Welcome:
Lesson 2:	Part 1 continued... Chart Patterns

The Shakeout Formation.
This pattern has a high degree of reliability. The Shakeout is relatively new and we have found it very useful in real-life application. It is called the Shakeout because the pattern is deceiving causing some holders of the stock to sell, in effect "shaking out" these weak holders.

For the pattern to be a true Shakeout formation, it must have the following attributes. 1. The stock must be in a strong up trend and trading above the Bullish Support Line. 2. The stock must rise to a level where it forms two tops at the same price forming a Double Top. 3. The subsequent reversal of the stock from these two tops must give a Double Bottom sell signal. 4. The reversal up is the action point to buy as this tells us the weak holders have been "shaken out" and demand is back in control. The Shakeout formation is completed when a triple top is broken.

First, this pattern occurs in a strong up trend.

Then the chart gives a Double Bottom sell signal.

The action point to buy is the first three box reversal up.

Bearish Signal Reversed. This pattern must have seven columns to qualify. Each column of X's must be lower than the one before and each column of O's must carry lower than the one prior to it. Action of this type indicates supply is in control and getting stronger. In this pattern we will see the stock reverse up and quickly, without a period of accumulation, break a double top. This reverses the series of lower tops and often leads to a strong move to the upside. The action point with this chart is the breakout. We wait for the breakout because until it is given supply is in control. We do not see this pattern very often but when we do its one of the best.

Bullish Signal Reversed. This pattern is the reverse of the Bearish Signal Reversed. This pattern shows seven columns of rising bottoms and rising tops. When the last top is made in the seventh column, the stock reverses and without a period of distribution declines to give the Double Bottom sell signal reversing a series of rising bottoms.

Next