Patterns, Indicators, and Oscillators
In Chapter 6, I touched on a few patterns within the indicators, like the wedge and the inverted head and shoulders formation. We also touched on convergence and divergence between the volume indicator and prices. I am not sure I put the cart before the horse as far as describing what those formations are or the nuances and or trading rules are for these setups, but I will take that opportunity in this chapter.
If you have traded before and studied much on the subject of technical analysis, as I suspect some readers have, then this chapter may help reaffirm your understanding of what certain patterns and formations indicate. In almost every chapter, I have stated that nothing is 100 percent. However, when patterns form, they have a certain characteristic of an outcome in both instances of when they work and, almost as importantly, when they do not work out. In other words, I know what I can expect a loss amount to be if a momentum play fails. Then, when I combine an indicator to help confirm buying or selling pressure, such as the on-balance volume (OBV) indicator, I have that much more confidence to pull the trigger and execute an order to enter a trade. This is what I want to review and explain in this chapter.
Before we begin, let me state that it is always best for beginners and intermediate traders to construct a journal or a checklist of items to review before placing a trade. As you become a consistently profitable trader, ...