In this latest example, we are going to look at a chart of AIG. In just a few months the stock basically dropped from 400 to below 10. Then out of nowhere the stock just started to move higher… thanks in large part to earnings… which were still pathetic… but that is another story.

I was never really tracking AIG; however, a friend of mine informed me about the massive jump in price. This was when the stock was at $15, which now seems like a steal at this point; nonetheless, I just ignored it assuming the stock will come back down.

Remember that trading is almost 100% perception. Ultimately, analyzing the fundamentals of a company involves trading with emotion. You tell yourself there is no way this stock can move higher. The beauty of technical analysis is that you simple play what the charts tell you, and block out the emotions.

Had I not made the mistake of putting more emphasis on fundamentals and actually put more focus on technical analysis, I might have been enjoying a 100% return in just a couple weeks.

Example of technical analysis at its finest…

By looking at the chart above, you can clearly see the technical indicators that should have made you believe in this upswing.

1. The stock first started a mini wedge pattern into its consolidation phase. The breakout was met with extremely large volume.

2. The second move that should have helped us believe in this stock was the push above the 50 day simple moving average (SMA). Again, there was larger than normal volume.

3. This move was than followed by a bump on the 200 SMA, and a retreat towards the 50 SMA. Good spot for entry had you not been in yet.

4. Then, with significant volume, this stock breaks passed the 200 SMA.

5. Finally, all this move was in coordiation with extremely nice volume and the relative strength index (RSI) breaking over 50.

So you can clearly see that there were 5 absolutely clear reasons that should have easily had us making money on this upswing in AIG.

To learn more about technical analysis and how to accurately predict stock price movement, check out Chart Pattern Manifest.

The price target, which was the measurement from the head to the neckline, of about $4 played out perfectly. If we were playing this stock at the time, then we have waited for the stock to breakthrough the neckline after creating the peak of the right shoulder.

A break below the neck would either tell you that this stock is not a buy and stay away or you would short it using the $4 price target of $16. That neck than becomes a resistance.