How Technical Analysts Interpret Patterns - dummies

How Technical Analysts Interpret Patterns

By Matt Krantz

Technical analysts look for all sorts of patterns in stock charts. One pattern you might hear about is a channel, a low and high price a stock tends to stick between.

Think of an inner tube floating down a river. If it floats too far one way, it hits the riverbank, and if it goes too far the other, it bumps the other bank. Similarly, technical analysts believe stocks tend to float between a high and low point.

Technical analysts find stocks’ channels by literally drawing a line that connects several high points and another line that connects several low points in the stock price.

If the stock price breaks higher than the upper channel, that’s considered bullish because it has busted through resistance to the upside. If the stock price breaks lower than the lower channel, that’s considered bearish because the stock has fallen below support to the downside.

You can use BigCharts to draw channel lines on the screen. When you have an OHLC chart on your screen, look to the left and you’ll see a Display link. After clicking the Display link, choose Trendlines & Notes. Select the Add Trendline option, and you can draw lines on the chart to help you find channels.