Pattern No 1.Head and shoulders
Pattern No 1.
Head and shoulders
The Head and Shoulders chart pattern is a heavily used
charting pattern, giving easily understood potential buy and sell signals.
Head and Shoulder Components
Left Shoulder: Bulls
push prices upwards making new highs; however these new highs are short lived
and prices retreat.
Head: Prices don't retreat for long because bulls make
another run, this time succeeding and surpassing the previous high; a bullish
sign. Prices retreat again, only to find support yet again.
Right Shoulder: The bulls push higher again, but this time
fail to make a higher high. This is very bearish, because bears did not allow
the bulls to make a new higher or even an equal high. The bears push prices
back to support (Confirmation line); this is a pivotal moment – Will bulls make
another push higher or have the bears succeeded in stopping the move higher.
If prices break the confirmation support line, it is clear
that the bears are in charge; thus, when price closes below the confirmation
line, a potential sell signal is given. Note that a downward sloping
confirmation line is generally seen as a more powerful Head & Shoulders
pattern, mainly because a downward sloping confirmation line means that prices
are making lower lows.
Pattern No 2 Reverse Head and
Shoulders Components
Pattern No 2 Reverse Head and
Shoulders Components
Head: Price gains
don't last long before bears return and push prices even lower than before; a
bearish sign. Prices then find buyers at the new lower prices.
Right Shoulder:
The bears push downward again, but this time fail to make a lower low. This is
generally seen as bullish sign, bears were unable to push prices further down.
Decision time occurs when the price is pushed higher back to support
(Confirmation line); either bears will push prices back down or bulls will push
prices higher, regaining control of the stock, future, or currency pair.
Reverse Head and
Shoulders Potential Buy Signal
When price closes above the confirmation line, a potential
signal is given. Usually an upward sloping confirmation line is seen as a more
powerful Reverse Head & Shoulders pattern, mainly because an upward sloping
confirmation line means that prices are making higher highs.
Pattern
no 3: Cup
with handle
The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks.
As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
Components of the Pattern
Trend: To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a few months old and not too mature. The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential.
Cup: The cup should be “U” shaped and resemble a bowl or rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. The softer “U” shape ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
Cup Depth: Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the retracement could range from 1/3 to 1/2. In extreme situations, the maximum retracement could be 2/3, which conforms with Dow Theory.
Handle: After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup.
Duration: The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks.
Volume: There should be a substantial increase in volume on the breakout above the handle's resistance.
Target: The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.
Pattern No 4: Double Top
Pattern no 4: Double Top
A double
top is a reversal pattern that is formed after there is an extended move up.
The “tops” are peaks which are formed when
the price hits a certain level that can’t be broken. After hitting this level,
the price will bounce off it slightly, but then return back to test the level
again.
If the
price bounces off of that level again, then you have a DOUBLE top!.This is a
strong sign that a reversal is going to occur because it is telling us that the
buying pressure is just about finished.
With the
double top, we would place our entry order below the neckline because we are
anticipating a reversal of the uptrend.Remember that double tops are a trend
reversal formation so you’ll want to look for these after there is a strong
uptrend.
You’ll
also notice that the drop is approximately the same height as the double top
formation.
Pattern no 5: Double Bottom
Pattern no 5: Double Bottom
To create a
double bottom pattern, price begins in a downtrend, stops, and then reverses
trend. However, the reversal to the upside is short-term. Price breaks again to
the downside only to stop again and reverse direction upwards. With the second
bottom of the double bottom pattern, it is usually more bullish if the second
low is higher than the first low.
A potential
buy signal is given when the confirmation line is penetrated to the upside. The
confirmation line is drawn across the top of the double bottom pattern.
Often, after price penetrates the confirmation
line, price will retrace for a short time, sometimes back to the confirmation
line. This retracement offers a second chance to get into the market long.
Pattern No 6 : Three white soldiers
Three White Soldiers is a bullish reversal pattern that is made up of a trio of long green candles during a downtrend, each appearing after the other, opening within the range of the previous period and closing near the current period’s high.
Please note that on black & white trading charts, the green candles are replaced by white candles and hence the name “Three WHITE Soldiers”. Soldiers signify a march ahead or the upward momentum.
Points to remember
The market has to be in a downtrend.
You then have 3 green bullish candlesticks that form consecutively giving you the three white soldiers chart pattern.
Each candlestick must open within the candle body of the previous candlestick
Each candlestick must close higher than the previous candlestick.
Source :- All images/pictures and information on this post have been collected from the Internet and are in public domain.
Disclaimer - For educational purposes only.
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