When is a chart pattern considered confirmed?

First identify the preceding trend and the pattern's defining boundary. A reversal pattern needs a break of its confirmation level, such as a neckline or the support between two peaks. A continuation pattern needs a break in the direction of the prior trend. Compare the close, subsequent price action and volume with the proposed interpretation. An intraday crossing that closes back inside the pattern is weaker evidence than a sustained break. Set an invalidation level because confirmation does not ensure follow-through.

How should moving averages and oscillators be used together?

A moving average helps describe direction and smooths price, but its signal lags because it includes earlier observations. An oscillator measures a transformation of price, such as relative gains and losses or a close's position within a recent range. In a strong trend, an oscillator can stay at an extreme while price keeps moving. Establish the market regime and time frame first, then use the indicator reading to refine a specific decision. Several indicators calculated from the same prices are correlated evidence, not separate confirmations.

How do I judge whether a trading setup is worth taking?

Specify the entry trigger, price that invalidates the idea, plausible exit and position size. For a long trade, risk per share is entry minus stop; potential reward per share is target minus entry. Divide reward by risk, then account for costs and the chance of each outcome. A 2:1 reward-to-risk ratio does not by itself make a strategy profitable: at a 30% win rate, expectancy before costs is 0.30 × 2R minus 0.70 × 1R, or −0.10R per trade. Also check whether existing positions share the same market exposure.

STA Philippines CTA Study Guide

Start with concept 1 Choose a topic

Technical analysis starts with a practical question: what does the market's recorded behavior suggest, and what observation would change your view? In the STA Philippines CTA course, you need to construct and read charts, classify trends, distinguish reversals from pauses, calculate indicators, and turn an interpretation into a controlled trading plan. This guide develops those skills through sixty focused lessons. Each example uses hypothetical prices and volumes so you can check the arithmetic and the decision, including cases where a signal is weak or conflicts with a broader trend. Treat pattern targets and indicator readings as conditional evidence. A useful analysis states its time frame, trigger, invalidation point, and risk before it considers a possible reward.

Philosophy of Technical Analysis

1. What price captures

The Certified Technical Analyst (CTA) curriculum starts with a practical question: what can observed market prices tell you? Each transaction reflects a buyer and seller agreeing at a particular moment, amid differing information, expectations, liquidity needs and constraints. A price change therefore records how the market has repriced a share. It does not identify which participant was right or calculate the business's intrinsic value. Technicians study sequences of prices to judge direction, levels where trading behavior changes, and conditions that would weaken a hypothesis. Keep the claim tied to the evidence: a rising price shows that buyers were willing to transact at higher levels during the observed interval. A sound analysis also names its time frame and a price event that would challenge its interpretation.

Worked example: A Philippine share closes at PHP 100 before an announcement and PHP 108 afterward. Its close-to-close change is (108 − 100) ÷ 100 × 100 = 8%. The observation supports an 8% market repricing over that interval. It does not establish why every trader acted or prove that PHP 108 equals intrinsic value. A technician could next examine whether subsequent closes hold above PHP 100.

Watch the distinction: A common error is to call any positive reaction proof that the news improved fundamental value. Price measures trading response; assessing value requires separate assumptions about future cash flows and risk.

Reference: [1]; [2]

2. Price and participation

Volume counts the shares traded during a specified period. Read it alongside price to ask how much trading accompanied a move, using a comparable baseline such as recent sessions in the same security. A rise on unusually high volume suggests broader or more intense participation than a rise on light volume. It cannot tell you whether informed investors bought, short sellers covered, or traders reacted to a temporary event. Compare the size and direction of each price move with its volume, then watch how price behaves near a relevant level. If a breakout quickly reverses despite heavy volume, participation did not make it durable. Changes in free float, corporate actions or trading hours can also distort comparisons, so check that the volume figures describe like-for-like periods.

Worked example: A share rises from PHP 100 to 105 on 1.8 million shares, then from PHP 105 to 107 on 0.4 million. The first gain is 5 ÷ 100 = 5%; the second is 2 ÷ 105 ≈ 1.90%. The second day's volume is about 78% lower than the first day's. That lighter participation warrants scrutiny of the advance, although it does not by itself predict a fall.

Watch the distinction: High volume does not prove that buyers had superior information. Every completed trade has both a buyer and seller; volume describes activity, while subsequent price behavior helps assess its effect.

Reference: [2]

3. Choose the observation horizon

A trend statement is incomplete until it specifies its observation horizon. Daily swings may turn down while a weekly sequence of higher lows remains intact. First identify the swing points and support relevant to the trading decision. Then examine the broader chart to see whether the local move is a pullback, a possible early warning, or part of a larger break. Use closes and intraperiod extremes consistently; a daily close below a recent low is a different observation from a brief intraday dip. A short-term trader might respond to a daily break, while an investor using weekly structure may wait for weekly evidence. Neither view cancels the other. Record both time frames, the level each depends on, and what future price action would change the classification.

Worked example: A share closes at PHP 104, below its recent daily swing low of PHP 105. That is a PHP 1 break, about 0.95% below the low. Weekly support remains at PHP 100, with no weekly break established. The appropriate reading is daily weakness inside a weekly structure that still holds. A later move below PHP 100 would call for a fresh weekly assessment.

Watch the distinction: Calling the daily break a confirmed long-term downtrend skips the larger chart. A local support failure can occur during a broader uptrend, so label the horizon before acting.

Reference: [2]

4. Value and timing answer different questions

An estimate of value addresses what a security may be worth under stated business and discount-rate assumptions. Technical timing asks whether observed trading behavior supports entering now. The questions can produce different answers without contradiction. A share may appear cheap relative to an estimate yet continue making lower lows because expectations, financing conditions or selling pressure change. A technician can require a specific price event, such as reclaiming a prior swing level, before treating the decline as possibly stabilizing. That event is an entry condition, not confirmation that the valuation is correct. Define where the timing idea fails and size the position around that risk. Readers studying valuation methods can use them as a separate input while keeping the chart trigger and its invalidation explicit.

Worked example: An investor estimates value at PHP 120, but successive lows are PHP 98, 94 and 90. The latest low is PHP 8 below the first, so the falling structure persists. A hypothetical close above PHP 94 would reclaim one prior low and offer an initial timing trigger. The PHP 120 estimate alone gives no evidence that the decline has ended; a return below PHP 90 would challenge a recovery plan.

Watch the distinction: A large gap between estimated value and market price is not an entry signal by itself. The estimate may change, and price can keep falling before any technical recovery appears.

Reference: [2]

5. Signals are conditional

A signal describes a condition under which an outcome occurred more or less often in a defined historical sample. To interpret it, specify the breakout rule, target, failure rule, holding period and market examined. Count outcomes only after those definitions are fixed. The resulting frequency is descriptive, and its usefulness depends on whether the sample resembles the conditions faced now. A breakout during a broad trend may behave differently from one in a choppy range. Also inspect the size of wins and losses, because a high success rate can still accompany poor results if failed trades lose much more. For a new trade, specify the price that would invalidate the setup and the amount at risk. No historical percentage removes uncertainty from a single outcome.

Worked example: In a hypothetical review, 60 of 100 breakouts reach a stated target within the chosen period, while 40 do not. The observed hit rate is 60 ÷ 100 = 60%; the miss rate is 40%. A new breakout can fall into either group. Before entry, the analyst might set a failure condition at a close back below the breakout level and separately estimate possible loss.

Watch the distinction: Treating a 60% historical hit rate as a promise confuses sample frequency with the next trade's result. It also ignores how much the 40 failed trades lost.

Reference: [2]

6. Independent confirmation

Confirmation is stronger when observations add different information. Two moving averages derived from the same closing prices are related calculations; price crossing both may reflect one underlying movement rather than two independent pieces of evidence. Volume adds a different measurement: how many shares changed hands. Even then, volume cannot reveal every trader's motive, and a surge can accompany either continuation or exhaustion. Map each signal to its input before counting confirmations. Ask whether a second indicator would still provide useful information if the first were removed. Also check the relevant price structure: crossing averages inside a narrow range has a different meaning from crossing them during a break above established resistance. This approach prevents a crowded indicator panel from creating false confidence.

Worked example: A close moves above two averages calculated from prior closes. Meanwhile, volume rises from 0.8 million to 1.4 million shares. The increase is (1.4 − 0.8) ÷ 0.8 × 100 = 75%. The two average crossings are correlated price signals; the volume rise adds evidence of increased participation. The analyst still needs to see whether price sustains the move.

Watch the distinction: Counting every price-based indicator as an independent vote exaggerates confirmation. Check the inputs: indicators built from the same closes often respond to the same price change.

