What is the Law of Charts (TM) ?
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and highs, Ross hooks, trading ranges, and ledges. These occur in all
time frames because the depict human action and reaction vis-à-vis
price movement.
What makes these formations unique is that they can be specifically
defined. The ability to formulate a more precise definition sets these
formations apart from such vague generalities as "head and
shoulders," "coils," "flags," "pennants,"
"megaphones," and other such supposed price patterns that are
frequently attached as labels to the action of prices.
A 1-2-3 high or low comes at the end of a trend or swing. It forms as
the result of a change in the direction of prices. The 1-2-3 low forms
as the result of buying pressure overcoming that of selling pressure.
The 1-2-3 high forms as the result of selling pressure overcoming
buying pressure.
A Ross hook™ always forms as the result of profit taking in an trend
or swing.
A ledge forms as a result of profit taking, uncertainty about future
price direction, or both. You might consider it as a pause in the
overall movement of prices in a single direction.
A ledge is the smallest of a number of consolidation formations: it
never consists of more than 10 or less than 4 price bars. It is
denoted by containing two matching or nearly matching highs and two
matching or nearly matching lows.
A consolidation consisting of eleven to 20 price bars is called a
congestion, and a consolidation consisting of 21 or more price bars.
As simple as these definitions are, the have been found to constitute a
"law." Any data that contains both a high and a low, will form
these patterns; even data that has nothing to do with markets and
trading.
We hope you will consider learning more about The Law of Charts, it is
a free resource on the following website
http://www.tradingeducators.com/. Study it as much as you want. And
while you are visiting take a look at the Traders Trick™ entry. The
Traders Trick is a companion to the Law of Charts. It teaches how to
trade the 1-2-3 and the Ross hook.
Joe Ross
http://www.tradingeducators.com/