattern and Old Reliable are two of my go-tos, they don’t hold a candle to my favorite…
I’m talking about Power Channels.
This is the pattern that helped my subscriber Jane grow her investment by 4.5X.
It relies on two very simple concepts from investor psychology… but instead of you being a victim of your emotions, your trading will be stronger for recognizing them.
To learn more about Power Channels and how you can implement them in your portfolio – along with the World Record Pattern and Old Reliable – check out my free training series, How to Trade Like a Champion.