The Connectedness of Chart Patterns

How real are chart patterns? Look at the triangle illusion below.  The mind draws lines to connect the solid circles and perceives a triangle.

Triangle Illusion

Figure 1. Triangle Illusion

We see such lines everywhere.  Evolution has sculpted us to see these lines.  They connect up the world, making sense of fragments in our visual field.    This is a useful trick to reveal predators in the bushes and probably kept our ancestors alive.

With price charts, the eye is drawn to perceive a line when 3 or more obvious turning points are in line.   This forms the basis of many chart patterns (Since any 2 points form a line, we can dismiss those).

Chart Trend

Figure 2. Chart Trend

While chart patterns are often imbued with meaning, it should be recognized that a small change in the position of a turning point can convert one pattern into another, often with different meanings.

Figure 2 below shows the connection between 6 classic chart patterns.  No pattern is more than 3 changes in turning point position away from any other, and this includes the somewhat stylized head & shoulders pattern whose neckline may already slope in the required direction for a wedge or descending channel.

chart relations

Figure 3. Chart Patterns Relations

Next time you look at a chart pattern, ask yourself would you change your mind about it if one of the points defining the pattern was in a slightly different position.

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Chart pattern update for Aug 17 2010

Agilent Technologies Inc. (A) continuation support
Qwest Communications International Inc. (Q) continuation trend
Alcoa, Inc. (AA) continuation channel
AutoNation Inc. (AN) continuation trend
AutoNation Inc. (AN) continuation support
Boeing Co. (BA) continuation trend
CIGNA Corporation (CI) continuation channel
EI DuPont de Nemours & Co. (DD) continuation trend
EI DuPont de Nemours & Co. (DD) continuation trend
Dean Foods Co. (DF) continuation trend
FirstEnergy Corp. (FE) continuation trend
Goodrich Corp. (GR) continuation trend
Morgan Stanley (MS) continuation trend
Nisource Inc. (NI) continuation trend
Procter & Gamble Co. (PG) continuation trend
Regions Financial Corp. (RF) continuation trend
Regions Financial Corp. (RF) continuation trend
Ambac Financial Group, Inc. (ABK) continuation trend
Analog Devices Inc. (ADI) continuation channel
Automatic Data Processing, Inc. (ADP) continuation channel
Aetna Inc. (AET) continuation trend
Abercrombie & Fitch Co. (ANF) continuation trend
Allegheny Technologies Inc. (ATI) continuation trend
Boston Scientific Corporation (BSX) continuation trend
Carnival Corporation (CCL) continuation trend
Compania Cervecerias Unidas S.A. (CCU) continuation trend
Clorox Corporation (CLX) continuation resistance
Comerica Incorporated (CMA) continuation trend
Comerica Incorporated (CMA) continuation trend
CME Group Inc. (CME) continuation trend
CME Group Inc. (CME) continuation trend
CONSOL Energy Inc. (CNX) continuation trend
Dover Corp. (DOV) continuation trend
The Dow Chemical Company (DOW) continuation trend
Ecolab Inc. (ECL) continuation trend
EOG Resources, Inc. (EOG) confirmed double top
W.W. Grainger, Inc. (GWW) continuation trend
Hasbro Inc. (HAS) continuation trend
HJ Heinz Co. (HNZ) continuation trend
Starwood Hotels & Resorts Worldwide Inc. (HOT) continuation trend
Host Hotels & Resorts Inc. (HST) continuation trend
IntercontinentalExchange, Inc. (ICE) continuation resistance
Nordstrom Inc. (JWN) continuation trend
Leggett & Platt, Incorporated (LEG) continuation trend
Lennar Corp. (LEN) continuation trend
Lincoln National Corp. (LNC) continuation trend
Marriott International, Inc. (MAR) continuation resistance
Mattel Inc. (MAT) continuation trend
Mattel Inc. (MAT) continuation support
McDonald’s Corp. (MCD) continuation trend
McDonald’s Corp. (MCD) continuation trend
Meredith Corp. (MDP) continuation channel
Merrill Lynch & Co. Inc. (MER) continuation trend
MetLife, Inc. (MET) continuation trend
MGIC Investment Corp. (MTG) continuation trend
Newmont Mining Corp. (NEM) continuation trend
Newell Rubbermaid Inc. (NWL) continuation trend
OfficeMax Inc. (OMX) continuation trend
Occidental Petroleum Corporation (OXY) confirmed double top
Occidental Petroleum Corporation (OXY) continuation support
Prudential Financial, Inc. (PRU) continuation trend
Public Storage (PSA) continuation trend
RadioShack Corp. (RSH) continuation trend
Sara Lee Corp. (SLE) continuation support
Tyco Electronics, Ltd. (TEL) continuation trend
Target Corp. (TGT) continuation trend
Titanium Metals Corporation (TIE) continuation trend
Torchmark Corp. (TMK) continuation trend
The Travelers Companies, Inc. (TRV) continuation support
Weatherford International Ltd. (WFT) continuation channel
American Capital, Ltd. (ACAS) continuation trend
Altera Corp. (ALTR) continuation trend
CH Robinson Worldwide Inc. (CHRW) continuation trend
CIENA Corp. (CIEN) continuation trend
Compuware Corporation (CPWR) continuation trend
Fiserv, Inc. (FISV) continuation support
Fifth Third Bancorp (FITB) continuation trend
Huntington Bancshares Inc. (HBAN) continuation trend
Intuit Inc. (INTU) continuation trend
NetApp, Inc. (NTAP) continuation trend
NetApp, Inc. (NTAP) continuation trend
Tellabs Inc. (TLAB) continuation support
Whole Foods Market, Inc. (WFMI) continuation trend
NASDAQ Composite (^IXIC) continuation support

