Summary of Chart Patterns

Here’s the summary of what we have discussed so far:

Charts

  • Chart analysis is the technique of using patterns formed on a chart to get an idea about the price movement of a share.
  • There are two types of chart patterns: reversal and continuation.
  • A continuation pattern suggests that the prior trend will continue upon completion of the pattern.
  • A reversal pattern suggests that the prior trend will reverse upon completion of the pattern.

Flag and Pennants:

  • Flags and pennants are continuation patterns formed after a sharp price movement. The move consolidates, forming a flag shape or pennant share, and suggests another strong move in the same direction of the prior move upon completion.

Triangles:

  • There are three main types of triangle patterns – symmetrical, descending and ascending, which are constructed by converging trendlines.
  • A symmetrical triangle, which is formed when two similarly sloped trendlines converge, typically suggests a continuation of the prior trend.
  • A descending triangle, which is formed when a downward sloping trendline converges towards a horizontal support line, suggests a downward trend after completion of the pattern.
  • An ascending triangle, which is formed when an upward sloping trendline converges towards a horizontal resistance line, suggests an uptrend after completion of the pattern.

Cup with handle:

  • A cup-and-handle pattern is a bullish continuation pattern that suggests a continuation of the prior uptrend.

Double tops and Double bottoms:

  • A double top is a bearish reversal pattern, which suggests that the preceding up trend will reverse after confirmation of the pattern.
  • A double bottom is a bullish reversal pattern, which suggests that the prior downtrend will reverse.

Head and shoulders:

  • A head-and-shoulder suggests a reversal in the prior uptrend. An inverse head and shoulders suggests a reversal in the prior downtrend

Wedges:

  • A wedge chart pattern suggests a reversal in the prior trend when the price action moves outside of the converging trend lines in the opposite direction of the prior trend.

Rounding Bottom:

  • A rounding bottom  is a long-term reversal pattern that signals a shift from a downward trend to an upward trend

Triple tops and triple bottom:

  • A triple top is a reversal pattern formed when a security attempts to move past a level of resistance three times and fails. Upon failure of the third attempt the trend is thought to reverse and move in a downward trend.
  • A triple bottom is a reversal pattern formed when a security attempts to move below an area of support three times but fails to do so. Upon failure of the third attempt below resistance the trend is thought to reverse and move upward.

You may like these posts:

  1. A study of chart patterns
  2. Reversal Patterns 1 : Double tops and double bottoms
  3. Continuing patterns 2 : Triangles

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