The Cup with Handle is a continuation pattern (bullish) and a pause in the uptrend. There are two parts. First, the pattern starts with rounding bottom (the cup), then the cup is followed by a tight sideways move (the handle). There should be tight price action in the handle area. A buy signal is given when the price breaks out of the handle area.
The expanded flat is a corrective pattern in 3-3-5. Wave A is in three, wave B is in three and wave C is in five.
Wave B terminates beyond the start of wave A and wave C terminates beyond the end of wave A.
There are two types of wedges, rising and falling.
Rising wedge
A rising wedge resembles a symmetrical triangle with a noticeable slant to the upside. A rising wedge is a bearish pattern and can appear in the middle of a downtrend (continuation) or at the end of an uptrend (reversal).
Falling wedge
A falling wedge resembles a symmetrical triangle with a noticeable slant to the downside. A falling wedge is a bullish pattern and can appear in the middle of an uptrend (continuation) or at the end of a downtrend (reversal).
The running triangle is a continuation pattern in five waves [A,B,C,D,E].
In a bull trend Wave B ends above the top of wave A. In a bear trend wave B ends below the bottom of wave A.
The upper line is horizontal, each dip ends above the previous one. The base of the triangle (x) is projected from the breakout point to calculate a price target.
The ascending triangle is a continuation pattern (bullish).
Zigzag
Double Zigzag
Markets move in waves:
When the trend is up the market will rally in five waves and decline in three waves.
When the trend is down the market will decline in five waves and rally in three waves.
The market progresses in five waves and corrects in three waves.
A complete cycle is in eight waves [1,2,3,4,5,A,B,C]:
An impulse wave is a motive wave in which wave 4 does not overlap wave 1:
MACD (Moving Average Convergence Divergence)
The MACD is the difference between a 26 day and a 12 day exponential moving average. A 9 day exponential moving average of the MACD called "the signal line" is plotted on top of the MACD to show buy/sell signals.
In sideways markets, buy when the MACD rises above its signal line, sell when the MACD falls below its signal line.
MACD Divergence:
In a trending market, the MACD is used to idenfify market tops or market bottoms. A bearish divergence occurs when prices make a new high while the MACD is lower. A bullish divergence occurs when prices make a new low while the MACD is higher.
Relative strength (comparative) compares two securities to show how they are performing relative to each other. A security's price change is compared to another security's price change (the base security).
The relative strength is the pink line at the bottom of the chart. When the relative strength moves up prices are outperforming the base security (performing better than the base security), when the relative strength moves down prices are underperforming (performing worse than the base security). When the relative strength moves sideways both securities are performing the same.
For example if we compare Diageo to the FTSE 100, Diageo is the main security, the FTSE 100 is the base security. The relative strength is calculated by dividing Diageo's price by the FTSE 100 price.
In this example Diageo performed better than the FTSE 100 after 23rd January (rising relative strength).
Note: Do not confuse relative strength with Relative Strength Index (RSI) which is a different indicator.
This is an example of a trend channel in a downtrend:
Prices are trading between two parallel lines. Always trade in the direction of the channel. In a downtrend use the upper line to initiate short positions. In an uptrend use the lower line to initiate long positions.
More aggressive traders might initiate countertrend positions by buying near the lower line in a downtrend and selling near the upper line in an uptrend. Whether in an uptrend or downtrend the price target is the vertical width of the channel.
Warning Sign:
Failure to reach the upper line in an uptrend is often accompanied by the breaking of the lower line.
Failure to reach the lower line in a downtrend is often accompanied by the breaking of the upper line. A price target is calculated by projecting the width of the channel (x) from the breakout point.
