The pennant resembles the symmetrical triangle, but it’s characteristics are not the same. The pennants is shaped like a wedge of consolidation. Its normally appears after a sudden upward or downward movement. The life is short according to the time frame used.
The pennant’s pattern is a continuation pattern. The exit side of this pattern depends on the preceded movement. The formation may intervene in a bullish or bearish trend. This break will occur halfway of the movement.
The target calculation is compared to the prior trend. You should calculate the height of the entire movement, up or down before the formation of the pennant and then extend the high on the last low/high point of the pattern.
A graphical representation of a pennant follows:
Several statistics about the pennant are:
– In 75% of cases, the exit is made in the side of the previous trend.
– In 90% of cases, this will be a continuation pattern.
– In 55% of cases, the target of the pattern has been reached.
– In 16% of cases, a pullback occurs.
– 84% of cases, a pennant occurs on the lower third annual range when the trend is bearish and the highest third when the trend is bullish.
The more the movement prior to the formation of the pattern is powerful, the more the movement following the exit will be strong.
It is with a narrowed base is much more powerful than a pennant with a wide base.
It is more powerful if there are no false breakouts.
Pullbacks are harmful for the performance of the pennant pattern.
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The symmetrical broadening top is called a bullish continuation pattern. This pattern is formed by two symmetrical horizontal lines that are divergent. It looks like an inverted symmetrical triangle or an open triangle. The oscillations in the middle of the two bands of the triangle are consequently becoming more and more sizable. Each line has to touch at least twice for validation.
The symmetrical broadening top will show how the growing nervousness of investors will affect their indecisiveness. If this pattern is not identified right away, this movement may seem totally irregular and then trap many investors.
This formation pattern should be preceded by an upward movement. The pattern is frequently due to profit taking that will lead to the formation of new lows. But, the buying pressure will remain strong and the indecisiveness will dominate.
The target price will be given by plotting the height of the triangle at its beginning on the break point. A different technique is to extend the maximum height of the triangle on the break point.
Here is a graphical representation of a symmetrical broadening top and a symmetrical broadening bottom:
Here are some statistics on the symmetrical broadening top:
– In 53% of cases, there is an upward exit.
– In 75% of cases, the target of this pattern is obtained by acquiring the maximum height of the triangle. With this downward exit, the percentage fell to 64%.
– More than 72% of cases, a downward breakout occurs when the price is into the highest third of its annual range. No bullish breakouts are identified into the lowest third of the annual range.
Be careful of indecisiveness patterns. Bullish breakouts will have more potential.
From the 5th rotation (i.e., the fifth points of contact on either resistance or support), there will be an 80% chance that the exit will occur at the next contact point with the support or resistance of this symmetrical triangle. From the sixth rotation, the percentage rises to 96%.
The descending flag shows as a continuation pattern. The flag is built by two straight downward parallel lines which is shaped like a rectangle. It is oriented in the direction of that trend which it consolidates. Contrary to a bearish channel, this pattern is quite short term and shows the fact that buyers will need a break.
The creation of this pattern will occur in an upward trend. Often, this break will occur halfway through the movement.
The object calculation will be compared to the previous trend. A calculation of the height of the overall upward trend before the formation of the descending flag and then extends the low on the last lowest point of the pattern.
A graphical representation of the pattern is as follows:
Look at some statistics about the descending flag:
Descending Flag statistics
– In 87% of cases, there is an upward exit.
– In 90% of cases, it shows a continuation pattern.
– In 62% of cases, the target of the pattern will be reached .
– 76% of cases, it occurs when the price is at the highest third of its annual range.
– In 10% of cases, a pullback occurs on the support.
The more the previous movement precedes the formation of the descending flag it is powerful, the more the bullish breakout will be strong.
It’s performance is not as important when it is oriented in the direction of the trend.
A descending flag with narrowed lines is performs more than a flag with outspread lines and is more powerful if there is no false breakout.
An ascending flag is a continuation pattern. The ascending flag is formed by two straight upward parallel lines which are shaped like a rectangle. It is adjusted in the direction of the trend that it consolidates. Contrary to a bullish channel, this pattern is quite short term and marks the fact the seller will need a break.