Reference: [2]

7. Make an idea falsifiable

A testable trading idea states the condition for entry, the price that would show the idea is failing, and an objective or exit rule. For a long position, risk per share is entry minus stop; potential reward per share is objective minus entry. Dividing reward by risk gives the planned reward-to-risk ratio, often expressed in R units. The stop should reflect the chart premise, such as a failed breakout or broken swing low, rather than a convenient ratio alone. Then check whether the distance to the stop allows a position size within the trader's risk budget. A target is an estimate, not a guaranteed exit price. Gaps, slippage and fees can make realized results differ from the plan. Writing these terms before entry makes later review possible.

Worked example: A proposed long entry is PHP 51, with a stop at PHP 47 and an objective at PHP 59. Planned risk is 51 − 47 = PHP 4 per share; potential reward is 59 − 51 = PHP 8. The ratio is 8 ÷ 4 = 2R before costs. A move through PHP 47 would invalidate this particular long setup, even if a different setup later appears.

Watch the distinction: Setting only an upside target leaves the hypothesis difficult to test. A complete plan identifies the price event that would make the original reason for entry no longer hold.

Reference: [2]

8. Avoid future-data bias

A trading rule must use information available when its decision is made. A session's closing price is unknown at that session's opening, so a rule conditioned on the close cannot produce a same-morning entry. In a manual review or backtest, write a timeline for every signal: when the data become final, when an order can first be placed, and what price assumption is used for execution. If the rule evaluates after the close, the next session's open may be an eligible execution point, but its price is not known when the signal forms. Apply the same timing to stops and targets. Practising this discipline with CTA practice questions helps expose apparently attractive results that depend on future information.

Worked example: A proposed rule says, “Buy at today's morning open if today's close exceeds PHP 100.” Today's close turns out to be PHP 103. The condition became known only after the session ended, so that morning's open was ineligible. The earliest ordinary decision is after the close, with any next-session fill evaluated at its actual price rather than retroactively assigned today's open.

Watch the distinction: Seeing the finished candle on a chart can make its close feel available throughout the day. Backtests must respect when each data point became observable or they overstate results.

Reference: [2]

Chart Construction

9. Read an OHLC bar

An OHLC bar records four prices for one defined period: the first traded price, highest price, lowest price and final traded price. The vertical stroke spans high to low; small side marks commonly show open and close. Read its range as high minus low and its net change as close minus open. To locate the close within the range, calculate (close minus low) divided by (high minus low). This fraction helps distinguish a bar that finished near its high from one that surrendered most of an intraperiod rise. It is undefined when high equals low, so do not divide by zero. Compare bars only after checking their time interval and whether prices have been adjusted for corporate actions. Chart construction is a published CTA syllabus topic.

Worked example: For one daily bar, O = PHP 100, H = 106, L = 98 and C = 103. Its range is 106 − 98 = PHP 8. The close is 103 − 98 = PHP 5 above the low, or 5 ÷ 8 × 100 = 62.5% of the range. It finished PHP 3 above the open and PHP 3 below the high.

Watch the distinction: A close above the open does not mean the bar closed at its high. Calculate its position in the full high-low range to see how much of the intraperiod advance remained.

Reference: [2]

10. Interpret candle anatomy

A candle displays the same OHLC data as a bar but emphasizes the real body between open and close. The body length is the absolute difference between those prices. The upper shadow runs from the higher of open and close to the high; the lower shadow runs from the low to the lower of open and close. A close above the open marks a positive session, while long shadows can show that prices visited levels they did not hold. Interpret the shape relative to nearby candles, trend and support or resistance. One candle describes a contest during its period; it does not reveal every trade's motive or forecast the next period. Check that the stated high is at least as large as both open and close, and the low is no larger than either.

Worked example: Suppose O = PHP 100, H = 110, L = 99 and C = 108. The positive body is 108 − 100 = PHP 8. The upper shadow is 110 − 108 = PHP 2, and the lower shadow is 100 − 99 = PHP 1. Buyers achieved an eight-peso net rise during the period, although price retreated two pesos from its high.

Watch the distinction: Calling a large positive body a guaranteed continuation signal overreads one period. Its meaning depends on prior trend, nearby price levels and whether later trading sustains the move.

Reference: [2]

11. Select a chart for the question

Choose a chart according to the question being asked. A closing-price line chart connects one close per period, making broad direction easy to see. It hides the open and the full range traded during each period. A high-low bar or candle reveals whether price crossed a level intraday, even when the close recovered. That distinction matters for rules based on intraday stop execution, support tests or daily closing confirmation. Specify which event counts: a trade below support, a close below it, or repeated closes below it. Different definitions can produce different conclusions from the same session. A line chart is useful for comparing closing trends, but a range-bearing chart is needed when the path within each period matters to the decision.

Worked example: Two consecutive closes are PHP 102 and PHP 103, so a close-only line rises by PHP 1. On the second day, the low is PHP 95 while the watched support is PHP 97. A bar chart reveals an intraday breach of PHP 2 below support followed by recovery to the PHP 103 close. An intraday stop and a closing-break rule would therefore behave differently.

Watch the distinction: A rising closing line does not prove support was never crossed. It omits the day's low, which may have triggered an intraday rule before the closing recovery.

Reference: [2]

12. Aggregate time periods correctly

To combine adjacent OHLC periods, retain the first period's open and the final period's close. Take the highest high and lowest low observed anywhere in the combined interval. Do not average opens, highs, lows or closes: an average would describe neither the first trade nor the actual extremes. The constituent periods must be consecutive and refer to the same security on a consistent price basis. Aggregation can change a pattern's appearance. Two volatile daily bars might form one quiet-looking longer bar, while a brief support breach remains visible through the combined low. State the combined interval when comparing it with other bars, and aggregate volume by summing the constituent share counts if volume is needed. These rules apply equally when building a weekly bar from daily data.

Worked example: Day one has O 100, H 105, L 98, C 102; day two has O 102, H 108, L 101, C 107, all in PHP. The combined two-day bar opens at PHP 100 and closes at PHP 107. Its high is max(105, 108) = PHP 108, and its low is min(98, 101) = PHP 98.

Watch the distinction: Averaging the two daily closes to PHP 104.50 would give neither the two-day closing price nor its midpoint. The combined close must be the final day's close.

Reference: [2]

13. Linear and logarithmic scales

A linear vertical scale assigns equal distances to equal cash changes. It is useful when a fixed peso move matters, such as comparing distances from a proposed entry to a peso-denominated stop. A logarithmic scale assigns equal distances to equal percentage changes, making growth rates more comparable across a wide price range. On a log chart, the distance from 50 to 100 equals the distance from 100 to 200 because both moves double price. Log scales require positive prices. The scale choice changes the visual slope of long trends and can alter where a hand-drawn trendline appears to fit. Neither scale changes the underlying transactions. State which scale is used, especially before comparing trendlines across charts or interpreting a multi-year move with substantial price growth.

Worked example: A move from PHP 50 to 100 adds PHP 50 and returns (100 − 50) ÷ 50 = 100%. A later move from PHP 100 to 150 also adds PHP 50 but returns (150 − 100) ÷ 100 = 50%. The two rises are equally tall on a linear scale; the first occupies more vertical distance on a logarithmic scale.

Watch the distinction: Equal peso gains are not equal percentage gains when starting prices differ. Reading a long, strongly rising chart on one scale without checking the other can distort comparisons of growth.

Reference: [2]

14. Read relative volume

Relative volume compares current share turnover with an explicit reference level. Divide the current period's volume by a comparable average, commonly drawn from recent periods of the same length. A value above 1 means more shares traded than the chosen baseline; below 1 means fewer. State the baseline window because changing it changes the ratio. On a breakout, elevated relative volume supports the narrower claim that more trading accompanied the price move. It cannot prove that the breakout will hold or reveal whether the activity arose from buying conviction, forced covering or distribution. Compare the next few sessions with the breakout level: continued trading above it and failure to reclaim it imply different outcomes. Check corporate actions and abnormal sessions before treating a volume spike as comparable.

Worked example: A breakout session trades 1.2 million shares against a recent average of 0.8 million shares per session. Relative volume is 1.2 ÷ 0.8 = 1.5. It is (1.5 − 1) × 100 = 50% above the chosen average. That supports a statement about unusually high participation on the day, while subsequent prices determine whether the breakout persists.

Watch the distinction: Describing volume as “high” without a baseline is hard to assess. Even a clear 1.5 relative-volume reading shows activity, not a guaranteed price direction afterward.

Reference: [2]

15. Adjust for a share split

A share split changes the number of shares and the price per share mechanically. In a two-for-one split, a holder has twice as many shares while the comparable price per share is halved, before any market move. A raw chart that joins pre-split and post-split prices can falsely suggest a collapse. For a continuous historical comparison, restate the earlier price on the new share basis by dividing it by two; historical volume may also be restated in the opposite direction. Check whether a data provider has already adjusted its series before making another adjustment. The adjusted series helps analyze price changes across the event, while unadjusted prices remain relevant to what actually traded on each date. Dividends and other corporate actions need their own treatment.

