Chapter 4

Interpreting Chart Signals

We've touched on some chart signal interpretations in the previous chapter, so let's review before we touch on some new items.

RSI and Stochastics

These are tools with a main purpose of identifying overbought and oversold conditions. When an overbought condition is identified, it would typically be expected to see a price decline and the reverse in an oversold condition.

Stochastics >80
RSI >70
Stochastics <20
RSI <30


Moving Average Crossover up
Centerline Crossover up
Positive Divergence
Moving Average Crossover down
Centerline Crossover down
Negative Divergence


Doji - A doji is a wick and tale without a body. This indicates indecision in the battle between bulls and bears. It frequently is a sign of a reversal or turning point in the price action.

Dragon Fly Doji - Is when the open price and close price are close to equal but it dropped significantly during the trading session. The candlestick looks like an uppercase letter T. This is an indication that sellers were more in charge during the session but near the end of the session, buyers returned and pushed prices back up. This would be a bullish indication.

Gravestone Doji - Is the reverse of the Dragon Fly Doji and is a bearish indication.

Hammer - Like a Dragon Fly Doji but with a small green body at the top. When this forms after a price decline, it is a bullish indicator.

Hanging Man - The reverse of the Hammer (has a small red body at the top). This is a bearish indicator.

Inverted Hammer - Is like a Hammer but with the small green body at the bottom as of the range, opposed to the top of the range. It is similar to the Hammer in that it too is a bullish indicator.

Shooting Star - Is like the Gravestone Doji but with the small red body at the bottom of the range. It is a bearish indicator.

Knowing these will be useful in predicting the upcoming direction, if making a purchase or if holding a previous purchase and seeking to identify a favorable exit point.