A base pattern, basing pattern or sometimes simply referred to as a base usually develops after a market rally. After the rally, a correction or consolidation period ensues but the volume during the correction period should be a lot lighter than during the previous market rally which indicates that selling pressure is drying up.

A Bear Trap is the opposite of a Bull Trap. It is essentially a false downwards breakout from a chart pattern. This false downwards breakout traps any sellers (bears) at lower prices as the share price immediately reverses higher, causing the bears to cover any short selling at higher prices.

If you are not prepared for the possibility of a bear trap, it usually ends up with you selling your shares at exactly the wrong time as prices are declining and getting ready to rebound.

How can you tell if it is a bear trap, indicating you should be purchasing shares, or the start of a longer decline which indicates that you should be selling some shares? By using technical analysis of course!

These powerful moves can be either to the upside or downside for a stock's share price. A break-away gap usually signals the middle of a significant move for the stock’s share price.

Break-away gaps to the upside are also called Rising Window candlestick patterns.

Break-away gaps to the downside are called Falling Window candlestick patterns.

A breakout occurs when a stock’s share price breaks out of a chart pattern that it had been forming. Breakouts can occur to both the upside and the downside. Breakouts on volume that is heavier than normal carry greater significance than breakouts on lesser volume.

A Bull Trap is the terminology used for a false upwards breakout from a chart pattern. This false upwards breakout traps any buyers (bulls) at higher prices as the share price immediately reverses lower, causing the bulls to sell their shares at lower prices.

Candlestick charting was originally developed by the Japanese. Candlesticks are unique in that a single candlestick pattern can provide early warning that a trend may be ending.

Read more about candlesticks, candlestick charts and candlestick patterns here:

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Chart patterns are typically identified after several trendlines have been drawn on a chart. There are several different types of chart patterns, some of the more common ones are:

• Cups With or Without Handles
• Double Bottoms
• Double Tops
• Head & Shoulders
• Megaphones
• Trading Channels
• Triangles

A Climax Top happens when there is too much buying pressure concentrated in a short period of time. This typically happens after an already extended run in stocks share prices, with buying volume and price action increasing significantly at the end of the uptrend. Here are a couple of indicators that may indicate a possible climax top.

• A stock's share price increases 25 - 50% or more in 1-3 weeks after already having an extended run in its share price

• When a high percentage of the recent activity has been trending upwards, like 7 out of the last 8 days or 8 out of the last 10 days, this could be an early indicator of a climax top when there is heavy volume associated with the upwards move

• The largest daily gain in a stock's share price

• A gap-up after an extended run in the stock's share price; this is also referred to as an "exhaustion gap" (see below).

There are three directions for the market - up, down and sideways. When a stocks share price moves sideways, its share price is typically in a consolidation period. These periods typically happen after the share price has already made a significant move to either the upside or downside.

Continuation Gaps or Gap-Ups are gaps in a stock's share price as it trending in a direction. Continuation gaps tend to occur in the early stages or near the middle of the trend. Continuation gaps can occur alone or as a series of gaps. The more continuation gaps that develop, the higher the risk is for a consolidation or a correction period.

Most chart patterns can be broken down into 2 categories - continuation patterns or reversal patterns. Continuation patterns continue the trend that was in place prior to the development of the continuation pattern.

The earlier a continuation pattern can be properly identified, the sooner a portfolio can be adjusted for the expected continuance of the trend.

There are three directions for the market - up, down and sideways. When a stocks share price moves downwards, its share price is typically in a correction period. These periods can happen either after a stock's share price has already made a significant move to either the upside or downside or after a consolidation period.

A Death Cross pattern develops when a stocks 50 Day moving average lines crosses below its 200 Day moving average line.

When the 50 Day moving average line crosses below the 200 Day moving average line, it usually signals a change from a bullish trend to the probable start of a new bearish trend. A Death Cross pattern is considered a lagging indicator.

Review additional details and real-life examples of Death Cross patterns here:

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A distribution day is defined as the loss of more than 0.2% by a major index during a single trading session as selling volume ticks higher than the prior trading session's volume.

Distribution days should be traced separately between the NASDAQ Composite, the NYSE composite and the S&P 500. Tracking the accumulated number of distribution days is crucial to gauging a market's health. Why? Because distribution days almost always are signs that large institutions are exiting the market.

Some examples of "large institutions" include pension funds, money managers and investment bankers. And since these large institutions control the bulk of the daily trading volume due to their overall size, they also tend to have an influence on the market's overall direction.

You can't expect stocks to rise without those big guns on your side. How many accumulated distribution days is too many? Investors Business Daily states that the market could probably withstand approximately six or seven distribution days before rolling over and falling into a deep correction.

