1. With the
DOUBLE TOP , we would place our entry order below the neckline because we are anticipating a reversal of the uptrend.
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2. Remember, just like double tops, DOUBLE BOTTOMS are also trend reversal formations.
You'll want to look for these after a strong downtrend.
3. In this example, we can easily see the
HEAD AND SHOULDERS PATTERN. The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head.With this formation, we put an entry order below the neckline. We can also calculate a target by measuring the high point of the head to the neckline. This distance is approximately how far the price will move after it breaks the neckline.
4. Here you can see that this is just like a head and shoulders pattern, but it's flipped upside down. With this formation, we would place a long entry order above the neckline.
Our target is calculated just like the head and shoulders pattern. Measure the distance between the head and the neckline, and that is approximately the distance that the price will move after it breaks the neckline.
You can see that the price moved up nicely after it broke the neckline.
5. In this first example, a RISING WEDGE (UP TREND) formed at the end of an uptrend. Notice how price action is forming new highs, but at a much slower pace than when price makes higher lows.
6. As you can see, a RISING WEDGE (DOWN TREND – CONTINUATION) the price came from a downtrend before consolidating and sketching higher highs and even higher lows.
7. In this example, the
FALLING WEDGE (DOWN TREND) serves as a reversal signal. After a downtrend, the price made lower highs and lower lows. Notice how the falling trend line connecting the highs is steeper than the trend line connecting the lows.
Upon breaking above the top of the wedge, the pair made a nice move upwards that's approximately equal to the height of the formation. In this case, the price rally went a few more pips beyond that target!
8. Let's take a look at an example where the
FALLING WEDGE SERVES AS A CONTINUATION SIGNAL. Like we mentioned earlier, when the falling wedge forms during an uptrend, it usually signals that the trend will resume later on. In this case, the price consolidated for a bit after a strong rally. This could mean that buyers simply paused to catch their breath and probably recruited more people to join the bull camp.
See how the price broke to the top side and went on to climb higher?
9. A
BEARISH RECTANGLE is formed when the price consolidates for a while during a downtrend. This happens because sellers probably need to pause and catch their breath before taking the pair any lower. In this example, price broke the bottom of the rectangle and continued to shoot down. If we had a short order just below the support level, we would have made a nice profit on this trade.
10. Here's another example of a
RECTANGLE, A BULLISH ONE THIS TIME. After an uptrend, the price paused to consolidate for a bit. Can you guess where the price is headed next?If you answered up, then you're right! Check out that nice upside breakout right there!
Notice how the price moved all the way up after breaking above the top of the rectangle. If we had a long order on top of the resistance level, we would've caught some pips on the trade!
11.
A BEARISH PENNANT is formed during a steep, almost vertical, downtrend. After that sharp drop in price, some sellers close their positions while other sellers decide to join the trend, making the price consolidate for a bit. As soon as enough sellers jump in, the price breaks below the bottom of the pennant and continues to move down.
As you can see, the drop resumed after the price made a breakout to the bottom. To trade this chart pattern, we'd put a short order at the bottom of the pennant with a stop loss above the pennant. That way, we'd be out of the trade right away in case the breakdown was a fake out.
12. BULLISH PENNANTS, just like its name suggests, signals that bulls are about to go a-chargin' again. This means that the sharp climb in price would resume after that brief period of consolidation, when bulls gather enough energy to take the price higher again. In this example, the price made a sharp vertical climb before taking a breather. I can hear the bulls stomping and revving up for another run!
Just like we predicted, the price made another strong move upwards after the breakout. To play this, we'd place our long order above the pennant and our stop below the bottom of the pennant to avoid fake outs.
13. A SYMMETRICAL TRIANGLE is a chart formation where the slope of the price's highs and the slope of the price's lows converge together to a point where it looks like a triangle. What's happening during this formation is that the market is making lower highs and higher lows. This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend. If this were a battle between the buyers and sellers, then this would be a draw.
In the chart above, we can see that neither the buyers nor the sellers could push the price in their direction. When this happens we get lower highs and higher lows.
14. A ASCENDING TRIANGLE This type of formation occurs when there is a resistance level and a slope of higher lows. What happens during this time is that there is a certain level that the buyers cannot seem to exceed. However, they are gradually starting to push the price up as evident by the higher lows.
If we set our short order below the bottom of the triangle, we could've caught some pips off that dive.
15. As you probably guessed,
DESCENDING TRIANGLES are the exact opposite of ascending triangles (we knew you were smart!). In descending triangles, there is a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break. However, in some cases the support line will be too strong, and the price will bounce off of it and make a strong move up.
