Page 50 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

Despite these cautions, technical analysis is a powerful tool and if used with common sense, can
enhance a trader's perspective and profits.

PICTURING TECHNICAL OBJECTIVES

When prices form pictures on charts, you can obtain realistic objectives for later moves. One of
the most reliable chart formations is the head-and-shoulders top or bottom. This easily
recognizable chart pattern signals a major turn in trend.

The main advantage of the head-and-shoulders pattern is it gives you a clear-cut objective of the
price move after breaking out of the formation. Measure the price distance between the head
and the neckline and add it to the price where the neckline is broken. This projects the minimum
objective. Although the head-and-shoulders gives no time projection, it predicts a very strong
trend in the future.

In most cases, a head-and-shoulders formation will be symmetrical, with the left and right
shoulders equally developed. Although the neckline doesn't have to be horizontal, the most
reliable formations stray only a little.

Flags and pennants are consolidation patterns which give objectives for further moves. As the
formation develops, price action in an up trending market will look like a flag flying from a
flagpole as prices tend to form a parallelogram after a quick, steep up move. Flags "fly at half
Staff." The more vertical the flagpole, the better.

A price objective is obtained by measuring the flagpole and adding it to the breakout point of the
formation. The flagpole should begin at the point from which it broke away from a previous
congestion area, or from important support or resistance lines. Flags in a down trending market
look like they are defying gravity and slant upward.

CONTINUATION PATTERN
A pennant also starts with a nearly vertical price rise or fall. But, instead of having equal move
reactions in the consolidation phase like a flag, pennant reactions gradually decrease to form
short uptrend and downtrend lines from the flagpole. The same measuring tools used in flags
are used in pennants. Add the length of the flagpole to the breakout point to get the minimum
objective. Remember, flags and pennants are usually continuation patterns in an overall trend
which resumes after the breakout of the consolidation area.

Also, the coil formation, or symmetrical triangle, appears while prices trade in continually
narrower ranges, forming uptrend and downtrend lines. This pattern doesn't tell you much about
the direction of the next move. After breaking one of the trend lines, the objective is found by
adding the width of the coil's base to the breakout point.

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