Divergence on a stock chart happens when the trends of price and volume tend to be moving in opposite directions. Divergence can be either bullish or bearish, depending upon the direction of the share price and the volume (or other indicator).

A theory developed by R.N. Elliott that movements for all major indices in the market develop in "waves". These waves form into different wave patterns that can be used to accurately predict future prices.

Learn more about Elliott Wave analysis and wave patterns here:

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Exhaustion gaps tend to happen after several gaps have already been noted in the trend and typically occur near the end of a trend. The first sign that the gap you are looking at might be an Exhaustion Gap - the gap closes in a relatively short time period after occurring.

A Falling Window candlestick pattern is more commonly known as a gap-down in Western investing terminology.

Review additional details and real-life examples of Falling Window candlestick patterns here:

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After a significant market correction, the market will look to regain its footing. Any up day counts as Day 1 of an attempted rally.

The next two sessions, Days 2 and 3, don't need to show much in the way of gains. As long as they don't undercut Day 1's low, the rally remains intact. For a follow-through to occur, you want it to land between Day 4 and Day 7 of the attempted rally. On any one of those days, you're looking for one or more of the major indexes -- the NASDAQ, S&P 500 or Dow -- to rise 1.7% or more in higher volume than the previous day.

Though a follow-through in that span gives the strongest signal for a new rally, one that hits anywhere between Day 4 and Day 10 can work. Follow-through days that occur after Day 10 yield lower success rates.

FOMO, otherwise knows as the "fear of missing out" is the strongest barrier an investor faces when trying to lock in gains. This "disease" is highly contagious. Here is how FOMO develops - rather than sticking to an investment plan, the investor/trader holds onto shares rather than selling some because the investor/trader thinks the stock's share price is going higher.

In most cases of FOMO, rather than getting higher prices, the investor/trader ends up getting lower prices by holding onto those shares for too long before selling. It is usually better to "stick to the plan". If you think you are developing a case of FOMO, send me a message.

The quantitative information that contributes to the financial valuation of a company, security or currency. Analysts and investors analyze fundamentals to develop an estimate as to whether the underlying asset or security is considered a worthwhile investment.

For companies, information such as revenue, earnings, assets, liabilities and growth are used to determine the quality of the fundamentals. Investors analyze a company's fundamentals to help determine the health of the company, security or currency, as well as its growth prospects. For example, a company with little debt and a lot of cash is considered to have strong fundamentals.

An empty space between candlesticks where there is no overlapping price activity. This typically happens when a stock's share price is making a fast move upwards. Gaps are sometimes left between candlesticks where no trading activity occurs due to the swiftly rising share price.

Gap-downs can be created by factors such as regular selling pressure that continues to gain momentum, bad earnings announcements & outlooks, negative changes in analyst outlooks and other types of significant news releases.

Gap-downs are referred to as Falling Window candlestick patterns in Japanese candlestick terminology. Review additional details for Falling Window candlestick patterns here:

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An empty space between candlesticks where there is no overlapping price activity. This typically happens when a stock's share price is making a fast move upwards. Gaps are sometimes left between candlesticks where no trading activity occurs due to the swiftly rising share price.

Gap-ups can be created by factors such as regular buying pressure that continues to gain momentum, good earnings announcements & outlooks, positive changes in analyst outlooks and other types of significant news releases.

Gap-ups are referred to as Rising Window candlestick patterns in Japanese candlestick terminology. Review additional details for Rising Window candlestick patterns here:

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A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between.

Gaps can develop by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release. See also Gap-Downs and Gap-Ups for specific types of gaps.

A Golden Cross develops when a stocks 50 Day moving average line rises and crosses above its 200 Day moving average line.

When the 50 Day moving average line crossed above the 200 Day moving average line, it usually signals a change from a bearish trend to the probable start of a new bullish trend. A Golden Cross pattern is considered a lagging indicator.

Review additional details and examples of Golden Cross patterns here:

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The MACD Histogram charting tool illustrates the amount of buying or selling momentum for a stock. It can be used on all charts (intra-day, daily, weekly & monthly candlestick charts).

• The zero line for the MACD Histogram represents neutrality - no buying or selling momentum
• A negative reading for the MACD Histogram represents selling momentum
• A positive reading for the MACD Histogram represents buying momentum

Read more about the MACD Histogram here, including how to use it effectively as both a trading and investing tool:

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A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security.

Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, a market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.

The NASDAQ Exchange consists of over 500 member firms that act as NASDAQ market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for securities.

Momentum starts with physics and Isaac Newton’s theory that an “an object in motion stays in motion until disrupted by an equal or greater force”.