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Chart pattern update for Aug 16 2010

Agilent Technologies Inc. (A) continuation support
Qwest Communications International Inc. (Q) continuation trend
Alcoa, Inc. (AA) continuation channel
AutoNation Inc. (AN) continuation trend
AutoNation Inc. (AN) continuation support
Boeing Co. (BA) continuation trend
CIGNA Corporation (CI) continuation channel
EI DuPont de Nemours & Co. (DD) continuation trend
EI DuPont de Nemours & Co. (DD) continuation trend
Dean Foods Co. (DF) continuation trend
FirstEnergy Corp. (FE) continuation trend
Goodrich Corp. (GR) continuation trend
Nisource Inc. (NI) continuation trend
Procter & Gamble Co. (PG) continuation trend
Regions Financial Corp. (RF) continuation trend
Regions Financial Corp. (RF) continuation trend
Ambac Financial Group, Inc. (ABK) continuation trend
Analog Devices Inc. (ADI) continuation channel
Analog Devices Inc. (ADI) continuation trend
Automatic Data Processing, Inc. (ADP) continuation channel
Abercrombie & Fitch Co. (ANF) continuation trend
Allegheny Technologies Inc. (ATI) continuation trend
Boston Scientific Corporation (BSX) continuation trend
Carnival Corporation (CCL) continuation trend
Compania Cervecerias Unidas S.A. (CCU) continuation trend
Clorox Corporation (CLX) continuation resistance
Comerica Incorporated (CMA) continuation trend
Comerica Incorporated (CMA) continuation trend
CME Group Inc. (CME) continuation trend
CME Group Inc. (CME) continuation trend
CONSOL Energy Inc. (CNX) continuation trend
Dover Corp. (DOV) continuation trend
The Dow Chemical Company (DOW) continuation trend
Ecolab Inc. (ECL) continuation trend
W.W. Grainger, Inc. (GWW) continuation trend
Hasbro Inc. (HAS) continuation trend
HJ Heinz Co. (HNZ) continuation trend
Starwood Hotels & Resorts Worldwide Inc. (HOT) continuation trend
Host Hotels & Resorts Inc. (HST) continuation trend
IntercontinentalExchange, Inc. (ICE) continuation resistance
Nordstrom Inc. (JWN) continuation trend
Leggett & Platt, Incorporated (LEG) continuation trend
Lennar Corp. (LEN) continuation trend
Marriott International, Inc. (MAR) continuation resistance
Mattel Inc. (MAT) continuation trend
Mattel Inc. (MAT) continuation support
McDonald’s Corp. (MCD) continuation trend
McDonald’s Corp. (MCD) continuation trend
Meredith Corp. (MDP) continuation channel
Merrill Lynch & Co. Inc. (MER) continuation channel
MetLife, Inc. (MET) continuation trend
MGIC Investment Corp. (MTG) continuation trend
Newmont Mining Corp. (NEM) continuation trend
Newell Rubbermaid Inc. (NWL) continuation trend
OfficeMax Inc. (OMX) continuation trend
Prudential Financial, Inc. (PRU) continuation trend
Public Storage (PSA) continuation trend
RadioShack Corp. (RSH) continuation trend
Sara Lee Corp. (SLE) continuation support
Tyco Electronics, Ltd. (TEL) continuation trend
Target Corp. (TGT) continuation trend
Titanium Metals Corporation (TIE) continuation trend
Torchmark Corp. (TMK) continuation trend
The Travelers Companies, Inc. (TRV) continuation support
Weatherford International Ltd. (WFT) continuation channel
American Capital, Ltd. (ACAS) continuation trend
Altera Corp. (ALTR) continuation trend
CH Robinson Worldwide Inc. (CHRW) continuation trend
Compuware Corporation (CPWR) continuation trend
Fiserv, Inc. (FISV) continuation support
Fifth Third Bancorp (FITB) continuation trend
Huntington Bancshares Inc. (HBAN) continuation trend
Intuit Inc. (INTU) continuation trend
NetApp, Inc. (NTAP) continuation trend
NetApp, Inc. (NTAP) continuation trend
Tellabs Inc. (TLAB) continuation support
Whole Foods Market, Inc. (WFMI) continuation trend
NASDAQ Composite (^IXIC) continuation support