Worked example: A share closes at PHP 100 before a two-for-one split and at PHP 52 afterward. Raw comparison gives (52 − 100) ÷ 100 = −48%, a misleading apparent loss. Restating the earlier close as PHP 100 ÷ 2 = PHP 50 gives (52 − 50) ÷ 50 = 4%. On the comparable share basis, price rose 4%, ignoring other effects.

Watch the distinction: Treating the raw post-split price as a market crash mistakes a change in share units for a change in value. Check the corporate-action date and adjustment status first.

Reference: [2]

16. Point-and-figure reversals

Point-and-figure charts record price movement in boxes rather than placing every session at an equal horizontal interval. An X column tracks advances and an O column tracks declines. The box size specifies the price increment; the reversal size specifies how many boxes price must move against the current column before a new column begins. Under a three-box reversal rule, a one- or two-box pullback from the top of an X column leaves that column intact. At three boxes, plotting switches to an O column. This filtering can make larger directional moves easier to see, but it suppresses smaller fluctuations and depends on the chosen box and reversal settings. Before applying a rule, establish whether the chart uses highs and lows or closing prices, and keep that convention consistent.

Worked example: Assume PHP 1 boxes, a three-box reversal and an X column whose highest marked box is PHP 105. A move to PHP 103 is a PHP 2 decline, so no O column starts. A move to PHP 102 is a PHP 3 decline. The reversal condition is met, and the new O column marks PHP 104, 103 and 102 under this plotting convention.

Watch the distinction: Switching columns after any downward tick defeats the reversal filter. Count complete boxes against the current column, using the chart's stated price input and reversal setting.

Reference: [2]

Basic Concepts of Trend

17. Classify swing structure

Swing structure classifies a trend by comparing successive turning points. An uptrend has a higher swing high and a higher swing low relative to the preceding comparable swings; a downtrend reverses those relationships. Identify completed swings on a stated time frame before labeling them. A new high alone can occur while lows are deteriorating, and one low below its predecessor can signal weakness without proving a lasting downtrend. The interval used to define a swing affects the result: a daily pullback may coexist with rising weekly lows. Once the structure is clear, note the most recent higher low because a break beneath it challenges the current uptrend hypothesis. This is a diagnostic framework, not a claim that the next high or low is guaranteed.

Worked example: Suppose an earlier swing low is PHP 100, followed by a high at PHP 108. Price then pulls back to PHP 104 and advances to PHP 112. The later low is PHP 4 above the earlier low; the later high is PHP 4 above the earlier high. On this swing definition, both comparisons support an uptrend. A future break below PHP 104 would weaken that reading.

Watch the distinction: A higher final price alone does not establish an orderly uptrend. Check both highs and lows, and compare swings of similar scale on the same chart interval.

Reference: [2]

18. Draw and test a trendline

An upward trendline joins at least two rising lows on a defined chart scale. Its slope is the change in price divided by the change in time between the anchor lows. Projecting the line gives a reference for judging later pullbacks. More respected tests can make the line useful, but drawing it through selectively chosen points after seeing future prices can exaggerate its apparent accuracy. A close below the projected line says the prior rate of ascent has failed at that observation. It does not, by itself, establish lower highs and lower lows. Examine whether price reclaims the line, breaks a significant swing low, or starts a different structure. Use consistent time spacing and identify whether a rule responds to intraday penetration or a closing breach.

Worked example: Two lows are PHP 90 on day 1 and PHP 96 on day 4. Slope = (96 − 90) ÷ (4 − 1) = PHP 2 per day. Projected day 7 value = 90 + 2 × (7 − 1) = PHP 102. A day 7 close at PHP 100 is PHP 2 below the line, showing a breach of that projected pace, not yet a confirmed downtrend.

Watch the distinction: Calling one trendline break a complete reversal skips the swing evidence. The line tests a particular slope; a downtrend classification also needs a suitable sequence of falling highs and lows.

Reference: [2]

19. Support becomes resistance

Support is a price area where prior declines met enough demand to stop or reverse; resistance is an area where prior advances stalled. Treat these as zones because trades rarely repeat at one exact price. When price breaks below support, holders who bought near that area may sell into a later recovery, and new sellers may act near the former floor. This can make the same area function as resistance. The mechanism is a plausible explanation, not something a chart can prove about individual motives. First mark the area from repeated reactions. Then require a defined break and observe a later test from below. A rejection there adds evidence of a role change; a sustained reclaim weakens it. Note the time frame and whether the tests use highs, lows or closes.

Worked example: Price holds near PHP 50 twice, with lows of PHP 49.80 and PHP 50.20, then closes at PHP 48.90. A subsequent rally reaches PHP 50 but closes at PHP 49.40. The first two tests identify an approximate PHP 50 support zone. The close below it and later rejection from beneath add evidence that the zone is acting as resistance.

Watch the distinction: A broken support price does not automatically become a permanent ceiling. Watch the retest: sustained closes back above the zone would weaken the proposed role change.

Reference: [2]

20. Project a trend channel

A trend channel adds a second boundary parallel to a trendline. In an upward channel, the lower line follows rising lows and the upper line is placed through a relevant high using the same slope. Together they provide a way to judge where current price lies within the observed path. Near the lower boundary, a trader may look for evidence of support; near the upper boundary, the move may be extended relative to that channel. Neither edge is an automatic order level. A close outside the channel can signal acceleration or failure, depending on its direction, and needs follow-through. Calculate the slope from actual anchors, then keep the vertical offset constant when projecting both boundaries. Redraw only when new price evidence justifies a changed structure, not to preserve a preferred forecast.

Worked example: The lower boundary passes through PHP 90 on day 1 and PHP 94 on day 3. Its slope is (94 − 90) ÷ 2 = PHP 2 daily, so day 4 projects PHP 96. If the parallel upper line is PHP 10 higher, its day 4 value is PHP 106. A PHP 105 close sits PHP 1 below the upper edge and PHP 9 above the lower edge.

Watch the distinction: A close near the upper channel line is not automatically a sell signal. Price can travel along that boundary or break above it; assess the next price behavior.

Reference: [2]

21. Judge a breakout and retest

Resistance is a price area where earlier advances stalled. A close above it shows that buyers overcame that area for one session, but the crossing may reverse quickly. A retest provides another observation: price returns toward the former ceiling, then holds above or near it and turns upward. Compare closes, intraday lows and participation, and decide in advance what would count as a failed hold. An intraday dip below resistance followed by a close above it differs from repeated closes back inside the old range. The level is an area rather than an exact barrier because orders and volatility vary. Within the STA Philippines course syllabus, this reasoning belongs to basic trend analysis. The sequence strengthens a conditional trend reading; it does not establish how far price will travel.

Worked example: Suppose PHP 110 capped three earlier rallies. Price closes at PHP 112, which is PHP 2 above resistance. On the next session it trades down to PHP 110 but closes at PHP 113, PHP 3 above the old ceiling. The retest adds evidence of acceptance above 110. A subsequent close back below that area would weaken the breakout case.

Watch the distinction: A close above resistance is sometimes treated as a completed trend change. It establishes an initial break; sustained closes or a successful retest provide further evidence.

Reference: [2]

22. Measure a retracement

A retracement measures how much of a preceding price move has been surrendered. First identify the start and end of that move on the same chart horizon. Subtract the start from the peak to find the advance; subtract the pullback price from the peak to find the amount returned. Divide the amount returned by the advance and express it as a percentage. This calculation describes the pullback's depth, not its cause or likely endpoint. Examine swing lows, the broader trend and whether the pullback is accelerating before calling it a reversal. A shallow percentage can still break a nearby support level, while a deep pullback can remain above the move's starting low. State the chosen swing points, since changing them changes the measured retracement.

Worked example: A share advances from PHP 80 to PHP 100, a PHP 20 move. It then falls to PHP 92, giving back PHP 8. The retracement is 8 ÷ 20 × 100 = 40%. Price remains PHP 12 above the original PHP 80 low. The 40% figure describes this selected advance and pullback; it is no fixed reversal threshold.

Watch the distinction: A particular retracement percentage does not automatically make support or predict a bounce. Different starting swings produce different percentages, and price structure must still be checked.

Reference: [2]

23. Assess trend quality

Net return hides the path taken to earn it. To assess trend quality, compare successive highs and lows, the size of pullbacks, volatility and the time spent moving against the main direction. An orderly rise tends to form recognizable higher lows and gives a technician nearby structural points for testing the trend. A jagged rise may produce the same final return while repeatedly breaking potential support, making entries and stops harder to define. Calculate a peak-to-trough decline in currency units or as a percentage of the peak, but do not confuse that drawdown with the total return. Trend quality is a description of observed behavior, not a score that guarantees continuation. More volatile paths may require a wider stop and therefore a smaller position for the same account risk.

