I A Fidelity Investments Webinar Series Identifying Chart Patterns with Technical Analysis BROKERAGE: 2)Technical Analysis Webinar SYelaTo) Getting Started with Technical Analysis Learn the assumptions that guide technical analysis, and get to know the basics of trend trading. Understanding Indicators in Technical Analysis Identify the various types of technical indicators, including trend, momentum, volume, volatility, and support and resistance. Identifying Chart Patterns with Technical Analysis Use charts and learn chart patterns through specific examples of important patterns in bar and candlestick charts, Managing Risk with Technical Analysis Manage your trading risk with a range of confirmation methods.Pi About Our Coauthor Fidelity Charles D. Kirkpatrick Il, CMT CChaties 0. Kirgpattck I, CMT, is president of Kirkpatrick & Company, Ie,» technica analysis research frm that publ shes the Market Strategist investment newsletter. A pastinstuctor in finance at the School of Business Administration at Fort Lewis College ne adjunet profesror of finance at Brandeis University International Business School he isa two-time winner ofthe Crartered Market Technicians Association's pret gous ChatiesH. Dow Award for research in technical analysis, winner of the MTA Annual Award in 2008 for “Outstanding Contributions to the Field of Technical Analysis,” and ‘winner in 2012 of tne Mike Epstein Award from the MTA Ecucational Founcation for “Long-Term sponsorship of Technical Analysis in Academia, Market Technicians Association, past edtor of the Journal of Technical Analysis, past board member and vice president of the CMT Association Educational Foundation and a member ef the American Assocation of Professional Technicians (AAPTA), He the primary textbook ar the CMT program anc for university raduate courses on technical analysis, authored Beat the Market and, most recently, Time the Markets: Using Technical Analysis Interpret Economie Data He is a graduate of Philips Exeter Academy, Harvard College (A8), and the Wharton Senool (MBA) and lives with his wife n MaineTechniques for Trading Patterns Understanding Construction Patterns and of Common Their Limits Chart Patterns AgendaUnderstanding eS Patterns and Their LimitsDefining Patterns goog + A pattern is bounded by at least two trend lines (straight or curved) Patterns are fractal, meaning that they can be seen in any charting period (weekly, daily, minute, etc) + A pattern is not complete or activated until an actual breakout occursThe Limits of Patterns Oo Hed Keep in Mind Some of our human tendencies can be dangerous for investors. + See patterns where there aren't any + Believe “market lore,” technical and fundamental, without evidence + Look backwards rather than forward + Stick with original price targets of patterns after conditions have changedTechniques for Trading PatternsTechniques for Trading Patterns * Breakouts + Entry Stops + Protective Stops + RetracementsBreakouts Violation of Trend Line, Support or Resistance, or previous reversal point It signifies that a change Resistance in buyer and seller behavior and signals the beginning or end ofatrend. Breakout PriceConfirmation Filters Types of Filters Confirmation + Intrabar Filters + Multiple closes + Time Apply a confirmation fitter to determine whether a breakout + Percentage or point has taken place, tage or point + MoneyEntry Stops Entry Stops Buy stop orders are used to ‘enter trades once the price breaks out.————EEEEEooo——EE——————————— False and Failed Breakouts Fidelity False Breakout Price breaks out but almost immediately returns back through its breakout price, Failed Breakout (Trap) False breakout occurs and the price then breaks out in the opposite direction.Protective Stops Protects Capital Determines the amount of capital risk before entry Types of placement + Filters, such as percent, points, or money, + Trend line, support or resistance level with filterExample Enter on breakout Place protective stop outside breakout bar ‘opposite from breakout direction Place entry stop at same level (called a "stop and reverse" order) If price continues in direction of breakout, profit from breakout entry + If breakout is false, profit from stop and reverseRetracements Counter Trend Correction Types + Pullback (on breakout down) + Throwback (on breakout up) Waiting for + Dont always occur + Performance can suffer when they doConstruction of ) Common Chart Patterns————EEEEEooo——EE——————————— Common Chart Patterns Fidelity Multi-Bar Candlestick Short-Term Patterns Patterns Patterns Horizontal Congestion + Doji + Pennant/Flag * Double and Triple + Harami + Gaps Tops/Bottoms + Hanging Man/Hammer + Pipe Bottom + Rectangles + Shooting Star/inverted + Narrow Range Hammer Triangles + Engulfing + Symmetrical + Dark Cloud/Piercing + Ascending and Descending + Wedges Other + Head and Shoulders + Cup and HandleHorizontal Congestion: