Basic Technical Analysis From The Butcher, page-8

Right so we've got some skills up ourselves now from the other posts, lets look at combining a few things here and I've even thrown in a couple of new things I'll explain later.
Now at the start of this chart we get several signals that this thing was about to fall off the cliff and that you needed to sell at any cost and get out.

Our first focus is the crossing of the moving averages. The blue line is use is a simple 200MA and the cross we need to pay attention two are from the red (50MA) and the dark red (20MA) as they cross from the upper side to the lower side. These are what I like to call my short, medium and long term momentum indicators. The cross of a short term moving average from the upper side of a long term moving average to its lower side is an indication of decreasing prices. You can read better summations of this from www.stockcharts.com/school.

So the first thing that happens is the 20MA crosses the 50MA. This isn’t always bad news, as it can be an indication of consolidation. However, if that is then followed by a crossing of not only the 20MA of the 200MA, it is an indication that the short term trend may be becoming the long term trend. By the time that the 50MA crosses the 200MA the new price direction is firmly in and you’re wreaked if you’re still holding.

Now in conjunction with this happening, we got a bunch of other signals that would have helped us get out on top. The first blue line I’ve put in indicated a downtrend. This sort of price action at the top of a big run shows exhaustion. After massive run an bunch of people want to get on board because of this huge run that just happened, but what tends to happen instead is all the players that caught the run up end up selling to these eager greedy pigs. At the low prices they buy up and are desperate to buy at any price and the selling of those that got the run only increases which is what brings the run to a halt. The price ran up to the second lower peak and after not exceeding the previous high the weak hands start selling. By this is stage most players in the market get fearful as the selling pressure was already high, but this high volatility changes the mind of all the other players that were still holding and the free fall begins.

The second circle I’ve drawn is the Bollinger Band being breached by the price action indicating a unsustainable move, and given the heavy selling pressure that was already underway this is a indication for you that you should be fearful also.

Your final chance to bail out was the support line first set by the valley being breached. After that, if you’re still holding, you’ve no one to blame but yourself.

Now I’ve also put in here a green rectangle. To me it’s nothing because its shape isn’t quite correct (it’s too steep) but to other people it could be counted as a Head and Shoulders pattern. This is what’s referred to as a top reversal pattern. Whilst I wouldn’t have used it, it did serve the function.  I wont go into it now, but go have a look at http://thepatternsite.com/hst.html for a good explanation.

Back to moving averages. The third red circle I have drawn is an indication that the trend has probably ended as the 200MA is breached by the 50MA and the 20MA.

But we actually we able to get an early indication if we were diligent with setting our support lines as the increasing support line shows that this has possibly ended.

The 4th circle is an indicator of some more crosses, but we get an idea that this is not a sustained move with the Triple Top Pattern that gets forms. However, after the breakdown from that chart pattern the price resumes to the support line so we know that this is definitely a new trend in play.

And with another couple of crosses of the 200MA the trend changes and the price takes off. Now at the end of that trend I neglected to draw in that top, but again, we get that little dip of the exhaustion top, the crossing of MAs again before the price action finally crosses over the trendline that was running and that’s the final indication of this run.

So now you can see how all these little things get used in conjunction with one another to give an idea as to the price movements. I might leave this for a day or two and maybe put up a post on chart patterns which I am rather fond of. Let me know if there is anything else you would like to see.

By the way, this entire post was used to get you to buy Woolworths shares, and this final paragraph was used to demonstrate sarcasm, and your stupidity if you thought I ever gave you financial advice at any point. Confused? Then you’re an idiot, and not only is my humour over your head, but also the barriers that you’ll need to overcome to trade on the ASX.