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Chart pattern update for Aug 13 2010

Agilent Technologies Inc. (A) continuation support
Qwest Communications International Inc. (Q) continuation trend
Alcoa, Inc. (AA) continuation channel
AutoNation Inc. (AN) continuation trend
AutoNation Inc. (AN) continuation support
Boeing Co. (BA) continuation trend
CIGNA Corporation (CI) continuation channel
EI DuPont de Nemours & Co. (DD) continuation trend
EI DuPont de Nemours & Co. (DD) continuation trend
FirstEnergy Corp. (FE) continuation trend
Goodrich Corp. (GR) continuation trend
Procter & Gamble Co. (PG) continuation trend
Regions Financial Corp. (RF) continuation trend
Regions Financial Corp. (RF) continuation trend
Ambac Financial Group, Inc. (ABK) continuation trend
Analog Devices Inc. (ADI) continuation channel
Analog Devices Inc. (ADI) continuation trend
Automatic Data Processing, Inc. (ADP) continuation channel
Abercrombie & Fitch Co. (ANF) continuation trend
Allegheny Technologies Inc. (ATI) continuation trend
Boston Scientific Corporation (BSX) continuation trend
Compania Cervecerias Unidas S.A. (CCU) continuation trend
Clorox Corporation (CLX) continuation resistance
Comerica Incorporated (CMA) continuation trend
Comerica Incorporated (CMA) continuation trend
CME Group Inc. (CME) continuation trend
CME Group Inc. (CME) continuation trend
CONSOL Energy Inc. (CNX) continuation trend
Dover Corp. (DOV) continuation trend
The Dow Chemical Company (DOW) continuation trend
Ecolab Inc. (ECL) continuation trend
Genworth Financial Inc. (GNW) continuation trend
W.W. Grainger, Inc. (GWW) continuation trend
Hasbro Inc. (HAS) continuation trend
HJ Heinz Co. (HNZ) continuation trend
Starwood Hotels & Resorts Worldwide Inc. (HOT) continuation trend
Host Hotels & Resorts Inc. (HST) continuation trend
IntercontinentalExchange, Inc. (ICE) continuation resistance
Nordstrom Inc. (JWN) continuation trend
Leggett & Platt, Incorporated (LEG) continuation trend
Lennar Corp. (LEN) continuation trend
Marriott International, Inc. (MAR) continuation resistance
Mattel Inc. (MAT) continuation trend
Mattel Inc. (MAT) continuation support
McDonald’s Corp. (MCD) continuation trend
McDonald’s Corp. (MCD) continuation trend
Meredith Corp. (MDP) continuation channel
Merrill Lynch & Co. Inc. (MER) continuation channel
MetLife, Inc. (MET) continuation trend
MGIC Investment Corp. (MTG) continuation trend
Newmont Mining Corp. (NEM) continuation trend
Newell Rubbermaid Inc. (NWL) continuation trend
OfficeMax Inc. (OMX) continuation trend
Prudential Financial, Inc. (PRU) continuation trend
Public Storage (PSA) continuation trend
RadioShack Corp. (RSH) continuation trend
Sara Lee Corp. (SLE) continuation support
Tyco Electronics, Ltd. (TEL) continuation trend
Target Corp. (TGT) continuation trend
Titanium Metals Corporation (TIE) continuation trend
Torchmark Corp. (TMK) continuation trend
The Travelers Companies, Inc. (TRV) continuation support
Unum Group (UNM) continuation trend
Weatherford International Ltd. (WFT) continuation channel
American Capital, Ltd. (ACAS) continuation trend
Altera Corp. (ALTR) continuation trend
CH Robinson Worldwide Inc. (CHRW) continuation trend
Compuware Corporation (CPWR) continuation trend
Fiserv, Inc. (FISV) continuation support
Fifth Third Bancorp (FITB) continuation trend
Huntington Bancshares Inc. (HBAN) continuation trend
Intuit Inc. (INTU) continuation trend
NetApp, Inc. (NTAP) continuation trend
NetApp, Inc. (NTAP) continuation trend
Tellabs Inc. (TLAB) continuation support
Whole Foods Market, Inc. (WFMI) continuation trend
NASDAQ Composite (^IXIC) continuation support