Double Top Fidelity Characteristics: Double Top = + Two successive peaks separated (breakout down) pase : by an opposite reversal point . i | fl sistance Line Mi i i ray! se + Either rounded or pointed peaks that are usually at roughly the same price (resistance level) + Price must break out of middle Supper reversal point ne — Price Calculate target price: Taking the height from the highest peak tothe trough and then subtracting the amount from the breakout price tthe sownsiceHorizontal Congestion: Double Bottom Characteristics: Two successive troughs separated bya peak Either rounded or pointed troughs that are usually at roughly the same price (supportlevel) Price must break out of middle peak Double Bottom (breakout up) Resistance tine Supportine — Price Calculate target price: Taking the distance ftom the woughs to the peak and then ccing tat amount from the breskout price tothe upside,Horizontal Congestion: Triple Top Characteristic: + Three distinct peaks at roughly the same price level separated by two intermittent troughs Resistance ine Triple Top (breakout down) + Breakout occurs when price exceeds Ptback the extreme of the intermittent trough or a trend line connecting those points Suppartine Calculate target price: Take the height rom the highest peak tothe lowest rough sit ete ete ee et are ee ce trougin the ptr to generates phe target.Horizontal Congestion: Triple Bottom Characteristics: Three distinct troughs at roughly the same price level separated by two intermittent peaks at any level Breakout occurs when price exceeds the extreme of the intermittent peaks ora trend line connecting those points Best performance may be after a sustained decline” ‘An average performance, but watch for failures Triple Bottom : (breakout up) Wy Suppor ine Calculate target price: Take the height rom the highest peak tothe lower rough siete atte die tee ete eereo the plier fo poetics pce ge————EEEEEooo——EE——————————— Horizontal Congestion: Characteristics: + Trading range with support and resistance levels bounding price action Slight tilt, similar to horizontal channel + Often has many false breakouts” + Things to consider: Confirm a breakout = "Shortfall" often indicator of eventual breakout drecton + Best occurrence may be bottom breaking upward" *Sour Rectangles Rectangle (entry up, breakout up) ‘Support ine — Piice Calculate target price: “Tate the height fom the resistance tine tothe support tne. Then tither add that amount tothe resistance ine to generate pice target or an upside breakout, OR subract that amount fom the Supportline to generate a price target for @ downside breskoutTriangle: Symmetrical Characteristics: Bounded by a downward sloping upper trend line and an upward sloping lower trend line. Each bound isa straight trend line Prices must touch each bound at least twice. Many false breakouts Moderately successful in performance Things to consider: Confirm a breakout Best occurrence may be upward breaking out - above average for all patterns* ‘Symmetrical Tangle (breakout up) Calculate target price: “Take the height rom he highest peak nthe pattern tthe lowest rough nthe patern. Then elter add it for upward breakout) to the breakout price or subtract for downward breakouts) from the breakout price to generate a price targetTriangle: Ascending Characteristics: Ascending Tangle - + Bounded by a horizontal upper trend {oreakout down) ‘ z line and an upward stoping lower cues me f : trend line. Each bound is a straight ces tenee be 1 trend line ; = + Prices can break in either direction, but more commonly upward a Ai About average failure rates but many — Price small false breakouts” — + Post breakout performance average Calculate target price: on upside but above average on ‘Tote the height fom the highest peakin the pattern tothe downside" lowest rough inthe pater Then either add tor vpmare breakouts) tthe breakout price or subtactit (or downward breakouts) fom the breakout price to generate a pice targetTriangle: Descending Characteristics: Descending Triangle SE + Bounded by two trend lines; the (oreakout down) (ower is horizontal and the upper slopes downward Resistance tine + Prices can break in either direction fey ai but most commonly downward" Suppon ine + Above-average performance on upside break; retracements occur often” — Price Calculate target price: Take the height from the highest peak lowert rough inthe pattern. Then eitneradd for uoware breakouts) to the breakout price or subtract or dowrware breakouts) from the breakout price to generate a pice target he pattern tothe Analysis: the Complete ResTriangle: Wedge Characteristics: + Bounded by two trend lines, each headed in the same direction; Price must touch a trend line at least five times (3 times on one and 2 times on the other) before a breakout + Often occur following a panic (declining wedge) or bubble (rising wedge) + Performance in both types