Worked example: Path A closes at PHP 100, 104, 103, 108, 107 and 112. Path B closes at PHP 100, 112, 96 and 112. Each gains PHP 12, or 12% from 100. B falls PHP 16 from 112 to 96, a 14.3% peak-to-trough decline. A shows smaller pullbacks and clearer rising swing support.

Watch the distinction: Choosing the path with the same final gain because its return is equal ignores the risk experienced along the way. Drawdowns and the location of swing support matter.

Reference: [2]

24. Align multiple time frames

A price move can point upward on one chart and downward on another because each chart compresses different observations. Name the time frame before labeling a trend. Start with the broader chart to locate major swing levels, then use an intermediate chart to judge whether price is advancing or correcting within that structure. The shorter chart can identify a possible entry or early change, but one short bounce cannot by itself reverse a longer decline. Conversely, weakness over several days may leave a monthly uptrend intact. Watch for a sequence of higher highs and higher lows or its downward counterpart on each horizon. When the horizons disagree, state the disagreement plainly and define which level or swing would change the intermediate conclusion.

Worked example: A monthly series rises from PHP 80 to PHP 100. Within that larger move, the weekly series falls from PHP 110 to PHP 100. The latest daily movement rises from PHP 98 to PHP 101, a PHP 3 bounce. Describe daily strength during weekly weakness within a broader monthly rise; the daily bounce has not yet repaired the weekly decline.

Watch the distinction: Calling every upward daily move an uptrend erases the chart horizon. A daily bounce may be only a countertrend move while weekly lower highs remain intact.

Reference: [2]

Major Reversal Patterns

25. Head-and-shoulders top

A head-and-shoulders top develops after an advance when three peaks form: a left shoulder, a higher head and a right shoulder that fails to exceed the head. The troughs between peaks define a neckline, which may slope rather than sit at one price. Until price breaks that neckline, the shape remains a potential pattern. After a break, subtract the head-to-neckline height from the neckline near the break to produce an illustrative measured move. That projection is a planning reference, not a guaranteed destination. Check whether the right shoulder has actually formed and whether price closes below the relevant neckline area. A return above it weakens the reversal reading. Use the CTA practice questions to rehearse identifying the troughs before doing the measurement.

Worked example: Assume a horizontal neckline at PHP 100. Peaks form at PHP 110, 120 and 112, with 120 as the head. A close at PHP 98 breaks the neckline. The pattern height is 120 − 100 = PHP 20, so 100 − 20 = PHP 80 is an illustrative projection. A close back above 100 would challenge the downside reading.

Watch the distinction: Three peaks alone do not complete a head-and-shoulders top. The neckline break matters, and the measured move is a conditional reference rather than a promised exit price.

Reference: [2]

26. Inverse head-and-shoulders

The inverse head-and-shoulders is a potential bottom after a decline. Its middle trough, the head, lies below two shallower shoulder lows. Rallies between those troughs create the neckline. The pattern suggests that sellers achieved a new low at the head but later failed to push the right shoulder as low. Completion requires price to break above the neckline; similar looking lows without that break remain an unfinished base. Measure vertically from the head to the neckline, then add that depth to the neckline near the break for an illustrative upside level. Because the neckline may slope, specify which neckline value is used. A fall back below it, especially followed by renewed lower lows, weakens the recovery case. The setup describes changing price behavior rather than an underlying valuation.

Worked example: Shoulder lows occur near PHP 82, and the intervening head falls to PHP 75. Assume the neckline is horizontal at PHP 90. A close at PHP 92 exceeds it. The depth is 90 − 75 = PHP 15; adding 15 to the neckline gives PHP 105 as an illustrative level. The close above 90 supports, but does not ensure, a recovery.

Watch the distinction: Two shoulders and a deeper low can look persuasive before price clears the intervening peaks. Without a neckline break, the proposed bottom has not been confirmed.

Reference: [2]

27. Double-top confirmation

A double top contains two tests of roughly the same high with a meaningful trough between them. The second test shows that price reached the old resistance area again; it does not by itself prove sellers have taken control. The intervening trough supplies the decision level. A break below it converts the two peaks into a completed downside pattern under the chosen closing-price rule. Calculate height as the higher peak area minus trough support, then subtract that height from the support level for an illustrative objective. Compare the timing and shape of the two tops, and check whether price promptly recovers above support. The method is most useful after an existing advance, since the claim is that the prior rise may be reversing. Similar highs in a sideways range require more caution.

Worked example: A share reaches PHP 120, retreats to PHP 110, then peaks at PHP 119. The second peak is PHP 1 below the first. A later close at PHP 108 breaks the PHP 110 trough. Height is 120 − 110 = PHP 10; projecting from support gives PHP 100. The close at 108 confirms the break under this rule, not arrival at 100.

Watch the distinction: Two similar highs are often called a double top immediately. Price may simply be ranging; the break of the intervening trough supplies the crucial confirmation.

Reference: [2]

28. Double-bottom confirmation

A double bottom reverses the double-top logic. Price tests a low, rebounds to an intervening peak, then tests roughly the same low again. The second low suggests that selling pressure may be fading, but the base remains incomplete while the intervening peak caps price. A close above that peak supplies evidence that buyers can exceed the rebound high. Measure depth from the lower low to the intervening peak and add it to the peak for a conditional projection. Use consistent prices and the same chart scale for the measurement. Check whether the breakout holds, since a prompt return below the peak challenges the change in trend. The two lows need not match exactly; treating a small difference as disqualifying can obscure the actual support area and subsequent breakout.

Worked example: Price falls to PHP 80, rebounds to PHP 90, then revisits support at PHP 81. A close at PHP 92 exceeds the intervening peak by PHP 2. Depth is 90 − 80 = PHP 10; adding it to 90 yields PHP 100 as an illustrative objective. A return below 90 would weaken the completed-base reading.

Watch the distinction: A second low near the first is only a candidate base. Declaring the reversal complete before price breaks the intervening peak assumes buying strength that has not appeared.

Reference: [2]

29. Repeated rejection at a triple top

A triple top records three unsuccessful attempts to move beyond a resistance area. Repeated rejection reveals a persistent ceiling, but the market may continue sideways rather than reverse. Identify the lows between peaks and the support area they form. A downside break of that support is the event that turns repeated resistance tests into a completed reversal pattern under the selected rule. Its approximate height is resistance minus support; subtract that height from support to obtain an illustrative projection. If peak prices vary, state the reference peak used for the height and avoid false precision. Also distinguish a brief intraday penetration from a close below support. A reclaim of the range after a break would question the downside interpretation, especially if later sessions hold inside the former range.

Worked example: Three peaks appear at PHP 100, 101 and 99, while intervening pullbacks hold around PHP 90. A close at PHP 89 breaks that support area. Using the highest peak, height is 101 − 90 = PHP 11; 90 − 11 = PHP 79 is an illustrative downside level. Before the close at 89, the chart showed rejection but no completed break.

Watch the distinction: Three touches of resistance do not guarantee a fall. Until support gives way, the structure can remain a trading range despite repeated failures at the top.

Reference: [2]

30. Rounded base

A rounded base portrays a gradual transition from falling prices through stabilization to rising prices. Instead of one abrupt reversal bar, successive lows descend more slowly, flatten, then begin to rise. Draw a horizontal or gently sloping boundary through the highs that capped recoveries during the base. A close above that boundary supplies a clearer breakout than the curved shape alone. Measure approximate depth from the boundary to the lowest part of the base and add it to the boundary for an illustrative objective. The curvature is subjective, so verify that the pattern spans enough observations to show a genuine progression and that the chosen boundary is visible on the chart. Volume can add context if participation grows on the breakout, but the shape and price break carry the core classification.

Worked example: Successive troughs occur near PHP 96, 92, 90, 92 and 96 under resistance at PHP 100. The sequence falls, flattens and rises. A close at PHP 102 clears the ceiling. Approximate depth is 100 − 90 = PHP 10, giving 100 + 10 = PHP 110 as an illustrative level. A move back under 100 would question the breakout.

Watch the distinction: Any sequence with a low in the middle can be drawn as a bowl. Require a gradual change in the lows and an identifiable breakout boundary.

Reference: [2]

31. Key reversal bar

A bearish key reversal bar occurs when price makes a new high relative to a relevant prior bar or swing, then closes below a specified earlier low. The intraperiod sequence matters: buyers initially extend the advance, but the close reveals a strong rejection by the end of the period. State the comparison bar used, because definitions can vary. The bar is an alert about changed behavior, not a completed downtrend. Look for later price evidence, such as another lower close or a break of nearby swing support, before making a larger trend claim. The distance from high to close also shows how much of the day's upward excursion was lost. Wider ranges may reflect news or volatility, so the next sessions help distinguish persistent selling from a one-day disturbance.

