Important Reversal Patterns – Continued Chapter 9 Edwards

Outline:

1. The Rectangles, Double and Triple Tops

2. Pool Operations
3. Rectangle – Volume, Breakouts, False Moves and Premature Breakouts.
Pullbacks and Throwbacks. Directional Tendency and Measuring Implications Relation
of the Rectangle to Dow Line, Rectangles from Right-Angle Triangles
4. Double and Triple Top s and Bottoms. Distinguishing Charateristics

Some facts to know:

The Rectangle is more often a Consolidation Formation then a Reversal Formation.

Double Tops and Double Bottoms are very rare, Triple Tops and Bottoms even rater.

Volume on a Triple top is less on the second top then the first, and even less on the third top
then the second top.

The measuring implications of a Rectangle are the difference in points between the top and
bottom lines of the formation added to the top or bottom line depending on the breakout
direction.

When Right-Angle Triangles fail they can develop into a Rectangle formation. The odds
still favor the ultimate breakout in the direction originally implied by the incipient Triangle.

Questions:

1. Which statement is true of a Double Top.

A. The volume is usually higher on the second peak.

B. The volume is the same on both peaks.
C. The price peaks at practically the same price on the second peak as it did on the first
peak
D. The volume is less on the second peak then it is on the first peak.
E. C & D

Answer: E. Edwards page 138

Smaller Price Patterns - Pring Chapter 6
Outline:
1. Flags
2. Pennants
3. Wedges
4. Saucers and Rounding Tops
5. Gaps, Breakaway Gaps, Continuation or Runaway Gaps & Exhaustion Gaps
6. The Importance of Gaps as Emotional Points
7. Gaps on Intraday Charts
8. Island Reversals

Some facts to know:

Flags are continuation patterns and take from 5 days to as long as 3 to 5 weeks to form.
Volume declines from the preceding move during its formation in both up trending markets
and down trending markets

Exhaustion Gaps are associated with the ending phase of a rapid advance or decline and is
the last in a series of runaway gaps. Exhaustion gaps are filled and give warning that an
impending trend reversal may be at hand or at least a consolidation formation may occur.

Classic gaps or Opening gaps can occur on both intraday charts and Daily charts. Intrabar
gaps can only be seen on intraday charts due to their time frame.

Saucer formations and rounding tops are usually reversal patterns and are typically followed
by substantial price movements. In both formations volume is lower in the center and is at
its highest at the beginning and end of the formation.

Island Reversals are consolidation areas isolated from the main price trend by two gaps -
One at the beginning of the formation and one at the end. They often signal the end of an
intermediate move.

Questions:

1. A Flag Pattern is a

A. Continuation Pattern
B. A Reversal Pattern
C. An Oscillator
D. An Island Reversal

Answer: A. Pring Page 98

 2. Which of the following statement(s) are true.

A. A falling Wedge is a temporary interruption of a falling trend

B. A Wedge Pattern is a reversal Pattern
C. A Falling Wedge is a temporary interruption of a rising trend
D. It is normal for volume to contract during formation of a wedge.
E. C&D

Answer: E Pring Page 100

3. Which statement(s) best describes an Exhaustion Gap.

A. Created when a price breaks out of a pattern

B. Considered an Island Reversal
C. Occurs before a Pennant
D. An Exhaustion Gap is the last in a series of Runaway Gaps

Answer: D . Pring Page 105

Short-Term Patterns - Kirkpatrick Chapter 17

Outline:

1. Pattern Construction and Determination

2. Traditional Short-Term Patterns
3. Gaps – Breakaway, Opening, Runaway (Measuring Gaps), Exhaustion and other
Minor gaps
4. Spike ( Wide-Range or Large-Range Bar)
5. Dead Cat Bounce (DCB)
6. Island Reversal
7. One and Two Bar Reversal Patterns – Horn and Two bar Breakout, Inside Bar, Hook
reversal Day, Naked Bar Upward Reversal, Hikkake, Outside Bar,
8. Multiple Bar Patterns: Trend Correction - Knockout Patterns, Oops and shark
9. Volatility Patterns - Wide Range Bar, Narrow Range Bar
10. Vix
11. Intraday Patterns
12.Candlestick Patterns: Doji, Windows, Harami, Hammer + Hanging Man, Shooting
Star & Inverted Hammer, Engulfing, Morning & Evening Star, Three Black Crows &
 Three White Soldiers, Three inside up and Inside Down, Three Outside Down &
Outside up.

Some Facts to know:

When the opening price for the day is outside the range of the previous day, it is called and
Opening-Gap

Short-term patterns can be used as a tool to identify reversals in longer-term trends

A Spike is a Wide –Range Bar, a Spike can occur on a breakout from a formation, midpoint
in a strong accelerating trend, and as the final reversal day at the end of a trend.

A Dead Cat Bounce is a failed rally after a sharp decline.

The evening star is a three-bar candlestick pattern that occurs at market tops, and the
morning star is a three-bar Candlestick pattern that occurs at market bottoms.

A Doji is a Candlestick pattern that the opening price and close Price are almost identical or
close to identical.

Questions:

1. Which item(s) are True.

A. A Spike will never occur on a breakout from a formation

B. A Spike will never be the Final Reversal day at the end of a trend.
C. Spikes are similar to Gaps except the empty space associated with a Gap is a
Solid Line.
D. Spikes can represent the beginning or End of a Trend.
E. C & D

Answer : E. Kirkpatrick Page 370

2. Which item(s) are True.

A. A Horn Pattern is almost identical in behavior to the Pipe Pattern except a

smaller Bar separates the two.
B. A Horn Pattern is a reversal Pattern
C. A & B

Answer: C Kirkpatrick Page 375

 3. The VIX is:

A. A Short Term Moving Average

B. A Bottom Formation
C. A measure of implied volatility in the S&P 500 Options

Answer: C Kirkpatrick Page 386

4. A Window is:

A. Used to let Air into a room

B. A Bar Chart Short term Pattern
C. The same as a Gap seen in Bar Charts but is the term used on Candlestick
Charts.

Answer:: C Kirkpatrick Page 392

Author of this file: Bob Sagarino