Technical analysis of stock charts should not be a tool known only to a select few. Rather, EVERY investor should have some kind knowledge in viewing charts to gain that extra boost in income. We have compiled some examples of some of the basic patterns everyone should know. Make sure they are known by heart, as they apply not only in long-term trading, but they also show themselves in daytrading as well.

Ex 1.

The Head and Shoulders pattern is one of the better indicators that is easily recognizable (Right about 80% of the time). We see a "head" in the middle, and two "shoulders" on either side. The interesting part is the volume. You will notice the volume is fairly heavy on the left shoulder and head, yet relatively small on the right shoulder. When you see this pattern break through the imaginary barrier, it's usually a great short. This pattern applies to daytrading also.

Ex. 2

The Descending stairs pattern shows a graph in which every drive upwards never out does the original. In effect, we watch the stock get battered after every attempt at a rally, thus showing its underlying weakness. This trend can be utilized in any time period, including daytrading. The best place to short sell would be right after the stock goes below its previous low. Do the opposite with ascending stairs.

Ex. 3

Double tops and bottoms are fairly reliable indicators. We especially use these indicators during interday trading. Notice on the Double Top how the support seems clearly defined. Yet, as the support is broken, we see a quick down turn. The Double Bottom is also a good indicator of when to be bullish on a stock. One thing to note is that stocks tend to drop quicker than they gain, so Double Tops will usually make more money in a shorter period of time.

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