Analyzing Chart Patterns: Conclusion
  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. Continuation Pattern

    A technical analysis pattern that suggests a trend is exhibiting ...
  2. Hook Reversal

    A short-term candlestick pattern, occurring in either an uptrend ...
  3. Diamond Top Formation

    A technical analysis reversal pattern that is used to signal ...
  4. Sanku (Three Gaps) Pattern

    The Japanese word for a candlestick pattern that consists of ...
  5. Triple Bottom

    A pattern used in technical analysis to predict the reversal ...
  6. Tri-Star

    A type of candlestick pattern that signals a reversal in the ...
RELATED FAQS
  1. Are continuation patterns useful in forex trading and stock trading?

    Learn what a continuation pattern is in technical analysis and why it is useful in forex and stock market trading, and discover ... Read Answer >>
  2. What are the differences between patterns and trends?

    Learn the difference between a pattern and a trend. Explore how technical analysts use patterns and trends to identify trading ... Read Answer >>
  3. What are the most common continuation candlestick patterns?

    Learn about the four most common types of continuation patterns found in candlestick charts: triangles, rectangles, flags ... Read Answer >>
  4. What are the fundamental differences between a pennant pattern and a flag pattern?

    Understand the basics of both the flag and pennant continuation patterns, their similarities and differences, and how each ... Read Answer >>
  5. Where do I place my target when the price of a stock breaks out of a technical chart ...

    Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity ... Read Answer >>
  6. How do I implement a forex strategy when spotting a Symmetrical Triangle Pattern?

    Learn the basics of the symmetrical triangle pattern and how this continuation signal can be used to create trade strategy ... Read Answer >>

You May Also Like

Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center