Understanding Stocks

120 UNDERSTANDING STOCKS
same mistakes—for example, buying high and selling low. Stock patterns
are one tool that technicians use to evaluate what the crowds are
doing. In fact, so many patterns showed up regularly on the charts that
technicians began naming them.
Although these chart patterns will not absolutely tell you where a
stock is headed, there are signals that technicians look for to help them
decide when to buy or sell. In the hands of an expert, identifying stock
patterns can prevent disaster. Unfortunately, not many people can successfully
recognize stock patterns until it’s too late. Nevertheless, that
shouldn’t stop you from trying, since some patterns are so obvious that
even a beginner can identify them in their early stages.
Head and Shoulders Pattern (Bearish)
Figure 11-10 shows a bearish reversal pattern that many traders consider
one of the most reliable and profitable patterns. The head and
shoulders pattern shows up quite often in charts, indicating that buying
BA Daily
Volume
8 11 12 13 14 15 18 19 20 21 22 25 26 27 29 Dec 3 4 5 6
Figure 11-10 Head and shoulders pattern
©Big Charts.com
8
12/06/02
35.5
35.0
34.5
34.0
33.5
33.0
32.5
32.0
31.5
31.0
30.5
6
4
2
0
Millions