The greater the buying or selling momentum that there is, the longer that a trend lasts. Therefore, the earlier that a trend can be established, the more money that can be made by trading the momentum of the trend. Determining the strength of a trend is critical to investing success.

Become a Trendy Stock Charts member today and learn about different ways to effectively measure a stock's momentum.

The average price of a stock (or the market) over a defined period of time. Examples of moving averages are 5 Day Moving Averages (typically used by short-term traders), 20 Day Moving Averages, 50 Day Moving Averages (typically used by swing traders), 100 Day Moving Averages and 200 Day Moving Averages (typically used by value investors).

Some investors and traders use moving averages to trade and invest. For example, a 200 Day Moving Average is typically used to help determine long-term trends and also calculate buying and selling targets. Also see Simple Moving Averages.

Also known as P&F Charting. This charting method was developed in the 1800's. Point & Figure Charts try to gauge supply and demand for a stock.

Instead of a line chart or a bar chart, a Point & Figure chart is constructed by columns of X's and O's.

• • • If a stock's share price is rising, the column boxes on the P&F Chart are designated with the letter “X”
    • If stock's share price is falling, the boxes are designated with the letter “O”

Vertical columns of “X”s and “O”s are constructed as the market moves higher and lower, respectively.

Read more about Point & Figure charting (P&F Charting) here:

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This is a measure of how the performance for one stock (or other financial instrument) compares against the performance of other stocks over the same time period.

Relative strength (RS) is measured between the number 1-100. A stock with a RS rating of 90 is outperforming 90% of all other stocks in the market. With that definition, it becomes quite clear that the higher the RS rating, the better.

A resistance area is formed at a price level in which the share price of a stock or the prices of indices stop going up. Locking in some trading gains around resistance areas is typically a successful strategy.

Most chart patterns can be broken down into 2 categories - continuation patterns or reversal patterns. Reversal patterns reverse the trend that was in place prior to the development of the reversal pattern. The earlier a chart pattern can be properly identified, the sooner a portfolio can be adjusted for the expected outcome.

A Rising Window candlestick pattern is more commonly known as a gap-up in Western investing terminology.

Review additional details and real-life examples of Rising Window candlestick patterns here:

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The number of shares for a stock that are sold “short”. Selling a stock short involves borrowing shares of a stock from your broker to sell now in hopes of buying back those shares at lower prices at some point in the future. The borrowed shares must eventually be returned to the broker. When more investors expect a stock’s share price to go down, the short interest will typically increase.

A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

A support area is formed at a price level in which the share price of a stock or the prices of indices stop going down. Purchasing shares around support areas is typically a successful strategy and leads to nice gains in the future.

The art form of using different charting tools and methods to monitor the market's price and volume action to try to determine the market's overall trend.

Technical analysis is also used to calculate support areas used to buy stocks as well as resistance areas that can be used to lock in profits and sell stocks. For the daring, a strong resistance area can even be shorted.

Learn more about the different types of technical analysis I discuss at Trendy Stock Charts. These methods provide the best and most consistent results IMO:

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All technical indicators can me summarized as the mathematical manipulation of price data, volume data or both plotted on a chart.

For example, a moving average is considered a technical indicator. So is a MACD Histogram charting tool.

A system used by an investor or trader to help remove emotion when trading. Trading with emotion tends to hurt overall returns.

The trend is defined as the general price direction. An uptrend is where prices are increasing at a consistent rate over an established period of time. A downtrend is where prices are decreasing at a consistent rate over an established period of time.

The earlier that a trend can be established, the more money that can be made, especially when the momentum of the trend is calculated.

Determining the strength of a trend is critical to investing success. Become a Trendy Stock Charts member and determine how I use different Technical Indicators to identify a trend for either stocks or indices.

A line drawn on a stock chart which is used to try to determine the trend or overall direction of the price for a stock or market index. Trendlines can be used to identify support and resistance areas. Several trendlines drawn on a chart may even produce a chart pattern or several chart patterns.

View illustrations and read more about drawing Trendlines here:

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Volume or reading the volume bars on a chart is one of the most widely available, yet least used, technical indicators to measure the performance of a stock. Being able to effectively read volume bars can help you determine the amount of buying or selling momentum.

Volume "spikes" can also help determine a stock’s trend, depending upon where it develops in the larger trend at hand. Some volume spikes stop trends, some start new trends while others continue trends at hand. Therefore, volume spikes can be used to confirm breakouts, continuations or climaxes.

I discuss volume in more detail on its webpage, along with a stock's price as an indicator. "Price & Volume" analysis is like peanut butter and jelly.

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