Technical Analysis For Dummies, 3rd Edition

Chapter 7

Reading Special Bar Combinations: Small Patterns

In This Chapter

Keying in on market psychology in simple bar combinations

Comprehending common and uncommon bars

Getting the lowdown on gaps

Understanding the significance of the high-low range

As I wrote in Chapter 6, the price bar is the basic building block of technical analysis. Bar configurations come in endless combinations and permutations, and you can't possibly memorize them all. But knowing about the special bars is useful because they can be powerful predictors — and everyone knows it.

“Special bars” are a small series of two to five bars — called combinations or configurations — that stand out on a chart. You can see them immediately, and so can everyone else. Most special bars and configurations are either trend-confirmation or trend-reversal patterns, but even when they are ambiguous, you need to sit up and take notice.

As a general rule, you want to “go with the flow” — trade with the conventional wisdom about ...