1. The Cup & Handle Pattern
The Cup & Handle is the corrective action after a powerful stock advance. Generally a stock will have a powerful move of some 2 to 4 months, then go through a market correction. The stock will sell off into the correction in a downward fashion for maybe 20 to 35 percent off the old high point. The time factor is generally anywhere from 8 to 12 weeks depending on the overall market condition.
As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price drift in a sideways fashion with a bias to the downside for about 4 days to 3 weeks.
The handle is generally about 5% below the old high point. A handle that is any lower is generally a defective stock and contains higher risk for failure.
The time to buy the stock, is as it emerges into new highs at the top of the handle and not the old high point set some 8 to 12 weeks ago.
However, it is important to note that the best stocks with this formation are found at the beginning of a market move after a good market correction, and not during, or at the end of a major market advance.
2. The Ascending Triangle Pattern
The Ascending Triangle is a variation of the symmetrical triangle. Ascending triangles are generally considered bullish and are most reliable when found in an up-trend. The top part of the triangle appears flat, while the bottom part of the triangle has an upward slant.
- In ascending triangles, the stock becomes overbought and prices are turned back.
- Buying then re-enters the market and prices soon reach their old highs, where they are once again turned back.
- Buying then resurfaces, although at a higher level than before.
- Prices eventually break through the old highs and are propelled even higher as new buying comes in.
3. The Parabolic Curve Pattern
The Parabolic Curve is probably one of the most highly prized and sought after pattern. This pattern can yield you the biggest and quickest return in the shortest possible time. Generally you will find a few of these patterns at or near the end of a major market advance. The pattern is the end result of multiple base formation breaks.
4. The Wedge Formation Pattern
The Wedge Formation is also similar to a symmetrical triangle in appearance, in that they have converging trend lines that come together at an apex. However, wedges are distinguished by a noticeable slant, either to the upside or to the downside. As with triangles, volume should diminish during its formation and increase on its resolve. The Following is a Typical Wedge Formation Trend Pattern
A falling wedge is generally considered bullish and is usually found in up-trends. But it can also be found in downtrends as well. The implication however is still generally bullish. This pattern is marked by a series of lower tops and lower bottoms.
A rising wedge is generally considered bearish and is usually found in downtrends. They can be found in up trends too, but would still generally be regarded as bearish. Rising wedges put in a series of higher tops and higher bottoms.
5. The Channel Pattern
Channel Patterns should generally be considered as a continuation patterns. They are indecision areas that are usually resolved in the direction of the trend. Research has shown that this is true far more often than not, of course, the trend lines run parallel in a rectangle. Supply and demand seems evenly balanced at the moment. Buyers and sellers also seem equally matched. The same 'highs' are constantly tested, as are the same 'lows'. The stock vacillates between two clearly set parameters.
While volume doesn't seem to suffer like it does in other patterns, there usually is a lessening of activity within the pattern. But like the others, volume should noticeably increase on the breakout.
6. Symmetrical Triangles
Symmetrical Triangles can be characterized as areas of indecision. A market pauses and future direction is questioned. Typically, the forces of supply and demand at that moment are considered nearly equal. The Following is a Typical Symmetrical Triangle Pattern
- Attempts to push higher are quickly met by selling, while dips are seen as bargains.
- Each new lower top and higher bottom becomes more shallow than the last, taking on the shape of a sideways triangle. (It's interesting to note that there is a tendency for volume to diminish during this period.)
- Eventually, this indecision is met with resolve and usually explodes out of this formation (often on heavy volume.)
7. The Descending Triangle Pattern
The Descending Triangle, also a variation of the symmetrical triangle, is generally considered to be bearish and is usually found in downtrends.
Unlike the ascending triangle, this time the bottom part of the triangle appears flat. The top part of the triangle has a downward slant. Prices drop to a point where they are oversold. Tentative buying comes in at the lows, and prices perk up. The higher price however attracts more sellers and prices re-test the old lows. Buyers then once again tentatively re-enter the market. The better prices though, once again attract even more selling. Sellers are now in control and push through the old lows of this pattern, while the previous buyer's rush to dump their positions.
8. The Flag & Pennant Pattern
Flags and Pennants can be categorized as continuation patterns. They usually represent only brief pauses in a dynamic stock. They are typically seen right after a big, quick move. The stock then usually takes off again in the same direction. Research has shown that these patterns are some of the most reliable continuation patterns. Here is a Typical Flags and Pennants Pattern
- Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trend lines run parallel.
- Bearish flags are comprised of higher tops and higher bottoms. "Bear" flags also have a tendency to slope against the trend. Their trend lines run parallel as well.
Pennants look very much like symmetrical triangles. But pennants are typically smaller in size (volatility) and duration. Volume generally contracts during the pause with an increase on the breakout.
9. Head & Shoulders Pattern
The Head and Shoulders Pattern is generally regarded as a reversal pattern and it is most often seen in up-trends. It is also most reliable when found in an up-trend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. The Following is a Typical Trend of a Head and Shoulders Pattern
- Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline).
- Buyers soon return to the market and ultimately push through to new highs (head).
- However, the new highs are quickly turned back and the downside is tested again (continuing neckline)
- Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.)
- Buying dries up and the market tests the downside yet again. Your trend line for this pattern should be drawn from the beginning neckline to the continuing neckline.
Volume has a great importance in the Head and Shoulders Pattern. Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were. And on the last rallying attempt-the right shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.
New selling comes in and previous buyers get out. The pattern is complete when the market breaks the neckline. (Volume should increase on the breakout.) 10. Inverted Head & Shoulders Pattern
The Head and Shoulders Pattern can sometimes be inverted. The inverted head and shoulders is typically seen in downtrends. What's noteworthy about the inverted head and shoulders is the volume aspect. The Following is a Typical Trend of an Inverted Head and Shoulders Pattern
- The inverted left shoulder should be accompanied by an increase in volume.
- The inverted head should be made on lighter volume.
- The rally from the head however, should show greater volume than the rally from the left shoulder.
- Ultimately, the inverted right shoulder should register the lightest volume of all.
- When the stock then rallies through the neckline, a big increase in volume should be seen.
LAST BUT NOT LEAST TECHNICAL ANALYSIS IS ABOUT LOOKING AT THE BIGGER PICTURE !!!
Technical trading is about looking at bigger picture.
Hints: Always look for a bigger picture if you wish to trade with charts. If you trade on hourly chart, make sure that you zoom out in a multiple of 5 times of the charts, i.e: 5 hours, daily and weekly charts.
So, check out this charts below:
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| Market Cycle |
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| Candle Stick Formations |
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| Market Cycle |
FCPO BIG picture:
Can you see where you were right now? Can you spot what kind of cycle we we going through ? If you manage to answer all that, you might have an idea what is your odds of winning on every trade you did.
Disclaimer: Information and opinions contained in this report are for educational purposes only. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. No liability can be accepted for any loss that may arise from the use of this article.
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