2. WELCOME TO GIA DAY 5, WEEK 2
FUNDAMENTALS OF CHARTING
• A Trend - is the overall direction of a market or an asset's price. In technical
analysis, trends are identified by trendlines or price action that highlight when the
price is making higher swing highs and higher swing lows for an uptrend, or lower
swing lows and lower swing highs for a downtrend.
• Reversal - is a change in the price direction of an asset. A reversal can occur to the
upside or downside. Following an uptrend, a reversal would be to the downside.
Following a downtrend, a reversal would be to the upside. Reversals are based on
overall price direction and are not typically based on one or two periods/bars on a
chart.
• Reversals often occur in intraday trading and happen rather quickly, but they also
occur over days, weeks, and years. Reversals occur on different time frames which are
relevant to different traders. An intraday reversal on a five-minute chart doesn't matter
to a long-term investor who is watching for a reversal on daily or weekly charts. Yet,
the five-minute reversal is very important to a day trader.
3.
4.
5. WELCOME TO GIA DAY 5, WEEK 2
FUNDAMENTALS OF CHARTING
• Breakout - refers to when the price of an asset moves above a resistance area, or moves below a support
area. Breakouts indicate the potential for the price to start trending in the breakout direction. For example, a
breakout to the upside from a chart pattern could indicate the price will start trending higher. Breakouts that
occur on high volume (relative to normal volume) show greater conviction which means the price is more
likely to trend in that direction.
• A breakout occurs because the price has been contained below a resistance level or above a support level,
potentially for some time. The resistance or support level becomes a line in the sand which many traders use to
set entry points or stop loss levels. When the price breaks through the support or resistance level traders
waiting for the breakout jump in, and those who didn't want the price to breakout exit their positions to avoid
larger losses.
• Pullback - is a pause or moderate drop in a stock or commodities pricing chart from recent peaks that occur
within a continuing uptrend. A pullback is very similar to retracement or consolidation, and the terms are
sometimes used interchangeably. The term pullback is usually applied to pricing drops that are relatively
short in duration - for example, a few consecutive sessions - before the uptrend resumes.
• Pullbacks are widely seen as buying opportunities after a security has experienced a large upward price
movement. For example, a stock may experience a significant rise following a positive earnings announcement
and then experience a pullback as traders with existing positions take the profit off the table. The positive
earnings, however, are a fundamental signal that suggests that the stock will resume its uptrend.
• Most pullbacks involve a security’s price moving to an area of technical support, such as a moving average or
pivot point, before resuming their uptrend. Traders should carefully watch these key areas of support since a
breakdown from them could signal a reversal rather than a pullback.
6.
7.
8.
9.
10.
11.
12.
13.
14. WELCOME TO GIA DAY 5, WEEK 2
FUNDAMENTALS OF CHARTING: STEPS
TO CHARTING
1. Find the trend – search on
multiple timeframes until you find
a clear and obvious.
2. Find your levels – search and mark
with horizontal lines clear and
obvious support and resistance
zones.
3. Look for either a pattern or a
candle stick pattern to confirm
any trends or possible breakouts.
4. Make sure your indicators match
what you see on the chart from
steps 1-3
5. Establish your entry, stop-loss, and
exit point (profit goal).
6. Buy!