Worked example: Assume the prior session's high was PHP 112 and its low PHP 102. Today price reaches PHP 115, PHP 3 above that high, but closes at PHP 100, PHP 2 below the prior low. It meets the stated bearish key reversal definition. A subsequent lower close would add follow-through; a quick recovery above 112 would weaken the signal.

Watch the distinction: A dramatic reversal bar can tempt an immediate claim that the whole trend has changed. One bar shows rejection; subsequent swing behavior tests whether sellers retained control.

Reference: [2]

32. Failed breakdown

A failed breakdown starts with price moving below an established support area, then quickly reclaiming it. The first move can draw in sellers or trigger stops; the recovery shows that supply below support did not persist in the observed period. Record whether the breach was intraday or on a close, because a close below support followed by recovery is a different sequence from an intraday dip that never closed below it. Define the recovery case with a clear invalidation point, often the breach low or renewed closes below the former support area. A rapid reclaim can favor a move back into the old range, but it does not automatically create an uptrend. Compare subsequent highs and lows to see whether buyers can build on the recovery rather than merely force a brief rebound.

Worked example: Support sits near PHP 90. A session trades at PHP 88 but closes at PHP 92; the next closes at PHP 95. The breach was intraday, and both closes are above support. Reclaiming 90 weakens the downside case. A later move below PHP 88 would disprove the proposed recovery structure more directly than a small pullback above 90.

Watch the distinction: An intraday tick below support is sometimes treated as a confirmed downside breakout. Where the session closes and whether price promptly reclaims support change the interpretation.

Reference: [2]

Continuation Patterns

33. Bull flag

A bull flag begins with a strong upward impulse, called the pole, followed by a short pause that slopes gently down or moves sideways. The pause should be modest relative to the pole; a deep, prolonged reversal is less convincing as a flag. Draw the flag's upper boundary and wait for price to break above it before using the continuation idea. The pole length, measured in price units, can be added to the breakout area for an illustrative objective. This calculation is a pattern convention, not a forecast with a fixed success rate. Note whether the breakout holds or quickly returns into the flag. A technician should also separate the pole's starting price from the start of the preceding long trend, since using the wrong span inflates the projection.

Worked example: Price rises from PHP 100 to PHP 120, so the pole is PHP 20. It then pauses between PHP 116 and PHP 119. A close at PHP 121 clears the pause. Adding the PHP 20 pole to that breakout close gives PHP 141 as an illustrative level. A quick close back below 119 would weaken the continuation case.

Watch the distinction: A rising price followed by any pullback is not automatically a flag. The pause should be relatively short and contained, with an identifiable upside break.

Reference: [2]

34. Pennant contraction

A pennant follows a sharp directional move and then compresses into a small area bounded by converging lines. Successive highs fall while successive lows rise, unlike a rectangle with roughly horizontal boundaries. The contraction represents a pause in which the trading range narrows. It does not specify the next direction on its own; a break above the upper boundary supports an upside continuation hypothesis after an upward pole. Measure the pole from the start of the sharp rise to the start of consolidation, then add its length to the selected breakout level for an illustrative projection. Check the scale of the pennant against the pole: a very broad or lengthy formation may be better analyzed as another pattern. If price breaks downward, reassess the prior continuation premise.

Worked example: A share rises from PHP 50 to PHP 60, making a PHP 10 pole. Subsequent highs and lows converge until trading narrows between PHP 58 and PHP 59. A close at PHP 61 breaks above the upper edge. Adding PHP 10 to 61 gives PHP 71 as an illustrative level, provided the upside break develops rather than promptly failing.

Watch the distinction: A narrow pennant is often confused with a wide trading range. Converging boundaries and a preceding sharp move are essential to the proposed continuation structure.

Reference: [2]

35. Rectangle continuation

A rectangle is a consolidation with an approximately horizontal floor and ceiling. Repeated moves between those boundaries show that neither side has yet established a lasting directional advantage. After a prior advance, an upside break may continue that move, but the range itself does not require an upside outcome. Mark the support and resistance areas using repeated tests, then wait for a close outside the relevant boundary under a stated rule. The range height is upper boundary minus lower boundary. For an upside break, add that height to the breakout reference price for an illustrative level; for a downside break, subtract it. A return inside the rectangle signals that the attempted breakout has not held. Volume and later closes can help judge participation and persistence.

Worked example: After an advance, price oscillates between PHP 70 support and PHP 80 resistance. The rectangle height is 80 − 70 = PHP 10. A close at PHP 82 exceeds the ceiling by PHP 2. Using the breakout close as the stated reference, 82 + 10 = PHP 92 is an illustrative upside level. A return below 80 would weaken the break.

Watch the distinction: The earlier uptrend does not force a rectangle to resolve upward. Price can break either boundary, so the direction must come from the observed exit.

Reference: [2]

36. Ascending triangle

An ascending triangle combines a roughly flat upper boundary with progressively higher reaction lows. Buyers are willing to enter at higher prices, while supply remains visible near the same resistance area. This pressure pattern suggests an upside possibility, yet a downward break can still occur. Draw resistance through repeated highs and a rising lower boundary through the lows; avoid forcing lines through unrelated points. The initial height is the early resistance level minus the first relevant low. After a close above resistance, add that height to a clearly stated breakout reference for an illustrative projection. A sustained return below resistance or a break of the rising lows weakens the continuation case. The Canadian Securities Course study guide offers broader securities context for separating chart observations from investment conclusions.

Worked example: Repeated highs meet PHP 100 while pullback lows rise from PHP 90 to PHP 94 and PHP 97. Initial height is 100 − 90 = PHP 10. A close at PHP 102 breaks resistance. Using that close as the stated projection base gives 102 + 10 = PHP 112. The rising lows explain the shape; later price behavior determines whether the break holds.

Watch the distinction: Rising lows do not guarantee an upside exit. The horizontal ceiling remains resistance until price actually clears it under the chosen confirmation rule.

Reference: [2]

37. Descending triangle

A descending triangle has a roughly flat support area and successively lower reaction highs. Sellers appear at lower levels on each rebound while buyers continue to defend the same floor. That balance can end with a downside break, but the geometry alone does not prevent an upside break. Identify the repeated lows before drawing support and measure the initial height from the first relevant high to that floor. If price closes below support, subtract the height from the chosen breakout reference to obtain an illustrative downside level. State that reference explicitly because using support or the breakout close produces different numbers. Watch for a quick reclaim of support, which would challenge the break. In a broader uptrend, also consider whether the triangle is a pause rather than an inevitable reversal.

Worked example: Repeated lows meet PHP 50, while highs step down from PHP 62 to PHP 58 and PHP 55. Initial height is 62 − 50 = PHP 12. A close at PHP 48 breaks support. Using that close as the reference gives 48 − 12 = PHP 36 as an illustrative level. A recovery above 50 would weaken the downside interpretation.

Watch the distinction: A descending triangle is sometimes described as certain to fall. Its lower highs show pressure, but the actual boundary break determines the direction observed.

Reference: [2]

38. Symmetrical triangle

In a symmetrical triangle, successive highs fall and successive lows rise, making a progressively narrower price range. The shape records contraction, not a guaranteed direction. Draw both boundaries from relevant swings and judge a breakout against the boundary at the time it occurs, rather than against the earliest high or low. The initial width is the gap between the early upper and lower boundaries. A technician may add that width to an upside breakout reference, or subtract it from a downside reference, to sketch a conditional measured move. Confirm that the breakout close lies beyond the current line and assess whether later sessions hold outside it. If price repeatedly crosses the line without progress, the apparent breakout may be noise from drawing a boundary too precisely.

Worked example: Early triangle boundaries span PHP 90 to PHP 110, giving an initial width of PHP 20. Later highs fall to PHP 106 and lows rise to PHP 94. Assume the current upper boundary is below PHP 108. A close at PHP 108 breaks upward; using that close as the reference gives 108 + 20 = PHP 128, an illustrative projection.

Watch the distinction: A symmetrical triangle's converging lines do not predict which side will win. Claiming continuation before a boundary breaks replaces observed direction with an assumption.

Reference: [2]

39. Rising wedge during a decline

A rising wedge during a broader decline is an upward pause whose highs and lows both rise while the boundaries converge. The lower boundary generally rises faster than the upper one, so each advance has less room before meeting resistance. This loss of upward space can precede renewed decline, but the pattern remains a possibility until price breaks its lower boundary. Draw the lines from actual swing points and extend them only to the decision period. A close below the projected lower line favors continuation of the prior downtrend; subsequent selling or a failed retest adds evidence. A close back inside the wedge challenges that reading. Distinguish this structure from a normal rising channel, whose boundaries are more nearly parallel and do not show the same contraction.