The formation of an ascending flag will occur in a downward trend. Often, this break will occur halfway through the movement.
The target calculation will be compared to the previous trend. A calculation of the height of the overall downward trend is before the formation of the ascending flag and then extends higher on the last highest point of the pattern.
A graphical representation of an ascending flag follows:
Here are some statistics about the ascending flag pattern:
– In 87% of cases, there will be a downward exit.
– In 90% of cases, the ascending flag is a continuous pattern.
– In 62% of cases, the target of the pattern is reached .
– In 76% of cases, the ascending flag occurs when the price is at the lowest third of its annual range.
– In 10% of cases, a pullback occurs on the support.
The more the previous movement precedes the formation of the flag holds powerful, the more the bearish breakout will continue to be strong.
The performance of an ascending flag is much less important when it is oriented in the direction of the trend.
A flag with narrowed lines is more performing than a flag with outspread lines.
A flag is more powerful if there is no false breakouts.
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A bullish channel is called a continuation trend pattern. The bullish channel is assembled by two parallel lines that frame the upward price trend. A line is validated when there has been at least two points of contact with the price. The more contact points it has, the stronger the trend line is and the more their breakout will give a strong sell signal.
The bullish channel is one of the most used chart patterns. You can find it on every time frame. There is no theoretical target in this pattern. The movement can continue as far as the lower band is supported.
Here is a graphical representation of a bullish channel:
It is not recommended to take a short position at the contact with the upper band. Actually the trend may continue along the upper band. Besides, the movement towards the lower band are correction movements into an upward trend and are therefore less powerful.
Try to avoid false breakouts by drawing your trend lines based on high and low points of candlesticks and not their body.
The breakout often occurs at the 4th point of contact.
The more the lower band acts as support, the more the breakout will be violent.
A bearish channel is a continuation trend pattern. The bearish channel is arranged by two parallel lines that frame the downward price trend. To certify a line, there has to be at least two points of contact with the price. The more contact points it has, the more the trend line is stronger and their breakout will give a stronger buy signal.
The bearish channel one of the most used chart patterns. You can find it on every time frame. There is no theoretical target in this pattern. The movement can continue as far as the upper band is resistance.
Here is a graphical representation of a bearish channel:
It isn’t a good idea to take a long position at the contact with the lower band. Actually the trend might continue along the lower band. Also the movements towards the upper band are correction movements into a downward trend and as a result are less powerful.
To avoid false breakouts, draw your trend lines based on high and low points of candlesticks and not their body. The breakout will often occur at the 4th point of contact.
The more the upper band acted as resistance, the more the breakout will be violent.
The triple top is a bearish pattern with an MN shape. Three bottoms will come in succession, reflecting an important resistance. This marks a reversal will.
Below the triple top shows the area of resistance that will lead to a correction of the price three times. The neckline pattern will be formed by the lowest of these two bearish peaks. An initial correction will then occur and, then the price will go back on resistance. The magnitude of these three tops are normally the identical (as in the case below), but it may happen that the first top may be lower than the next two tops. This composition strengthens the validity of the pattern since it reflects a breathlessness of buyers. If the second top is higher than the two others, it could be a head and shoulders pattern.
Another correction will take place, theoretically on the same level as the first correction. Provided that the neckline is broken at this point, then it can be a double top. In many instances we know afterward what type of pattern we will face. A return on the resistance must be done. If the third top were higher than the first two, then that would reinforce the chances of reversals (breathlessness of buyers). The third correction that will lead to the breakout of the neckline and will validate the bearish reversal.
Once this neckline is broken, it could happen that the price will take resistance on it (that line becomes a resistance, called a pullback), then the price will take up its bearish movement. A target price will be determined by the gap between the resistance and the neckline.
Another example of a triple top with a breathlessness of buyers (top are less and less high) is provided.
Following are are several statistics about the triple top:
– In 85% of cases, there is a downward exit.
– In 50% of cases, the target of the pattern is reached once the neckline is broken.
– In 84% of cases, a pullback will occur.
– In 85% of cases, there is a pursuit of the movement once the neckline is broken.
In case of pullback, the downward movement may not be as important once the target of the pattern is reached.
