Analyzing Chart Patterns: Conclusion
AAA
  1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion

Analyzing Chart Patterns: Conclusion


By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com

This introduction to chart patterns has provided a broad overview of chart pattern analysis and several of the largest patterns.

Here's a brief summary of what we've covered:

  • Chart analysis is the technique of using patterns formed on a securities chart to formulate buy and sell signals.
  • 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.
  • A head-and-shoulders top suggests a reversal in the prior uptrend.
  • An inverse head and shoulders suggests a reversal in the prior downtrend.
  • A cup-and-handle pattern is a bullish continuation pattern that suggests a continuation of the prior uptrend.
  • 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.
  • 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.
  • 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.
  • 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.
  • A gap is formed on a chart when there is an empty space between two time periods. Common gap patterns include: common, breakaway, runaway (measuring) and exhaustion.
  • 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.
  • A rounding bottom is a long-term reversal pattern that signals a shift from a downward trend to an upward trend.

  1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  5. Mass Index

    A form of technical analysis that looks at the range between ...
  6. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
RELATED FAQS
  1. How do I build a profitable strategy when spotting a Rounding Bottom pattern?

    For investors looking to ride a new trend to profits, accurately identifying a reversal is the holy grail of chart analysis. ... Read Full Answer >>
  2. What is the difference between a Hanging Man and a Hammer Pattern?

    The hanging man and the hammer are both candlestick patterns that indicate trend reversal. The only difference between the ... Read Full Answer >>
  3. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  6. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!