Worked example: During an existing decline, wedge highs rise from PHP 102 to 106 to 108, while lows rise from PHP 98 to 103 to 106. Assume the lower boundary projected to the next session is PHP 107. A close at PHP 105 is PHP 2 below it. That favors a downside continuation reading, subject to later confirmation; a rebound inside the wedge would weaken it.

Watch the distinction: Because the wedge slopes upward, it may be mistaken for an uptrend. The narrowing shape and the prior decline matter, and a lower-line break supplies the directional evidence.

Reference: [2]

Moving Averages

40. Simple moving average

A simple moving average smooths a price series by taking the arithmetic mean of a fixed number of observations. For an n-period average, add the latest n closes and divide by n. When a new close arrives, remove the oldest close, add the new one and divide again. Each included close has equal weight. The average therefore lags a sudden price move and can change direction only as its underlying window changes. Specify both the observation interval and window length: a three-day average and a three-week average answer different questions. Compare price with the average to describe position, and compare successive average values to describe slope. An average can serve as a reference area, but repeated crossings in a sideways market make single crossing signals unreliable.

Worked example: Three daily closes are PHP 10, PHP 12 and PHP 14. Their three-day SMA is (10 + 12 + 14) ÷ 3 = PHP 12. The next close is PHP 16, so remove PHP 10 and calculate (12 + 14 + 16) ÷ 3 = PHP 14. The average rises PHP 2, while the latest close stands PHP 2 above it.

Watch the distinction: Adding a fourth close to the old three-close total creates a four-period average. A rolling three-period SMA must discard the oldest observation before recalculation.

Reference: [2]

41. Exponential moving average

An exponential moving average gives the latest close a fixed share of the update and carries forward the rest of the previous average. For a chosen period count n, the multiplier is 2 ÷ (n + 1). Calculate the new EMA as prior EMA + multiplier × (new close − prior EMA). The difference in parentheses is the distance price has moved from the existing average. A positive difference lifts the EMA; a negative one lowers it. Unlike a simple moving average, no single old close drops out abruptly. Older observations persist with progressively smaller influence. State the period and chart interval together: a three-period EMA on daily closes answers a different question from one on weekly closes. The first EMA also needs a stated starting value, often an initial simple average.

Worked example: Suppose a hypothetical three-day EMA was PHP 100 yesterday and today's close is PHP 106. Its multiplier is 2 ÷ (3 + 1) = 0.5. The update is PHP 100 + 0.5 × (PHP 106 − PHP 100) = PHP 103. The EMA rises PHP 3, half the six-peso gap, and remains below today's close.

Watch the distinction: Do not multiply the new close by 0.5 and stop. The remaining weight belongs to the previous EMA; omitting it discards the earlier price history.

Reference: [2]

42. Weighting changes responsiveness

The weighting rule determines how quickly an average reacts when price changes suddenly. A three-period simple moving average assigns one-third of its value to each of the latest three closes. A three-period EMA uses a multiplier of 0.5 on the newest close's distance from its prior value, so recent information generally has greater influence. Compare the two only after specifying the EMA's previous value and the same observation interval. A faster response may help identify a turn sooner, but it also makes the line more sensitive to brief price shocks. The simple average may change sharply when an unusually high or low observation leaves its window, even if today's close is ordinary. Neither weighting method identifies why price moved or proves that the move will continue.

Worked example: Three successive daily closes are PHP 10, PHP 10 and PHP 16. Their three-day SMA is (10 + 10 + 16) ÷ 3 = PHP 12. If the prior three-day EMA was PHP 10, its multiplier is 0.5 and the updated EMA is 10 + 0.5 × (16 − 10) = PHP 13. Here the EMA sits one peso higher after the jump.

Watch the distinction: A higher EMA here does not make it more accurate. It means its stated weighting reacted more strongly to the latest close; usefulness depends on the decision.

Reference: [2]

43. Price crossing an average

A price crossing a moving average can serve as an observable trigger: define a close below the line followed by a close above it, or the reverse. Use closing values if the rule requires closes; an intraday touch does not meet that condition. Before interpreting the crossing, inspect the average's slope, recent swing structure and how often price has crossed it. A rising line with higher swing lows offers different context from a flat line repeatedly cut by price. The average itself is calculated from past prices, so a crossing is evidence of a changed relationship between price and its recent history, not independent confirmation. A practical plan pairs the trigger with a level that would invalidate the idea and a position size based on that risk. Moving Averages is among the published STA Philippines course topics.

Worked example: Assume a hypothetical moving average is PHP 50 at both observations. Yesterday's close was PHP 49 and today's is PHP 52. Price has changed from one peso below to two pesos above, satisfying an upward close-based crossing rule. If the preceding closes repeatedly switched sides of PHP 50, classify this as a weak trend cue and wait for further price evidence.

Watch the distinction: Do not call every intraday move above the line a confirmed close-based signal. Also check whether repeated crossings show a sideways market rather than sustained buying.

Reference: [2]

44. Fast and slow average crossover

A fast average uses fewer periods and usually responds sooner than a slow average. An upward crossover occurs when the fast line was below the slow line at the previous observation and is above it now. Those two observations establish timing; merely finding the fast line above the slow line does not say when it crossed. Check the slow line's slope separately. A rising slow average suggests the crossover occurs within an already improving longer trend, while a falling one can indicate an early, less established recovery. Both lines use overlapping price data, so they are related signals. A crossover may lag the initial price turn because each average contains earlier closes. State the periods and chart interval, then define how a subsequent reversal or support break would challenge the interpretation.

Worked example: Yesterday a five-day average was PHP 99 and a twenty-day average PHP 100. Today they are PHP 102 and PHP 101, respectively. Their ordering changed from 99 < 100 to 102 > 101, so the upward crossover occurs today. The twenty-day line also rose one peso; that slope provides broader trend context without guaranteeing follow-through.

Watch the distinction: Seeing the fast average above the slow one does not establish a fresh crossover. Compare consecutive observations, and assess the slower line's direction on its own.

Reference: [2]

45. Moving average as a zone

A moving average can mark an area where traders reassess a pullback, but it is rarely a precise support price. The line changes with each new close, and normal trading may pass slightly through it before recovering. First identify a trend using price swings and the average's direction. Then observe whether a retreat toward the average attracts a rebound, whether a nearby swing low holds, and whether the rebound exceeds a recent minor high. Repeated recoveries can make the area useful as a reference; they cannot turn it into a barrier that price must respect. Define invalidation with price structure and acceptable risk, not with an arbitrary tiny gap beneath the line. For a Philippine market technician, this is a chart interpretation and trade planning exercise, not a claim about the share's intrinsic value.

Worked example: Assume a rising twenty-day average is near PHP 100. Price falls from PHP 105 to PHP 101, then closes at PHP 104. The retreat came within one peso of the line and recovered three pesos, supporting a continuation hypothesis. If a later close reaches PHP 98 and breaks the nearby swing low, reassess that hypothesis rather than treating PHP 100 as exact support.

Watch the distinction: Do not place a stop exactly at the average merely because the line is labeled support. Ordinary price variation can cross it without resolving the broader trend.

Reference: [2]

46. Recognize crossover whipsaws

A whipsaw is a signal that reverses before a sustained move develops. When an average is nearly flat and closes alternate around it, a crossing rule can issue frequent opposing instructions. Count a crossing only when the close changes sides between consecutive observations under the stated rule. Then examine the distance traveled after each signal, the average's slope and whether price remains inside a broader range. These checks diagnose why a trend-following rule struggles: it reacts to movement around a central value without a directional trend to follow. A technician can require additional price structure, use a wider decision horizon or stand aside under a defined range filter. Any added filter trades some early entries for fewer signals, so its value must be judged against the whole strategy rather than one attractive chart.

Worked example: Assume a hypothetical average stays at PHP 100. Four closes are PHP 101, PHP 99, PHP 102 and PHP 98. Their positions are above, below, above and below, producing three directional crossings across the three intervals. The largest distance from the average is two pesos, and neither side persists. That pattern is consistent with a sideways market.

Watch the distinction: Do not count four crossings from four alternating closes; there are only three changes between them. Frequent reversals also do not prove the average calculation is wrong.

Reference: [2]

Oscillators

47. Relative strength index

The relative strength index compares average upward price changes with average downward changes over a stated lookback. First separate gains from losses, treating unchanged periods as zero for both. Divide average gain by average loss to obtain RS, then calculate RSI = 100 − 100 ÷ (1 + RS). The result runs from zero to 100 and describes the balance of recent movement, not the share's valuation or a probability of a gain. Implementations may smooth the averages after an initial window, so compare readings only when the method and lookback match. If average loss is zero and gains are positive, RSI is conventionally 100; if both averages are zero, the formula has no meaningful ratio and the chosen platform convention matters. Read a high value beside trend and support information, since strong trends can sustain strong momentum.

