Equity IQ

Reversal Pattern Continuation Pattern

Reversal pattern indicate that an important Continuation pattern suggest that market is only
reversal is taking place. pausing for a while for some correction and
trend will continue
1. Head and Shoulder pattern
1. Triangle pattern
2. Inverted Head and Shoulder pattern
2. Ascending Triangle pattern
3. Double Top and Bottom pattern
3. Descending Triangle pattern
4. Triple Top and Triple Bottom pattern
4. Flags and Pennants pattern
5. Rounding Top and Rounding Bottom
5. Wedge pattern
6. Cup and handle pattern
6. Rectangle formation
▪ There should be an existing trend.
▪ The first signal of a trend reversal is often the breaking of an important trend line.
▪ Longer the pattern, greater the subsequent move.
▪ Topping patterns are usually shorter in duration and more volatile than bottoms.
▪ Bottom usually have smaller price range and take longer to build.
▪ Volume is always important in any reversal pattern.
In technical analysis a head and
shoulders pattern describes a
specific chart formation that predicts
a bullish-to-bearish trend reversal.
The head and shoulders pattern is
believed to be one of the most
reliable trend reversal patterns.

1. After long bullish trends, the price

rises to a peak and subsequently
declines to form a trough.

2. The price rises again to form a

second high substantially above the
initial peak and declines again.

3. The price rises a third time, but

only to the level of the first peak,
before declining once more.
The first and third peaks are
shoulders, and the second peak
forms the head. The line connecting
the first and second troughs is called
the neckline.
It is similar to the standard head and
shoulders pattern, but inverted: with
the head and shoulders top used to
predict reversals in downtrends.
1. After long bearish trends, the
price falls to a trough and
subsequently rises to form a peak.
2. The price falls again to form a
second trough substantially below
the initial low and rises yet again.
3. The price falls for a third time, but
only to the level of the first trough,
before rising once more and
reversing the trend.
A double top is a bearish technical
reversal pattern. It is most frequently
seen and most easily recognized
pattern.
1. There must be an existing trend to
reverse.

2. The first peak should mark the

highest point of the current trend.
3. After the first peak, there is
generally a decline of 10-20%.

4. Again made a peak.

5. The subsequent decline from the
second peak should witness an
expansion in volume.
6. Breaking support from the lowest
point between the peaks completes
the Double Top Reversal. This too
should occur with an increase in
volume.
A double Bottom is a bullish
technical reversal pattern. It is most
frequently seen and most easily
recognized pattern.
1. There must be an existing down
trend to reverse.

2. The first Through should mark the

lowest point of the current trend.
3. After the first through, there is
generally a advance of 10-20%.