If the resistance is overly tested prior to a correction (flat top), then the decrease following the breaking of the neckline will be more important.
The more the three tops are close, the more of the percentage of success of the pattern is high.
The more the movements between the neckline and resistance are straight, the more the pattern is efficient.
The more the bullish movement proceeds the formation of the triple top is big, the more the downward movement at the breakout of the neckline will be strong.
The pattern is more efficient if the third top is not as high as the other two.
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Triple bottom is a bullish pattern with a WV shape. Three bottoms will succeed, reflecting an important support. This will mark a reversal. See the triple bottom shown below, the area of support allows the prices to bounce back three times. The neckline of this pattern is formed by the highest peak of the two bullish peaks. An initial bounce will then occur and the price will go back on the support. The bulk of the three bottoms is usually the same (as indicated below), however it can happen that the first bottom may be lower than the next two. This configuration strengthens the validity of this pattern since it reflects a tension of sellers.
If the second dip is lower than the other two, it can be a reverse head and shoulders pattern. A second rebound will take place, probably on the same level as the initial bounce. However, if the neckline is broken at this point, it can be a double bottom. In some cases, afterward we know what type of pattern we were facing. A return on the support must be accomplished. The third bottom may be lower than the first two thus reinforcing the chances of reversals (tension of sellers). This will be the third rebound which leads to the break out of the neckline and reinforce the bullish reversal.
When the neckline becomes broken, it might appear that the price takes support on it (the line will become a support, called a pullback); then the price will take up its bullish movement. The target price is decided by the gap between the support and the neckline.
Another example of a triple bottom with a tension of sellers (bottoms are less and less low) is indicated here.
Here are some statistics about the triple bottom:
– In 66% of cases, there is an upward exit.
– In 73% of cases, the target of the pattern will be reached once the neckline is broken.
– In 70% of cases, a pullback will occur.
– In 96% of cases, there is a pursuit of the movement once the neckline is broken.
In case of pullback, the upward movement is not as important once the target of the pattern is reached.
If the support is endlessly tested prior to a rebound (flat bottom), then the increase following the breaking of the neckline will be more important.
The more the three bottoms are close, more of the percentage of success of the pattern will be high.
The more movements between the neckline and support are straight, the more the pattern is efficient.
The more the bearish movement that precedes the formation of the triple bottom is big, the more the upward movement at the breakout of the neckline will be strong.
The pattern will be more efficient if the third bottom is not deeper than the two others.
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Reverse head and shoulders is a trend reversal pattern. It will mark a desire to make a bullish reversal. The theory is the same as a triple bottom other than the second bottom will be lower than the others, which are technically at the same height. The reverse head and shoulders pattern will be formed by three bottoms that will succeed.
The first and third bottoms are around the same height. It’s said that they formed the shoulders. The second top is lower than the other thus representing the lowest point. This is the head. There are few rules for many investors say that the height of the head should be 1.5 or 2 times lower than the shoulders. Investors also agreed that spacing between each bottom has to be the same. This is a major point to identifying patterns.
The highest attained between the shoulders and the head shape the neckline (in red below) that acts as a resistance. The neckline can be ascending (38% of cases), descending (40% of cases) or horizontal (22% of cases). This is the breakout of the resistance that validates the reversal patterns. The target price is equal in distance between the neckline and the bottom of the head that we symmetrically carry over to the neckline. This pattern is well known to investors and that is what makes it successful.
The reverse head and shoulders pattern offers a good performance on a bearish trend.
Some statistics about the reverse head and shoulders follows:
– In 98% of cases, there is an upward exit.
– In 97% of cases, there is a pursuit of the bearish movement at the breakout of the neckline.
– In 74% of cases, the target of the pattern is reached once the neckline is broken.
– In 52% of cases, a pullback occurs on the neckline.
The trend before the formation of the reverse head and shoulders is long, then the upward movement at the breakout of the neckline shall be strong.
The movement prior to the formation of the reverse head and shoulders is brutal, the upward movement at the breakout of the neckline will be very important.
Patterns with an descending neckline will give a better performance.
If the left shoulder is over the right shoulder, the pattern gives better performance.
Pullbacks on the neckline may be harmful to the performance of the pattern.