Worked example: For a hypothetical measurement window, average gain is PHP 2 per period and average loss is PHP 1 per period. RS = 2 ÷ 1 = 2. RSI = 100 − 100 ÷ (1 + 2) = 66.7, rounded to one decimal. Gains outweigh losses in this window; 66.7 does not specify the next price change.

Watch the distinction: Do not interpret RSI 66.7 as a 66.7% chance of a rise. It is a scaled comparison of measured gains and losses over a specified window.

Reference: [2]

48. Stochastic location

The stochastic %K locates the latest close within the highest high and lowest low of a chosen lookback. Calculate 100 × (close − lowest low) ÷ (highest high − lowest low). A value near 100 places the close near the top of that observed range; a value near zero places it near the bottom. This is a location measure, not a direct measure of the size of the price change. A strong uptrend can repeatedly close near its range high, so a high reading alone is a poor reason to declare a reversal. Check whether the range is broad or narrow and whether price is breaking out or respecting its boundaries. If highest high equals lowest low, the denominator is zero; the calculation is undefined and the charting convention must be stated.

Worked example: Suppose the chosen lookback has a highest high of PHP 110, a lowest low of PHP 90 and a latest close of PHP 105. The range is PHP 20, while the close is PHP 15 above its low. %K = 15 ÷ 20 × 100 = 75. The close is three-quarters of the way up that measured range.

Watch the distinction: A %K of 75 does not mean price rose 75%. It describes where the close sits within a specified high-low range, whose dates must be known.

Reference: [2]

49. MACD and signal line

MACD subtracts a slower exponential moving average from a faster one, with both calculated from the same price series and interval. A positive MACD means the fast EMA is above the slow EMA. A signal line smooths the MACD series, and the histogram is MACD minus that signal line. Thus a positive histogram means MACD is above its signal at that observation; it does not necessarily mean MACD itself is positive. Track changes in both the line and histogram to distinguish a positive spread that is widening from one that is shrinking. Their values inherit the price unit, while their practical scale varies with the security and price level. Specify the chosen EMA periods and signal smoothing before comparing charts. Like other averages, MACD follows observed prices and can give repeated reversals during range trading.

Worked example: Assume a hypothetical fast EMA of PHP 105 and slow EMA of PHP 101. MACD = PHP 105 − PHP 101 = PHP 4. If the signal line is PHP 3, the histogram is PHP 4 − PHP 3 = +PHP 1. The fast average is above the slow one, and MACD is above its smoothed signal.

Watch the distinction: Do not confuse the histogram with MACD itself. The histogram compares MACD with its signal line; its sign can differ from the sign of MACD.

Reference: [2]

50. Rate of change

Rate of change, or ROC, expresses the price change from a specified earlier observation as a percentage of that earlier price. For a lookback of n periods, calculate 100 × (current close ÷ close n periods earlier − 1). A positive result means price is higher across that interval; a negative result means it is lower. The denominator matters: the same peso move produces a different percentage at different starting prices. State whether periods are days, weeks or another interval, and use consistently adjusted prices when corporate actions affect the series. ROC can help compare momentum across observations, but a rising ROC need not mean price rose every period. It describes endpoints of one window, so examine the intervening path and current chart structure before turning it into a trading decision.

Worked example: A hypothetical share closes at PHP 108 today and closed at PHP 100 five trading periods earlier. Five-period ROC = (108 ÷ 100 − 1) × 100 = +8%. The share gained PHP 8 relative to the PHP 100 starting close. This measures that five-period interval; it supplies no calculation of the next five-period return.

Watch the distinction: Do not omit the lookback when reporting ROC. An 8% five-period move and an 8% fifty-period move describe different speeds of price change.

Reference: [2]

51. Bearish momentum divergence

Bearish momentum divergence occurs when price makes a higher swing high while an oscillator makes a lower high at corresponding swings. Pair peaks that refer to comparable market turns; selecting unrelated dates can manufacture a divergence. The disagreement says the later price high arrived with less momentum by that oscillator's measure. It does not establish that sellers control price, because an advance can continue while momentum cools. Next identify a price level, such as the intervening swing low, whose break would add evidence of a reversal. Also note the broader trend, volume and whether the oscillator uses the same settings across both peaks. The diagnostic sequence is higher price high, lower oscillator high, then a separate price test. A technician should define invalidation if the higher-high trend continues.

Worked example: Suppose price peaks at PHP 110 with RSI 72, retreats to support near PHP 108, then peaks at PHP 114 with RSI 65. Price has made a four-peso higher high, while RSI is seven points lower. That is bearish divergence. A later break below PHP 108 would add price confirmation; until then, the observation remains a warning rather than a completed reversal.

Watch the distinction: Do not sell solely because the second RSI peak is lower. Divergence can persist through several higher price highs, so identify the price event that confirms your hypothesis.

Reference: [2]

52. Extremes depend on regime

An oscillator extreme has different implications in a directional trend and a bounded range. In a strong advance, repeated closes near recent highs can keep momentum readings elevated while price continues rising. Treating every high reading as an automatic sell signal fights the observed trend. In a stable range, a high reading near established resistance may help frame a possible retreat, especially if price fails to break the boundary. Classify the regime first from swing highs and lows, range boundaries, and the behavior of pullbacks. Then ask what price must do to support or defeat the proposed trade. A range-based sale loses its premise if price breaks and holds above resistance; a trend-following position may weaken if swing support fails. The oscillator adds context but cannot by itself settle which regime applies.

Worked example: In one hypothetical chart, RSI reaches 75 while successive price highs are PHP 100, PHP 104 and PHP 108. Rising highs support a trend reading, so 75 alone is no exit rule. In another chart, price repeatedly turns near PHP 105 within a PHP 95–105 range. RSI 75 there supports examining rejection near resistance, with a sustained move above PHP 105 defeating the range idea.

Watch the distinction: Do not assign the same trade to every RSI 75 reading. Establish whether price is trending or ranging, then define the price action that would disprove your interpretation.

Reference: [2]

53. Smoothing an oscillator

Smoothing an oscillator replaces a single raw reading with an average of recent readings. A simple three-period smoothing adds the latest three values and divides by three. This reduces the effect of one abrupt observation, making a noisy line easier to interpret. The cost is delay: a new extreme contributes only part of the smoothed value, and older readings remain until they leave the window. State whether a chart shows raw %K, a smoothed %K or another signal line before comparing values. A crossing between raw and smoothed lines may simply reflect the mechanics of weighting rather than a decisive market turn. Choose smoothing to fit the observation horizon and judge it with price structure. More smoothing can reduce rapid reversals, but it can also obscure the start of a genuine move.

Worked example: Suppose three consecutive raw stochastic readings are 60, 75 and 90. Their three-period simple smoothed value is (60 + 75 + 90) ÷ 3 = 75. The latest raw value is 15 points above the smoothed line because the line still includes the two earlier readings. A continued run of high readings would lift it later.

Watch the distinction: Do not report the smoothed value of 75 as the latest raw %K of 90. They answer different questions, and the smoother necessarily retains earlier observations.

Reference: [2]

Money Management and Trading Strategies

54. Size a position from risk

Position sizing starts with the amount of account capital a trader is willing to lose if a planned exit executes as assumed. Multiply account value by a stated risk fraction to obtain the monetary risk budget. For a long position, subtract the stop price from the entry price to obtain planned risk per share, then divide the budget by that amount and round down to a tradable whole-share quantity. This calculation does not ensure the loss stays within budget: a price gap, poor liquidity, fees or slippage can produce a worse fill. Check that the purchase cost also fits available cash and that the position does not duplicate excessive exposure elsewhere. The risk fraction in an exercise is a hypothetical choice, not a Philippine regulatory standard. CTA practice questions can be used to rehearse complete entry, stop and sizing decisions.

Worked example: Assume a hypothetical PHP 100,000 account and a chosen 1% planned risk limit. The budget is PHP 100,000 × 0.01 = PHP 1,000. Entry at PHP 50 with a stop at PHP 45 puts PHP 5 at risk per share. PHP 1,000 ÷ PHP 5 = 200 shares, costing PHP 10,000 before fees. Execution gaps could increase the realized loss.

Watch the distinction: Do not divide the risk budget by the entry price. That calculates a spending amount, while stop distance determines the planned loss on each share.

