0Price Patterns
The Indicator chart itself can provide clues to future price moves.
When studies together with the price chart, one can get better insights into market movements.
TA Principles on Indicators
- The concepts of trend, patterns, MAs etc can be applied to Indicator charts
- Such a study can offer advance notice of impending price trend changes.
- And of the Indicator itself.
- Price confirmation is always required!
Trendlines
- One of the most reliable indicators of trend of momentum
- Importance based on
- Number of points on the TL
- Duration of the TL
- Angle of the TL
- Once a TL is broken, extend it for it may become a future Sup / Res of the Indicator.
Tops & Bottoms
- Uptrends with HTs & HBs and Downtrends with LTs & LBs occur in Indicators also.
- The principles of the tops & bottoms NOT holding indicating deterioration of the trend apply to indicators also.
Advance BOs and BDs
- Price – Subsequent high is often the high of the market
- Higher High Advance BO
- Lower Low – Advance BD
- Momentum
- Subsequent low is often the low of the market.
Price Patterns
- Indicators may sometimes show patterns (H&S, Triangles, Rectangles, Double, Triple Tops & Bottoms)
- CAUTION – a reversal in Momentum does NOT necessarily mean that there IS price reversal also.
- However, when reversal is confirmed by a price break, it almost always has important consequences.
- Trends in momentum are generally less sustainable than trends in price.
Price Patterns
- Usually there is a time lag between completion of a pattern in the indicator and the similar pattern completing in the price – with the indicator usually giving an advance warning.
- A reversal pattern forming at the extremes: OB and OS levels is more important than one at equilibrium point.
- On the other hand it is much better to ignore UP side breakouts at OB and DOWN side breakdown at OS levels.