is below average, and retracements are very common” *Source: Technical A Rising Wedge (breakout down from climax peak) Calculate target price: pean feet eters trtereeritied pice target, For upward brea, take the hgh trom the ee ee eee rere ede et ae aeHead and Shoulders: Top Characteristics: Three peaks with center peak higher than the other two Shoulders should be at approximately the same level and the head higher Line connecting the two throughs between the peaks is called the “neckline” Pate igenycompeteonbressing the neckline Target is the distance from the head to. the neckline projected from the neckline This is a standard pattern for tops and has one of the lowest failure ratesHead and Shoulders: Bottom (Inverse) Characteristics: + Inverted but otherwise Head and Shoulders Bottom ood ~ identical to a top pattern (breakout up) except not as profitable* Price — Neckline *Source: TeCup and Handle (also “Saucer”) Characteristics: + Pattern consists of a rounded bottom (nota "V" bottom), two “lips” at each end, and a "handle" (similar to a flag pattern) from the handle + Pattern is complete with breakout above both lips + Often have a throwback + The pattern’s performance ranks about average for bottom patterns” *Source: Technical A Rounding Bottom ———— (breakout up) — Price cup or Bow! Calculate target price: “Take the height ofthe right cup lip tothe bottom of tre cp, then add that amount the breakout pice.Trading with Patterns FidelityBest Multi-Bar Patterns Upward Signals Downward Signals + Descending + Flag Triangle + Head and + Rectangle Shoulders top + Pipe Bottom * Island ReversalGeneral Information about a Candlestick Characteristics: Traditionally, candlestick patterns are reversal patterns, meaning they are used to identify when a trend is ending Candlestick patterns are often used with longer-term trends, thus, upward reversal patterns after a correction in a longer upward trend show the best performance, and vice versa for downward reversal patterns in a long downward trend Be careful not to act on a perceived candle pattern until the pattern has formed and is activated by a breakout in a certain directionDoji Characteristics: A one-candle pattern formed when the open and close are the same price, and the high and low are roughly equidistant from the open and close Extremely common Indicates indecision in the marketplace and thus is a possible warning of price change Doji aHarami Characteristics: + Atwo-candle pattern of a large body of either color followed by a small body of the opposite color; The second body is completely within the body of the large body and is called a “spinning top” + Although common belief is that the harami is a reversal pattern, many report that is has the potential of breaking either way + Avariation that has a doji instead of a spinning top as the second candle has equally average performance and random breakout orn bbe Black or WhiteHanging Man and Hammer Characteristics: ‘One-candle patterns differentiated by the color of the body. Each pattern has a high that coincides with either the opening or closing price Hanging man, thought to be a continuation pattern, actually breaks in either direction randomly with a slight upward bias. Its overall performance is below average* Hammers occur relatively frequently but have below-average performance Hanging Man — Hammer ryShooting Star and Inverted Hammer Characteristics: Acne-candle inverted hanging man or hammer pattern. Hammers by themselves have white bodies and shooting stars have black bodies ‘As a one-candle pattern, the shooting star has average performance. The same is true for the, single Inverted hammer Shooting Star and Inverted Hammer TopEngulfing Characteristics: + Atwo-bar pattern in which the second bar body completely engulfs the first bar body" + A bottom engulfing pattern, with a short black body followed by a tall white body, is thought, to be an upward reversal pattern and actually has very good performance on a downward breakout in a downward trend” Engulfing IrDark Cloud Cover and Piercing Line Characteristics: + The dark cloud cover is a two-bar pattern where the second bar closes higher than the first and is black versus white in the first bar + The piercing line is the opposite of the dark cloud cover in that the second bar is white and lower than the first bar which is black + The dark cloud is thought to be a downward reversing pattern + The piercing line pattern is thought to be an upward reversing pattern Dark Cloud Cover and Piercing Line aePennant/Flag Characteristics: Flag and Pennant Pennant and flag patterns are variations of the-seme pattern inupward tend Flag Pennant These patterns are often preceded by a steep, sharp price change, up of nce down, and forma short consolidation that appears like a triangle or flag, Generally, the pattern slopes slightly in the direction opposite from the trend The