Reference: [2]

55. Place a structural stop

A structural stop marks a price where the chart reason for a trade is materially weakened. For a long position based on support, place the planned exit with reference to the support area and normal price variation, then calculate the distance from entry. Choosing a stop solely to produce a convenient share quantity reverses the reasoning: it may put the exit where ordinary fluctuations can reach it. Compare the proposed gain to the planned risk per share by dividing target minus entry by entry minus stop. This reward-to-risk ratio describes the plan, not the probability of success. If the stop is far away, reduce position size so monetary risk stays within the chosen budget, or reject the trade. Also check liquidity and possible gaps, since a stop order may execute beyond its intended price.

Worked example: Suppose a hypothetical long entry is PHP 105 after support formed near PHP 98. A planned stop at PHP 97 puts PHP 105 − PHP 97 = PHP 8 at risk per share. An exit objective at PHP 121 offers PHP 121 − PHP 105 = PHP 16. The planned reward-to-risk ratio is 16 ÷ 8 = 2R before costs, assuming the stated fills.

Watch the distinction: A 2R target does not imply twice as much expected profit as loss. The chance of reaching either exit, costs and execution quality also matter.

Reference: [2]

56. Record results in R multiples

An R multiple expresses a trade's result relative to the risk planned at entry. Calculate initial R in money as shares × absolute distance between entry and initial stop. Then divide realized profit or loss by that initial amount. Keeping the denominator fixed lets you compare trades with different prices and position sizes. A +3R result means gross profit was three times initial planned risk; it does not mean the account gained 3%, unless initial risk itself was 1% of the account and costs are ignored. Record fees, slippage and any partial exits to obtain a net R result. A moved stop may change remaining risk, but it should not retroactively rewrite the initial denominator. This consistent record helps assess whether gains compensate for losing trades across a strategy.

Worked example: A hypothetical trader buys 100 shares at PHP 50 with an initial stop at PHP 48. Initial risk is 100 × (50 − 48) = PHP 200. Selling all shares at PHP 56 produces gross profit of 100 × (56 − 50) = PHP 600. Gross result is PHP 600 ÷ PHP 200 = +3R; fees would lower net R.

Watch the distinction: Do not calculate R using the profit target as the denominator. R refers to initial planned risk, so changing the denominator after exit makes results incomparable.

Reference: [2]

57. Calculate strategy expectancy

Strategy expectancy combines the frequency and size of wins and losses. In R units, multiply the win proportion by average winning R, then add the loss proportion multiplied by average losing R, using a negative sign for losses. A strategy can win less than half its trades and still have positive average results if wins are sufficiently larger than losses. Conversely, many small wins may be overwhelmed by occasional large losses. Use a representative set of trades, include realistic execution costs, and examine whether outcomes depend on market regime. The arithmetic gives an average per trade under the sampled conditions, not a promise for the next trade. A candidate preparing for the Certified International Investment Analyst guide will also encounter the broader distinction between observed results and forward expectations.

Worked example: In a hypothetical strategy, 40% of trades win an average +2R and 60% lose an average −1R. Expectancy is 0.40 × 2R + 0.60 × (−1R) = 0.80R − 0.60R = +0.20R per trade before costs. Over 100 trades with the same proportions, the corresponding gross total would be +20R, though actual sequences vary.

Watch the distinction: Do not reject a strategy merely because its win rate is 40%. Compare average win, average loss and costs; win rate alone cannot determine expectancy.

Reference: [2]

58. Include execution costs

A trade's chart movement is only the starting point for its financial result. Gross profit on a long position is shares × (sale price − purchase price). Subtract entry and exit fees, then account for slippage, the difference between assumed and achieved execution prices. Keep assumptions explicit so costs are not counted twice: if quoted buy and sell prices already reflect actual fills, their price difference already includes price slippage. If they are ideal reference prices, subtract a separately estimated combined slippage amount. Costs matter most when a strategy seeks small moves or trades frequently, because the same fixed cost consumes a larger share of a small gross gain. Compare net outcomes in money and, when useful, in R multiples. Liquidity can make assumed fills particularly uncertain around abrupt breaks.

Worked example: Assume quoted reference prices of PHP 100 to buy and PHP 104 to sell, with 100 shares. Gross reference profit is 100 × (104 − 100) = PHP 400. If combined fees are PHP 40 and separately estimated entry and exit slippage totals PHP 20, net profit is PHP 400 − PHP 40 − PHP 20 = PHP 340.

Watch the distinction: Do not subtract slippage again when the stated prices are already actual fills. Decide whether prices are reference quotes or executed prices before computing net profit.

Reference: [2]

59. Control shared exposure

Individual stops can understate portfolio risk when positions respond to the same market move. Add each position's planned monetary loss at its stop, or express each as a percentage of account capital and sum those percentages. This sum is a useful stress scenario, especially for shares in the same sector or exposed to a common index move. Correlation is not fixed, and a gap can exceed planned stop losses, so the sum is a planning estimate rather than a guaranteed maximum. Under a self-imposed combined risk limit, reduce quantities in proportion or prioritize the strongest setups. Recheck exposure when prices, stops or holdings change. Diversification by ticker name alone is insufficient if the underlying positions tend to move together. Distinguish this portfolio constraint from the risk allowed on any one trade.

Worked example: Suppose three correlated positions each carry planned stop risk equal to 1% of account capital. Together they expose 1% + 1% + 1% = 3% to a common adverse move. Under a hypothetical 2% combined limit, scale each original position to two-thirds: each then risks ⅔%, and 3 × ⅔% = 2%, before gaps and costs.

Watch the distinction: Do not treat three 1% risks as independent merely because they have different tickers. Shared market exposure can cause all three stops to be challenged together.

Reference: [2]

60. Match a strategy to the regime

A range strategy starts by verifying repeated reactions near both a lower support area and an upper resistance area, with no sustained directional break. Near support, wait for a defined recovery trigger rather than buying every dip. Place invalidation where a continued decline would defeat the range idea, then choose an exit inside the range or near resistance. Calculate planned risk and reward from actual entry, stop and exit prices; size the position from the risk budget. If price accepts below support, stop treating the same boundary as a reliable floor. If price breaks above resistance and holds, a trend strategy may fit better than selling the old ceiling. Technical analysis offers conditional decisions under uncertainty, and a technician should record the regime, trigger and failure condition before judging the outcome.

Worked example: Assume a hypothetical share has repeatedly traded between PHP 90 and PHP 110. It dips to PHP 91, then closes back at PHP 94, meeting a stated recovery trigger. Entry at PHP 94, stop at PHP 89 and exit at PHP 104 give PHP 5 planned risk and PHP 10 potential gain per share, or 2R before costs. A sustained break below PHP 90 defeats the range premise.

Watch the distinction: Do not keep buying near former support after price holds below it. The strategy depends on a functioning range, so a confirmed boundary failure requires reassessment.

Reference: [2]

Official references and further reading

All study guides

Philosophy of Technical Analysis

1. What price captures

2. Price and participation

3. Choose the observation horizon

4. Value and timing answer different questions

5. Signals are conditional

6. Independent confirmation

7. Make an idea falsifiable

8. Avoid future-data bias

Chart Construction

9. Read an OHLC bar

10. Interpret candle anatomy

11. Select a chart for the question

12. Aggregate time periods correctly

13. Linear and logarithmic scales

14. Read relative volume

15. Adjust for a share split

16. Point-and-figure reversals

Basic Concepts of Trend

17. Classify swing structure

18. Draw and test a trendline

19. Support becomes resistance

20. Project a trend channel

21. Judge a breakout and retest

22. Measure a retracement

23. Assess trend quality

24. Align multiple time frames

Major Reversal Patterns

25. Head-and-shoulders top

26. Inverse head-and-shoulders

27. Double-top confirmation

28. Double-bottom confirmation

29. Repeated rejection at a triple top

30. Rounded base

31. Key reversal bar

32. Failed breakdown

Continuation Patterns

33. Bull flag

34. Pennant contraction

35. Rectangle continuation

36. Ascending triangle

37. Descending triangle

38. Symmetrical triangle

39. Rising wedge during a decline

Moving Averages

40. Simple moving average

41. Exponential moving average

42. Weighting changes responsiveness

43. Price crossing an average

44. Fast and slow average crossover

45. Moving average as a zone

46. Recognize crossover whipsaws

Oscillators

47. Relative strength index

48. Stochastic location

49. MACD and signal line

50. Rate of change

51. Bearish momentum divergence

52. Extremes depend on regime

53. Smoothing an oscillator

Money Management and Trading Strategies

54. Size a position from risk

55. Place a structural stop

56. Record results in R multiples

57. Calculate strategy expectancy

58. Include execution costs

59. Control shared exposure

60. Match a strategy to the regime

Official references and further reading

Frequently Asked Questions

Related Study Guides

Certified Divorce Financial Analyst (CDFA)

Certified Enterprise Risk Analyst (CERA)

Certified International Investment Analyst (CIIA)