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Top Stock Chart Patterns
Chart patterns are shapes that sometimes appear in the charts of securities prices. Some of them may prove useful to you. Some frequently discussed chart patterns include Head and Shoulders, Double/Triple Bottom/Top, Cups and Saucers, Flags and Pennants, and others. Generally, it can be useful to compare and connect the troughs to each other and the peaks to each other to see if there is a trend confirmation if the breadth is narrowing, or if a reversal might be imminent. Continue reading...
What Kinds of Overlays are Used in Chart Patterns?
Overlays are technical supplements which help to interpret the data of a normal price chart. Often a chart program will allow the user to pick a few different overlays at a time, to help him or her get a better idea of what is going on with the price. Some common overlays include moving average lines, Bollinger Bands, Ichimoku clouds, and channel lines. An overlay or series of overlays will appear as additional lines, shading, or other graphics on a price chart. An overlay helps a trader or analyst interpret the price data in the context of other data, by putting the other data right on top of it. Continue reading...
How to use the Broadening Top (Bullish) Pattern in trading
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price by adding the pattern height (H on the chart) to the breakout price. The pattern height is the difference between the pattern’s highest high and its lowest low. Continue reading...
What is the Rising Flag (Bullish) Pattern?
The Rising Flag (or Bullish Flag) pattern looks like a flag with a mast. It forms when rising prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes. This type of formation happens when the price of a security is expected to move in a rising trend line, but some volatility along the way creates a consolidation period. Continue reading...
What is the Rising Pennant (Bullish) Pattern?
The Rising Pennant (or Bullish Pennant) pattern looks like a pennant with a mast. It forms when rising prices experience a consolidation period, and the price moves within a narrow range defined by the converging lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes. This type of formation happens when anticipation of an uptrend is high, and when the price of a security consolidates within a range. It indicates growing investor interest in a potentially explosive uptrend. Continue reading...
What is the Rectangle Bottom (Bullish) Pattern?
The Rectangle Bottom pattern forms when the price of a security is stuck in a range bound motion. Two horizontal lines (1, 3, 5) and (2, 4) form the pattern as the security bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually, the pattern performs better when there is a strong downtrend leading into the formation. Continue reading...
What is the Rectangle Top (Bullish) Pattern?
The Rectangle Top pattern forms when the price of a security is stuck in a range bound motion. Two horizontal lines (top: 1, 3, 5) and (bottom: 2, 4) form the pattern as the security bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
What is the Descending Triangle (Bullish) Pattern?
The Descending Triangle pattern is formed when the price of a security establishes a support level (1, 3, 5) and bounces off that level to a declining resistance level, creating a down-sloping top line (2, 4). The breakout can either be up or down, depending if the resistance or highest support level is broken first. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. Continue reading...
What is the Triple Bottom (Bullish) Pattern?
The Triple Bottom pattern appears when there are three distinct low points (1, 3, 5) that represent a consistent support level. The security tests the support level over time but eventually breaks resistance and makes a strong move to the upside. This type of formation happens when sellers can not break the support price, and market participants eventually pour in. Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the breakout price level. To identify an exit, compute the target price by adding the pattern’s height (highest price minus the bottom price support level) to the breakout level the highest high. When trading, wait for the confirmation move, which is when the price rises above the breakout level. Continue reading...
What is the Falling Wedge (Bullish) Pattern?
The Falling Wedge pattern forms when the price of a security appears to be spiraling downward, and two down-sloping lines are created with the price hitting lower lows (1, 3, 5) and lower highs (2, 4). The two pattern lines intersect to form a narrow triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. Continue reading...
What is the Rising Wedge (Bullish) Pattern?
The Rising Wedge pattern forms when prices seem to be spiraling upward, and two upward sloping trend lines are created with the price hitting higher highs (1, 3, 5) and higher lows (2,4). The two pattern lines intersect to form an upward sloping triangle. Unlike Ascending Triangle patterns, however, both lines need to have a distinct upward slope, with the bottom line having a steeper slope. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
What is the Broadening Bottom (Bearish) Pattern?
The Broadening Bottom pattern forms when a security price makes higher highs (2, 4) and lower lows (1, 3, 5) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Bottom from a Broadening Top is that the price of the security is declining prior to entering the pattern formation. This type of formation happens when volatility is high or increasing, and when a security's price is moving with high volatility but or no direction. It potentially indicates growing investor nervousness and a little indecisiveness. Continue reading...
What is the Broadening Top (Bearish) Pattern?
The Broadening Top pattern forms when a security price makes higher highs (1, 3, 5) and lower lows (2, 4) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Top from a Broadening Bottom is that the price of the security is rising prior to entering the pattern formation. This type of formation happens when volatility is high or increasing, and when a security’s price is moving with high volatility but little or no direction. It indicates growing investor nervousness and indecisiveness. Continue reading...
What is the Falling Flag (Bearish) Pattern?
The Falling Flag (or Bearish Flag) pattern looks like a flag with the mast turned upside down (the mast points up). The pattern forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points 2-4 and 3-5. After the consolidation, the previous trend resumes. This type of formation happens when anticipation of a downtrend is high, and when a security’s price consolidates during a broader decline. It may indicate growing investor concern of an impending downtrend. Continue reading...
What is the Falling Pennant (Bearish) Pattern?
The Falling Pennant (or Bearish Pennant) pattern looks like a pennant turned upside down (the mast points up). It forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the converging lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes. This type of formation happens when anticipation of downtrend is high, and when the price of a security consolidates during a declining trend. It may indicate growing investor concern of an impending downtrend. Continue reading...
What is the Rectangle Bottom (Bearish) Pattern?
The Rectangle Bottom pattern forms when the price of a security is stuck in a rangebound motion, bouncing between support and resistance levels. Two horizontal lines (1, 3, 5) and (2, 4) form the pattern. Depending on who gives up first buyers or sellers the price can Breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong downtrend leading into the formation. Continue reading...
What is the Rectangle Top (Bearish) Pattern?
The Rectangle Top pattern forms when the price of a security is stuck in a rangebound motion, and it bounces between support and resistance levels. Two horizontal lines are formed (top: 1, 3, 5) and (bottom: 2, 4) as a result. Depending on who gives up first – buyers or sellers – the price can Breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
What is the Ascending Triangle (Bearish) Pattern?
The Ascending Triangle pattern has a horizontal top line (1, 3, 5) representing a resistance level, and an upward-sloping bottom line (2, 4). The Breakout can either be up or down, and the direction of the Breakout will determine whether the Target Price is higher or lower. This pattern is commonly associated with directionless markets, since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. When the price of a security consolidates around highs it might indicate that a significant downtrend is ahead. Continue reading...
What is the Descending Triangle (Bearish) Pattern?
The Descending Triangle pattern has a horizontal bottom (1, 3, 5) which represents the support level, and a down-sloping top line (2, 4). The breakout can be either up or down and the direction of the breakout determines which corresponding price level is the target. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. When the price of a security consolidates in a somewhat volatile fashion, it may indicate growing investor concern that the price is set to break out. Continue reading...
What is the Triple Tops (Bearish) Pattern?
The Triple Tops pattern appears when there are three distinct minor Highs (1, 3, 5) at about the same price level. The security is testing the upper resistance level (horizontal line formed by (1, 3, 5), but the price ultimately declines as buyers give up. This type of formation potentially happens when investors can not break the resistance price. There is a distinct possibility that market participants will sell out, and the price can move down with big volumes (leading up to the breakout). Continue reading...