Market patterns

Market patterns

Lesson Attachments

Chart pattern are used as reversal or continuation signal.  The following patterns are most common on the charts.

Double top
Double top pattern indicates that uptrend has stopped and price can reverse from here. We recognize this pattern by the equal highs. We use this pattern to find short opportunity.

 

Double bottom

Double bottom pattern is the opposite as double top. It can be strong upside reversal pattern.

 

 

Head and shoulders

Head and shoulders is one of the most popular patterns on the market. It indicates us a possible reversal of a bigger trend. This pattern can appear in both trends. We can get this pattern at the top of an uptrend, but in the bottom of downtrend we can get inverse head and shoulders pattern.
Both head and shoulders have similar construction:
– left shoulder: Market push price upside making new high, which is short lived and price retreat.
– head: Price don’t retreat for long, because market make another push to the upside, but this time higher and then price retreat to the support of the left shoulder or a trendline (neckline).
– right shoulder: Market push price back to the upside, but it fails to make new higher high. We get new lower high and price fall back down to the support.

When head and shoulder occur, we must wait for a break of neckline. We can enter on a neckline retest.  Target is same amount of pips than is from a neckline to the top of the head.

 

 

 

 

Symmetrical triangle

This pattern is identified by two converging trend lines connecting series if sequentially higher swing lows and lower swing highs.
We can place orders above the slope of the lower highs or below the slope of the higher lows. We know that price is going to break out, so we can just set stop limit orders.

 

 

 

 

Ascending triangle

It’s a bullish chart pattern that consist of horizontal trendline at level of resistance and an upward trendline connecting a series of higher lows.

 

Descending triangle

It’s a bearish pattern, opposite of ascending triangle. It consists of a horizontal trendline at support and downtrend trendline connecting a series of lower highs.

Bull flag pattern

Bull flag formations are found on pairs with strong uptrend.  It consists of a flagpole and a flag. Pole represents a trend impulse on the chart. After creating a pole, price create a tight range in a shape of flag.  We can trade on a break of this range to the upside.

 

Bear flag pattern

It’s a bearish pattern that occur on pairs with strong downtrend. It’s opposite of bull flag pattern.

 

Rising wedge pattern

The rising wedge is a bearish pattern in an uptrend, composed of two upwards sloping and converging trendlines, connecting higher highs and higher lows. We can use this pattern as the beginning of short opportunities.


Falling wedge pattern

The falling wedge pattern is a bullish pattern in an downtrend, composed of two downward and converging trendlines, connecting lower highs and lower lows. We can use this pattern as the beginning of long opportunities.

Pennant pattern

The pennant looks like the symmetrical triangle, but its characteristics are not the same. This is a wedge of consolidation. It is a continuation pattern. We trade a break out, with target compared to the previous trend.