breakout in either direction is often followed by a move that equals the earlier steep, sharp price change into the pattern Calculate target price: Tate the height fom testa ofthe ag pole” to the heen peak inthe pennant Add that amu to the eee eetGaps Characteristics + Definition - no trading (gap) at specific prices + Gaps can be considered “up" or "down" + Gaps are caused by appreciable changes in supply and demand from one close to the following openGaps Characteristics cana + Gaps are generally profitable on breakouts from patterns, trends, support or resistance + Amethod of trading 2 gap is the “explosion gap pivot." It assures that the gap is valid + After the gap, wait for “throwback.” If throwback "covers" the gap, no action. If the throwback stops, this is called the "pivot low.” Place buy entry above high of the gap bar + "Pivot" is the lowest level of the post-gap breakout + Protective stops initially placed at gap low and then below pivot low : = owTwo-Bar Reversal Button or Pipe Bottom istics: Two-Day Reversal Bottom Characteristics: (or Pipe Bottom) + Two bars and occurs at the end of a large trend, up or down trend, Ideally, the first bar, in a bottom pattern, closes at the low, and the second bar closes in the upper half of the range. Itis more reliable in weekly data + Bar ranges are larger than preceding bar ranges + Action occurs on breakout through second bar Calculate target price: Take the height fo te tla ofthe two bare oe wer tithe two bs Aed tat amount tote ter ofthe to Barto gta pice tage.Volatility Patterns Characteristics: + Dullactivity is known as “low volatility.” New trends often begin from periods of low volatility + One way to look at volatility is to observe the relationship between price bars + "Range" is the spread between high and low in a price bar + Ifa baris followed by a bar with less range, volatility is declining; the second bar is called a “narrow range” bar + When this second bar's range is contained within the range of its preceding bar, itis called an “inside bar.” Inside BarNarrow Range Characteristics: ‘One low volatility pattern is called a “Narrow Range" pattern and consists of a bar with a range narrower than its preceding bars The graph shows a four-bar, Narrow Range pattern (NR4) with four bars, the fourth bar having a narrower range than the preceding three bars The breakout occurs on a break above or below the high or low of the narrow range NRG Range on day 4 less than days 1-3 LT |Technical Analysis Webinar SYelaTo) Getting Started with Technical Analysis Learn the assumptions that guide technical analysis, and get to know the basics of trend trading. Understanding Indicators in Technical Analysis Identify the various types of technical indicators including, trend, momentum, volume, and support and resistance. Identifying Chart Patterns with Technical Analysis Use charts and learn chart patterns through specific examples of important patterns in bar and candlestick charts, Managing Risk with Technical Analysis Manage your trading risk with a range of confirmation methods.WiKi mata col-l la Learning Center Tea Maolee-leoleLg stay -mcroalalcecle EW Aa CORI TlL a for you [Cer Neer tena et eter TOC Ue aa eee eats , Pee eee Attend: Register for monthly webinarsThank You eee UR aur are ues DOIG Path MC aan ate Clee eure ent Le ented 877-907-4429 Cyan————EEEEEooo——EE——————————— Important Information Fidelity Any sezeonshots, charts, or company trading symbols mentioned are provided for ilustrative purposes only and should not be considered An olferto sel, solckation ofan oer to muy, ora ecommendaton forthe secutty Investing involves tsk, including tek of loss. Past performance is no guarantee of future results Stop loss orders do not guarantee the execution price you will ecelve and have addtional ists that may be compounded in periods of ‘atk volatility Stop toss orders could be triggered by price swings and could result in an execution wall below your tigger price. Trailing stop ordors may have increased risks due to thor reliance on wigger pricing. which may be compounded in periods of markot volatlty, as wellas market data and other internal and extemal system factors Trang stop orders are Reld ona separate, intemal order Fg, pave on a "na: held" basis and only monitored between 9:30 AM and 8-00 PM Easier Technical analysis focuses on market action - specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When consideting which stack to buy er sel you should use the approach that you're mest comfortable with, As wit all your mivestment, You: must make your own determination a5 t0 whether an investment in any particular security or secures right for You based on your Investment ab ectves, risk tolerance, and Financia situation. Past performance is no guarantee of future results Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 © 2020 FMRLLLC. All ignts reserved 919638.1.0