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Chart pattern update for Aug 12 2010

Agilent Technologies Inc. (A) continuation support
Qwest Communications International Inc. (Q) continuation trend
Alcoa, Inc. (AA) continuation channel
AutoNation Inc. (AN) continuation trend
AutoNation Inc. (AN) continuation support
Boeing Co. (BA) continuation trend
CIGNA Corporation (CI) continuation channel
EI DuPont de Nemours & Co. (DD) continuation trend
EI DuPont de Nemours & Co. (DD) continuation trend
Goodrich Corp. (GR) continuation trend
International Paper Co. (IP) continuation trend
Procter & Gamble Co. (PG) continuation trend
Regions Financial Corp. (RF) continuation trend
Regions Financial Corp. (RF) continuation trend
Ambac Financial Group, Inc. (ABK) continuation trend
Analog Devices Inc. (ADI) continuation channel
Automatic Data Processing, Inc. (ADP) continuation channel
Abercrombie & Fitch Co. (ANF) continuation trend
Allegheny Technologies Inc. (ATI) continuation trend
Boston Scientific Corporation (BSX) continuation trend
Compania Cervecerias Unidas S.A. (CCU) continuation trend
Clorox Corporation (CLX) continuation resistance
Comerica Incorporated (CMA) continuation trend
Comerica Incorporated (CMA) continuation trend
CME Group Inc. (CME) continuation trend
CME Group Inc. (CME) continuation trend
Dover Corp. (DOV) continuation trend
The Dow Chemical Company (DOW) continuation trend
Ecolab Inc. (ECL) continuation trend
(FRE) continuation resistance
Genworth Financial Inc. (GNW) continuation trend
W.W. Grainger, Inc. (GWW) continuation trend
Hasbro Inc. (HAS) continuation trend
HJ Heinz Co. (HNZ) confirmed triangle bottom
HJ Heinz Co. (HNZ) continuation trend
Starwood Hotels & Resorts Worldwide Inc. (HOT) continuation trend
Host Hotels & Resorts Inc. (HST) continuation trend
IntercontinentalExchange, Inc. (ICE) continuation resistance
ITT Corporation (ITT) continuation support
Leggett & Platt, Incorporated (LEG) continuation trend
Lennar Corp. (LEN) continuation trend
Marriott International, Inc. (MAR) continuation resistance
Mattel Inc. (MAT) continuation trend
Mattel Inc. (MAT) continuation support
McDonald’s Corp. (MCD) continuation trend
McDonald’s Corp. (MCD) continuation trend
Meredith Corp. (MDP) continuation channel
Merrill Lynch & Co. Inc. (MER) continuation channel
MetLife, Inc. (MET) continuation trend
MGIC Investment Corp. (MTG) continuation trend
Newmont Mining Corp. (NEM) continuation trend
Newell Rubbermaid Inc. (NWL) continuation trend
OfficeMax Inc. (OMX) continuation trend
Prudential Financial, Inc. (PRU) continuation trend
Public Storage (PSA) continuation trend
RadioShack Corp. (RSH) continuation trend
Sara Lee Corp. (SLE) continuation support
Tyco Electronics, Ltd. (TEL) continuation trend
Target Corp. (TGT) continuation trend
Titanium Metals Corporation (TIE) continuation trend
Torchmark Corp. (TMK) continuation trend
The Travelers Companies, Inc. (TRV) continuation support
Unum Group (UNM) continuation trend
Weatherford International Ltd. (WFT) continuation channel
Whirlpool Corp. (WHR) continuation trend
American Capital, Ltd. (ACAS) continuation trend
Altera Corp. (ALTR) continuation trend
CH Robinson Worldwide Inc. (CHRW) continuation trend
Compuware Corporation (CPWR) continuation trend
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