The symmetrical broadening bottom is called a bullish (if reversed, then bearish) reversal pattern. This pattern is formulated by two symmetrical horizontal lines that are divergent. It is an inverted symmetrical triangle or looks like an open triangle. The oscillations between the two bands of the triangle are consequently becoming more sizable. Each line has to be touched at least twice for a validation.
The symmetrical broadening bottom indicates the increased nervousness of investors but also with their indecisiveness. If this pattern is not identified immediately, this movement might seem quite random and hence trapping investors.
This formation of the pattern must be indicated by an upward movement. The pattern is frequently attributed to cheap purchases that will form new highs. However, pressure to sell remains strong and the indecisiveness is dominate.
A target price will be given by plotting the height of the triangle from its beginning on the break point. A similar technique is to extend the maximum height of the triangle on the break point.
A graphical representation of a symmetrical broadening bottom follows:
Statistics about the symmetrical broadening bottom are as follows:
– In 58% of cases, there will be an upward exit.
– In 60% of cases, the target of the pattern will be reached by taking the maximum height of the triangle. Then with a downward exit, the percentage will go up to 70%.
– More than 78% of cases, downward breakout occurs when the price is into the lowest third of its annual range.
Pay attention to the indecisiveness patterns.
Bearish potential will be greater than the bullish potential in case of breakout, which is rare in technical analysis.
Notice that from the fifth rotation (i.e., the fifth points of contact on either resistance or support), there will be 80% chance that the exit will occur at the next contact point and the support or resistance of the symmetrical triangle. Then from the sixth rotation, this percentage will rise to 90%.
The double top is a bearish pattern shaped like an M. Two tops must succeed, imaging an important resistance. This marks a reversal. The pattern may also be in WV shape. We can consider a triple top as well.
The initial correction will decide how the neckline is evidenced by the lowest between the two tops. Consequently, the price will return to the resistance. The degree of the two or three tops will normally be the same (as our example below shows), however it may happen that the first top will be higher than the first one. This configuration will reinforce the validity of the figure since it will reflect a breathlessness of the buying movement. A third rebound could happen, but in all cases, it is the breaking of the neckline that should validate the bearish reversal.
Once the neckline is broken, it could happen that the price will get back to it (this line becomes the resistance), then will decrease again. The potential of this decrease is determined by the difference among the beginning resistance and of the neckline.
Following are several statistics about the double top:
– In 75% of cases, there will be a bearish reversal.
– In 71% of cases, the target of the pattern is reached once the neckline is broken.
– In 61% of cases, a pullback will occur.
– In 83% of cases, there is a pursuit of that movement once the neckline is broken.
In case of pullback, the upward movement will be less important once the target of the pattern is reached.
When more the two bottoms are closed, the more the percentage of success of the pattern is important.
The more the bullish movement that precedes the formation of the double top is important, the more the downward movement at the breakout of the neckline will be powerful.
The double bottom is a bullish pattern indicated by a W shape. The two bottoms will succeed, mirroring an important support (in green). This will mark a reversal will. The pattern may also be in a WV shape. We’ll discuss a triple bottom.
Showing the double bottom below, the area of support will let the price rebound twice. The first will determine the neck line (in red), illustrated by the highest between the two bottoms. Furthermore, the price should get back to the support. The magnitude of the two bottoms is often the same (as indicated below), however it could happen that the first bottom is lower than the first. This configuration strengthens the validity of the figure since it reflects a breathlessness of the selling movement. Another rebound will then occur, but the breaking of the neck line that will validate this bullish reversal.
Once the neck line breaks, it might happen that the price will get back to it (this line then becomes support), then increases once again. The possibility of increase is decided upon by the difference between the beginning support and the neck line (noted by the black arrows).
Here are some statistical facts about the double bottom:
– In 70% of cases, there is a bullish reversal.
– In 67% of cases, the target of the pattern is reached once the neckline is broken.
– In 59% of cases, a pull back occurs.
– In 97% of cases, there is a pursuit of the movement once the neckline is broken.
They are several types of double bottom that are differentiated according two criteria.
The shape of the bottom can be a V-shape (known as Adam bottom) or a U-shape (called an Eve Bottom).
