Terminology · Lesson 3 · Beginner
Chart and Trading
You know the terms of chart analysis and order execution, from support to slippage.
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What it is about
These terms come up again in every chart and strategy lesson. Learn them cleanly once.
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The key points at a glance
- The terms for reading charts and executing orders will stick after this deck.
- Support, resistance, and breakout belong together.
- You are done once you complete a quiz round without a mistake.
Deep dive
Drawing support and resistance correctly: zones, not lines
The most common beginner mistake is the hair-thin line through a single extreme point. Pros draw across the edges of a whole congestion zone, never through individual wicks.
- Strength of a zone: how often it has been tested, how much volume.
- Plus how wide it is and how long it has already held.
- Role reversal: broken resistance becomes new support.
- A breakout retest allows a tight stop right below it.
- Never set the stop exactly at round numbers, clusters lurk there.
Spotting a false breakout: the closing price decides
A false break below support that quickly returns is a long signal, not a sell signal. In crypto these are the frequent liquidity grabs and stop hunts: sellers deliberately push the price to known stop levels.
- A breakout only counts once a candle closes outside.
- The close is the opinion of the pros, the wick is noise.
- A breakout without a volume increase is often a false breakout.
- Volume spikes mark bottoms more often than tops.
What Bulkowski's failure rates honestly tell you about chart patterns
Chart patterns are probabilities with honest failure rates. A head and shoulders top has roughly a 4 percent failure rate in a bull market with about a minus 22 percent move. But these figures assume perfect trades, whose real hit rate is close to zero. Take them as a ranking, not a promise.
- Confirmation required: valid only with a close outside.
- Conservative measure rule: target only half the formation height.
- The full height is reached in only 40 to 44 percent of cases.
- Half the height, by contrast, in 68 to 79 percent.
- The lowest failure rates belong to patterns in the trend direction.
Sources: Murphy, Elder, Goodman
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