powerpoint presentation€¦ · • double and triple tops and bottoms • head and shoulder tops...
TRANSCRIPT
Classic Chart Patterns
• Two types of patterns – Reversal patterns which identify changes in market trend
• Key reversal
• Double and triple tops and bottoms
• Head and shoulder tops and bottoms
• Saucer bottoms
– Continuation patterns which represents midcourse corrections • Flags
• Pennants
• Triangles
• Wedges
• Volume and open interest – Confirmation of all the patterns.
• Most patterns have measuring techniques which great
objectives for the next move.
Reversal Patterns
• Common to all reversal patterns
– There must be an identifiable trend.
– Bottoms often have gradual basing and move with increased
volume
– Topping patterns are much more volatile than bottoms.
– The longer the trend is in place the more substantial the reversal
move.
– First signal of a reversal is the violation of a trendline.
Double and Triple Tops
• Very similar to the head and shoulders top.
• Triple top has three peaks and two troughs as does the
head and shoulder.
• The neckline connects the two troughs usually very little
slope.
• Breakdown is achieved by braking the neckline and testing
the breakdown point and holding it.
• Distance from top to neckline provides a downside
objective for both double and triple top.
Head and Shoulders
• The top formation has three high peaks with the middle
peak higher than the other two.
• Characteristics
– The is symmetry in the shoulders either simple or complex.
– Neckline can have an up or down slope.
– Neckline slope is normally not very steep.
– Breakout of the pattern is penetration of the neckline on high
volume and a test of the neckline which must hold.
Source: chartpatterns.com
Rounded Bottom or Saucer Bottom
• Saucer bottom is gradually rounding bottom.
• According to Investors Business Daily, a very high
percentage of stock bottom with this formation.
• Bullish reversal pattern.
• Price curves up to a level closed to the congestion level at
the beginning of the saucer.
• Retraces down to form the handle of cup and takes out the
recent high with high volume to start bull move.
Continuation Patterns
• Triangles
– Symmetrical
– Ascending
– Descending
• Flags
• Pennants
• Rectangular Formations
Symmetrical Triangle
• Forms two trendlines the descending line has lower highs and the ascending line has higher lows.
• Usually breaks out of the triangle in the same direction it entered the triangle. Continuation.
• There are normally three waves within the triangle.
• The closer the price gets to the apex of the triangle the higher the probability of a false breakout.
• Volatility get lower as the trading ranges get smaller.
• Volume also recedes,
• The distance from the beginning of the trend to the entry into the triangle creates a profit objective upon exit from the triangle.
Source: chartpatterns.com
Source: chartpatterns.com
Ascending Triangle
• The triangle is create by horizontal top and an ascending
upward trendline.
• Breakout is upward through the horizontal line.
• Also has a three wave count within the triangle.
• Breakout should be accompanied by high volume.
• Often the breakout point will be tested on a retracement
and holds.
Source: chartpatterns.com
Source: chartpatterns.com
Descending Triangle
• Descending triangle is created by a horizontal trendline
along the bottoms and a down sloping trendline connecting
highs.
• Market usually enters in a downward direction and exits to
the down side. Continuation pattern.
• There is usually a three wave count within the triangle
formation.
• Breakout is normally accompanied by high volume.
Flags and Pennants
• Flags and pennants represent a rest after a sharp move. This creates
the flag or pennant pole.
• Pennants then form a symmetrical triangle at the top of the pole. As a
continuation pattern the breakout is in the same direction as the price
entered the pennant.
• Flags then form a small trend channel. Bullish trend is a declining trend
channel and a bearish trend forms an ascending trend channel.
• Both tend to have a three wave formation, breakout with higher volume,
and test the breakout point.
• All trends need to take a rest, this behavior results in these continuation
patterns.
• Within the consolidation period volume and volatility tends to contract.
Expands on breakout.
Source: chartpatterns.com
Rectangular or Sideways Market
• A rectangle is a continuation pattern in which there is a
horizontal trading range where the highs and lows are at
the same level. A horizontal trend channel describes the
market action.
• Volume and volatility consolidate within the rectangle and
expands as the market exits the formation.
• The rectangle can also be a high or low the key is to trade
in the direction of the breakout of the trading bracket, either
direction.
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