The second bottom might be higher, at maybe the same or lower than the first bottom.
In case of pull back, the upward movement will not be as important once the target of the pattern reached.
More the two bottoms are close, more the percentage of success of the pattern is vital.
The bearish movement that precedes the formation of the double bottom is important, more the upward movement at the breakout of the neckline will be powerful.
Diamond tops are a reversal pattern. This pattern is formed by two juxtaposed symmetrical triangles. It’s shape is like a diamond.
Diamond tops have to be preceded by an upward trend. This pattern shows the shortness of buyers and as a result investor’s indecisiveness. However, this pattern will reflect a growing volatility which will eventually be reduced towards the end of the diamond.
Oscillations are of multiplied amplitude and then decreasing which suggests a trend reversal. Actually buyers will gradually abdicate.
The target of the pattern is calculated by plotting the maximum height of the diamond at the exit point. The downward movement is normally as fast as the upward trend that preceded it.
A graphic representation of a diamond tops is as follows:
Following are some statistics about diamond tops:
– In 80% of cases, there is a downward exit.
– In 95% of cases, the target of the pattern is reached.
– In 59% of cases, a pull back will occur.
There are three times more diamonds tops than diamonds bottoms.
It is occasionally possible to see an inverted head and shoulders within the diamond bottoms.
This pattern is quite hard to see. At the beginning of the formation of a diamond, the pattern appears to be like a widening of a symmetrical triangle. But, the symmetrical triangle is a continuation pattern and the diamond is a reversal pattern.
A reversal pattern is called a diamond bottoms. This pattern is formulated by two juxtaposed symmetrical triangles. It is shaped like a diamond.
Diamond bottoms must be preceded by a downward trend. This pattern targets the shortness of sellers and consequently investor’s indecisiveness. Similarly, this pattern shows a growing volatility which is gradually reduced towards the end of the diamond.
Oscillations are increasing amplitude and then decreasing thus suggesting a trend reversal. Actually sellers gradually abdicate.
The target of the pattern is figured by plotting the maximum height of the diamond at the exit point. The upward movement is normally faster as the downward trend that precedes it.
Here is a graphic representation of a diamond bottoms:
Diamond Bottom courtesy of AskTraders
Statistics about the diamond bottoms are as follows:
– In 82% of cases, there is an upward exit.
– In 60% of cases, the target of the pattern is reached.
– In 43% of cases, a pull back occurs.
There are three times more diamonds tops than diamonds bottoms.
It occasionally is possible to see an inverted head and shoulders within the diamond bottoms.
This pattern is difficult to see. At the beginning of the diamond formation, the pattern appears like a widening of a symmetrical triangle. But, the symmetrical triangle is a continuation pattern and the diamond is a reversal pattern.
A falling wedge is a bullish reversal pattern made by two converging downward slants. To prove a falling wedge, there has to be oscillation between the two lines. Each of the lines must be touched at least twice for validation.
The pattern labels the shortness of sellers. A characteristic is by a progressive reduction of the amplitude of the waves. The highest will reach during the first correction on the support of the wedge and will form the resistance. Another wave of decrease will then happen, but with lower amplitude, thus displaying the weakness of sellers. A second wave is formulated thereafter but prices will decrease lower and lower at the contact with the resistance. Volumes will then be at their lowest and eventually decrease as the waves. The movement will have almost no selling power which displays the willingness of a bullish reversal.
The target price is presented by the highest point that results in the formation of the wedge.
Here is a graphical representation of a falling wedge:
Check out some statistics about the falling wedge:
– In 92% of cases, there will be a downward exit.
– In 63% of cases, the target of the pattern will be reached once the resistance is broken.
– In 47% of cases, a pullback will occur on the resistance.
– In 27% of cases, false breakout occurs.
The spacing between each contact point on lines is necessary, it is important otherwise it could be a pennant.
More of the trend lines are sloped, the more the upward movement will be violent.
The downward retracement is normally two times faster than the formation of the wedge.
Pullbacks are detrimental to the performance of the pattern.
The breakpoint is normally located around 65% of the length of the falling wedge.
Falling wedges which are bigger give better performance than narrow wedges.
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