“Price Is Truth”: Analyzing Stock Chart Performance Using Technical Data

Traders are always looking to gain an edge in the market, and one of the most popular tools at their disposal is technical analysts. At the Benzinga Trading Boot Camp on Friday, Douglas Busch, founder of ChartSmarterdescribed the basics of reading and interpreting stock charts using technical analysis.

bullish flag

The first of Busch’s favorite technical indicators is the bull flag formation. A bull flag formation forms when a security experiences a strong vertical rise followed by a period of sideways or slightly negative consolidation.

“It’s a continuation trend, which means the stock is already in an uptrend and it’s going to keep going higher,” Busch said.

“The bull flag, we’ve seen a lot of that lately with this big move in the market. We kind of want to see that digest. Nothing goes straight up. Nothing parabolic.

Other indicators

The next topic Busch discussed was round number theory. Round number theory is the idea that traders view round numbers as key entry and exit points, so these numbers often provide short-term support and resistance levels.

“Currently we have the S&P at around 3000, that’s its 200 day moving average and that’s a big round number… If you want to go back a year or two, bitcoin has gone down reversed to the round figure of $20,000 If you want to look at this cannabis stock Tilray Inc. TLRY… I believe that the intraday [all-time] high was $300 precisely,” Busch said.

See also: 2 technical levels that will determine if S&P 500 strength is just a bearish rally

Busch also discussed the cup and handle pattern, a bullish pattern that forms when a stock makes a short pullback after a relatively deep and rounded decline and rally. The resulting pattern resembles a teacup with a small handle.

“The goblet with handle is probably one of the oldest and most basic designs,” he said. “What the handle does with the cup with handle is it shakes a lot of weak carriers.”

After these weak holders are gone, the stock is free to resume its uptrend.

Techniques Vs. Fundamentals

Busch also talked about the relationship between technical analysis and fundamental analysis based on metrics like revenue and profit growth.

“I firmly believe that techniques and fundamentals complement each other. Usually people focus on one thing or the other… But at the end of the day, I’m a price guy. The price is the truth, and I make all my decisions based on the technicalities,” he said.

For now, Busch expressed concern about the outlook for the S&P 500 and the SPDR S&P 500 ETF Trust TO SPY and considering how important the 3000 resistance level is for the market from a technical perspective.

Karen J. Nelson