4. Again made a through.

5. The subsequent advance from the
second peak should witness an
expansion in volume.
6. Breaking resistance from the
highest point between the through
completes the Double Bottom
Reversal. This too should occur with
an increase in volume.
These pattern are very rare in
occurrence, This pattern is just
like head and shoulder, the main
difference is that the three peak
and three troughs are in triple top
and in triple bottom are at about
the same level.
The volume tends to decline with
each successive peak at the top
and should increase at the
breakdown bottom point. The
triple top is not complete until
support levels along both of the
intervening lows have been
broken.
Rounding top is also referred as
“inverse saucer” as it resembles
an inverted “U” image. The
pattern signals that the
existing uptrend is about to finish
and the possibility of
a downtrend to commence. This
creates an opportunity to go short.
Number 1: Uptrend
Number 2: Rounded top
Number 3: Neckline
The pattern occurs when the price
goes upwards and stabilizes for a
long period which gives rise to
the rounded top.
Sooner or later, it falls back down
below the neckline of the
stabilized area.
This is also referred as “saucer” as
it resembles a clear inverted “U”
image. The pattern signals that the
existing downtrend is about to
finish and the possibility of
an uptrend to commence. This
creates an opportunity to go long.
Number 1: Downtrend
Number 2: Rounded bottom
Number 3: Neckline
Stable movement in price is
required for this pattern too.
The movement would be towards
downside before stabilizing for a
long time and formation of
rounded bottom.
Sooner or later, the price rises
back above the neckline of the
stabilized area.
A cup and handle price pattern on
bar charts resembles a cup and
handle where the cup is in the
shape of a "U" and the handle has
a slight downward drift.
A cup and handle is considered a
bullish continuation pattern and is
used to identify buying
opportunities.
As a stock forming this pattern
tests old highs, it is likely to incur
selling pressure from investors
who previously bought at those
levels; selling pressure is likely to
make price consolidate with a
tendency toward a downtrend
trend
It is a continuation pattern. It
represents a pause in existing
trend after which the original
trend resumed.
The minimum requirement for a
triangle is four reversal points. But
many triangles have six reversal
points also.
Price should give breakout within
¾ of triangle horizontal width.
Target should be the Hight of the
widest part of triangle. And SL
should be below the breakout
trendline.
It is considered as a bullish pattern. In
ascending triangle upper trendline is
flat, wile the lower line is rising. This
pattern indicates that buyers are more
aggressive than sellers.
While the ascending triangle is a
continuation pattern but sometimes
this appears in downtrend as bottom
formation.
A long trade is taken if the price
breaks above the top of the pattern.
A short trade is taken if the price
breaks below the lower trendline.
A stop loss is typically placed just
outside the pattern on the opposite
side from the breakout.
A profit target is calculated by taking
the height of the triangle, at its
thickest point, and adding or
subtracting that to/from the breakout
point.
It is considered as a bearish pattern.
In descending triangle lower
trendline is flat, wile the upper line is
declining. This pattern indicates that
sellers are more aggressive than
buyers.
A long trade is taken if the price
breaks above the top of the pattern.
A short trade is taken if the price
breaks below the lower trendline.
A stop loss is typically placed just
outside the pattern on the opposite
side from the breakout.
A profit target is calculated by taking
the height of the triangle, at its
thickest point, and adding or
subtracting that to/from the breakout
point.
When a trending price pauses and
goes back over slightly in a
rectangular range, the flag pattern
occurs. This pattern gives us the
opportunity to enter the market in
the middle of a trend.
Flag Buy Signal - When the price has
moved higher and prices have
consolidated, creating a channel of
support and resistance, a potential
buy signal is given when prices
penetrate and close above the
upward resistance line.
Flag Sell Signal - Assuming prices
previously moved downward, then
after a period of price consolidation,
a potential sell signal is given when
price penetrates and closes below
the support line.
Targets: The length of the flagpole
Pennants are continuation
patterns where a period of
consolidation is followed by a
breakout.
It's important to look at the volume
in a pennant—the period of
consolidation should have lower
volume and the breakouts should
occur on higher volume.

Targets: The length of the

flagpole can be applied to the
resistance break or support break
of the flag/pennant to estimate the
advance or decline.
A wedge pattern can signal either
bullish or bearish price reversals. In
either case, this pattern holds three
common characteristics:
1. The converging trend lines.
2. A pattern of declining volume as
the price progresses through the
pattern
3. A breakout from one of the trend
lines.
Rising Wedge- This usually occurs
when a security’s price has been
rising over time, but it can also
occur in the midst of a downward
trend as well.
Falling Wedge- When a security's
price has been falling over time.
A Rectangle is a continuation pattern
that forms as a trading range during
a pause in the trend. The pattern is
easily identifiable by two
comparable highs and two
comparable lows.
Trend: To qualify as a continuation
pattern, a prior trend should exist.
Four (4) Points: At least two equivalent
reaction highs are required to form the
upper resistance line and two
equivalent reaction lows to form the
lower support line.

Volume: higher volume in breakout.

Target: The estimated move is found
by measuring the height of the
rectangle and applying it to the
breakout.
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