TA 102 PATTERNS

CHART PATTERNS

Overall Goals:

1. Develop and follow your strategy no matter what happens in the

market.
2. Always look left on the charts do not focus on the present market
condition.
3. Patience will always and at all times win the game.

Class Overview

 Quick revision on candlesticks.

 What are chart patterns.
 Components of chart patterns.
 Classification of chart patterns.
 Types of chart patterns.
 Principles and rules to using chart patterns.
 Live examples.
 Assignment.

WHAT ARE CHART PATTERNS?

Chart patterns are technical tools that signal to traders that the price of a
security is likely to move in one direction or to another when the pattern
is complete. The formation of a chart pattern is clearly an illustration of
the struggle between buyers and sellers.

COMPONENTS OF CHART PATTERNS

-Existing trend

-Chart pattern formation

-Breakout stage
CLASSIFICATION OF CHART PATTERNS.

There are various chart patterns used by analyst to determine price

direction, and can be classified as:

Continuation patterns, indicates that the prior trend will continue

onward upon the pattern's completion. Selected Continuation Patterns

Reversal patterns, they signal that a prior trend will reverse on

completion of the pattern. Selected reversal Patterns

Bullish patterns, this will most likely be dependant on the trend of the
market and location the pattern is being formed.

Bearish patterns, this will most likely be dependent on the trend of the
market and location the pattern is being formed.

TYPES OF CHART PATTERNS.

Double Top and Double Bottom

Triple Top and Triple Bottom

Head and Shoulder (bullish and bearish)

Bullish and Bearish Rectangles

Triangles (Symmetrical, Ascending, and Descending Triangles)

Flag and Pennant

Wedge Formation (Rising and falling)

Cup and Handle

DOUBLE TOP AND DOUBLE BOTTOM

A double top is a bearish reversal pattern, which suggests that the

preceding up trend will reverse downward after confirmation of the
pattern.
A double bottom is a bullish reversal pattern, which suggests that the
prior downtrend will reverse upward after a confirmation of the pattern.

TRIPLE TOP AND TRIPLE BOTTOM

A triple top is a reversal pattern formed when price attempts to move past
a level of resistance three times and fails. Upon failure of the third attempt
the trend is thought to reverse and move in a downward trend.

A triple bottom is a reversal pattern formed when price attempts to move

below an area of support three times but fails to do so. Upon failure of the
third attempt below resistance the trend is thought to reverse and move
upward.

HEAD AND SHOULDER (BULLISH AND BEARISH)

Head and Shoulder top is a bearish reversal chart pattern that usually
appear following an upward price trend, this chart pattern appears with
a three-peak formation and with the centre peak taller than the others.

Inverse Head and Shoulder looks like a head-and-shoulders bust flipped

upside down, it a bullish reversal chart pattern that usually appear
following a downward price trend, this chart pattern appears with a
three-trough formation and with the centre trough below the other two.

RECTANGLES (BULLISH AND BEARISH)

Bullish rectangles the prevailing price trend leading to the formation of

this pattern is down. Prices trend down and then consolidates between
two horizontal trend lines before breaking out which is upward.

Bearish rectangles. The price action or price trend leading to the

formation of this pattern should be up. Two horizontal trend lines outline
the price action, one above the highs and one below the lows.
TRIANGLES

There are three main types of triangle patterns - symmetrical, descending

and ascending, which are constructed by converging trendlines.

A symmetrical triangle, which is formed when two similarly sloped

trendlines converge, typically suggests a continuation of the prior trend.

Price forms lower highs and higher lows following two sloping trend
lines that eventually intersect, the breakout is upward.

A descending triangle, which is formed when a downward sloping

trendline converges towards a horizontal support line, suggests a
downward trend after completion of the pattern.

Triangle shape with horizontal bottom and down-sloping top, breakout

is downward but can sometimes be up too.

An ascending triangle, which is formed when an upward sloping

trendline converges towards a horizontal resistance line, suggests an
uptrend after completion of the pattern.

Triangle shape with horizontal top, upsloping bottom, breakout is

upward.

FLAG AND PENNANT

Flags and pennants are continuation patterns formed after a sharp price
movement. The move consolidates, forming a flag shape or pennant
shape, and suggests another strong move in the same direction of the
prior move upon completion.

A Flag pattern can be bullish or bearish, depending on the prevailing

market trend. Bull flags can be easily spotted as they make lower highs
and lower lows within the flag area. The trend lines connecting highs and
lows are almost parallel. Bear flags can be easily spotted as they make
higher highs and higher lows within the flag area. The trend lines
connecting highs and lows are almost parallel.
A clear breakout confirmation is needed to trade these patterns as the
price continues in the same direction prior to the "flag" formation.

A Pennant just like the flag can be bullish or bearish and they look like a
symmetrical triangle. Pennant are short triangle bounded by two
converging trend lines

WEDGE FORMATION (RISING AND FALLING)

A wedge chart pattern is usually a continuation pattern but it can suggest

a short-term reversal in the prior trend when the price action moves
outside of the converging trend lines in the opposite direction of the prior
trend

Rising wedge, an upward price movement bounded by two up-sloping

trend lines, one along the minor highs and one lines along the minor lows.
The trend lines must both slope upward and eventually intersect. The
price trading outside the lower trend line signals a potential short trade.

Falling wedge, a downward price movement bounded by two down-

sloping trend lines, one along the highs of price and one along the lows of
price. The trend lines must both slope downward and eventually
intersect.

CUP AND HANDLE

Cup and handle as the name imply looks like a cup profile with the
handle on the right… it can be a reversal or a continuation pattern.

The best trading opportunity is generated when the price clears the top of
the Cup. A long trade is entered when the price closes above the high of
the cup.

Inverted cup and handle price action follows the shape of an inverted
cup followed by a handle. Price breaks out downward.
PRINCIPLES AND RULES TO USING CHART PATTERNS.

1. Have a clean chart.

2. Try to learn and know the psychology of the pattern.
3. Duration it takes to form, the higher the timeframe the higher the
signal.
4. Create a strategy using chart patterns and back test that strategy.

ASSIGNMENT.

1. Craft/create a cheat sheet of the different bullish and bearish chart

patterns you know.
2. From your knowledge of chart patterns identify the possible
functions of chart patterns