Technical analysts and traders believe that certain chart patterns and shapes are signals for profitable trading opportunities. Many professional and amateur traders claim that they consistently make trading profits by following those signals. In this chapter we introduce some types of chart patterns and the corresponding trading strategies, that, according to our extensive historical tests, give the trader an advantage.

Range Breakout

The figure below shows an example of a typical Range Breakout pattern.

Figure 16. A typical Range Breakout pattern, a strong buy signal. Note that the rate breaks out of the trading range defined by the two range lines with large volume.

The trading strategy for a Range Breakout is just the opposite that of Head-and-Shoulders: it indicates a strategy of buying as the price breaks the upper range line with larger-than-average volume, and continuing to hold until the rate has risen a distance comparable to the height of the range. If it goes down instead, one should stop losses as it penetrates the upper range line.

Figure 17. This is a typical Range Breakdown with large volume, a strong sell signal.

The trading strategy for a Range Breakdown is just the opposite: short as the price breaks the lower range line with larger-than-average volume, and continue to hold until the stock has fallen a distance comparable to the height of the range. If it goes up instead, one should stop losses as it penetrates the lower range line.

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