Scribd
Upload
13 views

Chart Patterns (Part 1) - 1

Uploaded by

kaahrthikkaheanmanimaran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
13 views

Chart Patterns (Part 1) - 1

Uploaded by

kaahrthikkaheanmanimaran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 20

Chart Patterns

Part 1

Chapter 7

By : Tutor Age
Head and Shoulders
The head and shoulders patterns are indicative of
reversals, encompassing both bearish and bullish
trends. Within this pattern, a single trend line acts as
support, connecting all three triangles known as the
neckline. A breach of the neckline signals a shift in the
trend, allowing us to discern whether it is an upward
or downward trend.
Head and Shoulders Pattern
Inverse Head and Shoulders Pattern
Volume associated with head and shoulders:
Throughout the development of the "head and shoulders"
pattern, the left shoulder exhibits the highest volume, followed
by a slightly smaller volume in the head, and the right shoulder
with the smallest volume. The diminishing trading volume
phenomenon indicates that as the stock price ascends, the
buying momentum gradually weakens, suggesting that the
price is approaching its peak.
Entry Strategy Following the Emergence of the
Head and Shoulders Pattern:
Upon the completion of the head and shoulders formation, you
can confidently initiate a short order. The emergence of the
head and shoulders signals the commencement of a new
downtrend in the market, and the potential decline is
measured by the distance from the head to the neckline. The
resulting profit has the potential to be quite substantial.
Double TOP and Double BOTTOM
A Bearish reversal chart pattern, known as a Double
Top, takes shape after an uptrend. It comprises two
peaks above a support level, referred to as the
neckline.
A Bullish reversal chart pattern, identified as a Double
Bottom, emerges following a downtrend. This pattern
consists of two troughs below a support level, also
recognized as the neckline.
Double TOP
Double Bottom
Double TOP and Double BOTTOM
Previous Trend: The double top pattern requires a
preceding upward trend lasting several months or
days.
Initial Peak: Typically, this initial peak is higher than the
ongoing trend.
Neckline: Derived from the prior trend, the neckline
should deviate 10% to 30% from the norm. The lows
may exhibit a rounded or elongated shape, indicating
potential low volume or demand.
Second Peak: The price movement from the neckline
to the second peak occurs with low volume. Usually,
the second peak, located within 3% of the previous
high (1st peak), is termed the 2nd peak.

Descent from Peak: Following the attainment of the


second peak, the price experiences a decline with
high volume, often accompanied by a GAP or two.
Entry Strategy Following the Emergence of the
Doble Top and Bottom :
Initially, assess the market's prevailing phase, discerning
whether it is in an upward or downward trajectory. Given that
the double top pattern materializes at the conclusion of an
uptrend, the prior trend must exhibit an upward movement.
Subsequently, traders should execute a short or long position
solely when the price breaches and conclusively closes in the
daily time frame below or above the support level or neckline.
Entry Strategy Following the Emergence of the
Doble Top and Bottom :
Stop Loss: In the context of a Double Top chart pattern,
position the stop loss at the level of the second peak of the
pattern or as per your risk-reward ratio.
Target Price: The price target should equate to the distance
between the neckline and the peaks.
Rounding TOP and Rounding BOTTOM :
A rounding bottom is a chart pattern visually
resembling the shape of a "U."
This pattern typically emerges at the conclusion of
prolonged downward trends, indicating a potential
reversal.
It is commonly known as a saucer bottom.
In the ideal scenario, volume and price exhibit
synchronized movements.
Rounding TOP
Rounding Bottom
Entry Strategy Following the Emergence of the
Doble Top and Bottom :
Previous Trend: For the rounding bottom to function as a
reversal pattern, there must be an antecedent trend to
reverse. Ideally, the low point of the rounding bottom will
establish a new low or reaction low. The stock may undergo a
period of flat trading before the pattern takes shape.
Decline: The initial phase of the rounding bottom is the decline
leading to the pattern's low. This descent can manifest in
various forms—some are marked by numerous reaction highs
and lows, while others exhibit a more linear downward
trajectory.
Low: The low of the rounding bottom may resemble a "V"
bottom but should not be excessively sharp. As prices have
been on a prolonged decline, the potential for a selling climax
exists, which could result in a lower spike.
Advance: The upward movement from the lows constitutes the
right half of the pattern and should take approximately the
same duration as the preceding decline. If the advance is too
abrupt, it may raise doubts about the authenticity of a
rounding bottom.
Breakout: Bullish confirmation occurs when the pattern
breaches above the reaction high marking the initiation of the
decline at the pattern's outset.
Volume: In an ideal scenario, volume trends in harmony with
the shape of the rounding bottom—high at the beginning of
the decline, diminishing at the conclusion of the decline, and
escalating during the advance. While volume levels during the
decline are not crucial, an increase in volume during the
advance and preferably during the breakout is preferred.
End of Part 1!
Stay connected on
Telegram for the
release of our
Upcoming Free Ebook.
Image source:Google

Click here to Join

You might also like