Seminar on

“Charts, Trend and Trend Reversal Patterns”

Submitted to: R.I.T Department of Management Studies

Submitted By:
K.Satish (1MY18MBA18)
 Price Charts
 Its a key activity in technical analysis.
 Security prices are usually charted.
 A share may be traded in the market for different prices in a day.
 Out of which only four prices are important.
1. Highest price of the day
2. Lowest price of the day
3. Opening price
4. Closing price
 Price chart is a basic tool.
Point and Figure (P&F) Charting
Line Chart
Bar Chart
Japanese Candlestick Charts
 Trends and Trend Reversals
 Trend is the direction of movement of share prices.
 When price moves upwards, its rising trend or uptrend.
 When price moves downward, its falling trend or downtrend.
 We have flat trend when prices move within a narrow range.
 Change in the direction of the trend is known as trend reversal.
 Consider a share exhibiting a rising trend later on it starts to fall, the
change in the direction of movement represents a trend reversal.
 The reversal from a rising trend to falling trend is marked by the
formation of lower top or lower bottom, similarly a reversal from a
falling trend to a raising trend is characterized by the formation of a
higher top and a higher top.
 Chart patterns
 When price bar chart of several days are drawn together,
certain patterns emerge .
 These patterns are used by the technical analysts to
identify the trend reversal and predict the future
movement prices.
 The chart patterns can be classified as support and
resistance patterns, reversal patterns and
continuation patterns.
 Support and Resistance
 Support and Resistance are price level at which downtrend or uptrend
in the price movement is reversed.
 Support occurs when the price is falling but bounces back every time it
reaches a particular level. When all these low points are connected by a
horizontal line it forms a support line.
 Resistance occurs when share price moves upwards. The price may fall
back every time it reaches a particular level.
 Horizontal line joining these tops form the resistance level.
Support and Resistance
 Reversal Patterns
 Price movement exhibits uptrend's and downtrends.
 The trends reverse a direction after a period of time.
 These reversal can be identified with the help of
certain chart formations that typically occur during
these trend reversals.
 Thus, reversal patterns are chart formation that tend
to signal a change in the direction of the earlier
trend.
 Head and Shoulder formation
 This is one of the most popular and
reliable chart patterns in technical
analysis.
 A horizontal line joining the bottom
of this formation is known as
neckline.
 Head and Shoulder formation
usually occurs at the end of the bull
phase and is indicative of a reversal
of trend.
 Inverted Head and Shoulders
 Inverted head and shoulders is
used to signal a reversal in a
downtrend.
 The price of the stock falls and
rises which makes an inverted
head and shoulder. The tops of the
inverted head gives the neckline.
 When the price pierces the
neckline from below it indicates
the end of bear market and the
beginning of the bull market.
 Continuation Patterns
 There are certain patterns which tend to provide a
breathing space to the earlier sharp rise or fall and after
the completion of these patterns, the price trends to
move along the original trend
 These patterns are formed during side way movements
of share prices and are called continuation patterns
because they indicate a continuation of the trend
prevailing before the formation of the pattern.
 Triangles
 Triangles are well-known chart
patterns used in technical analysis.
 Triangles are formed when price
movement results in two or more
consecutive descending tops and
ascending bottoms.
 The triangle becomes apparent I
chart when two consecutive tops are
joined by straight line and two
consecutive bottoms are joined by
another straight line.
 Two straight lines are uptrend and
downtrend line.
 Triangle formation may occur
during bull phase or bear phase.
 Flags
 They occur mid way between
sharp rise in price or steep fall
in price.
 Flag formation looks like a
parallelogram with two trend
lines forming two parallel
lines.
 The volume of trading is
expected to fall during the
formation of flag and again
pick up on breaking out of the
pattern.
 Pennants
 It looks like a symmetrical
triangle.
 Upper trend line is formed by
connecting two top stoops
downward and lower trend
line is formed by connecting
bottom rise upwards.
 Pennant is formed midway
between either a bullish trend
or a bearish trend and signals
the continuation of same
trend.
 Elliott Wave Theory
 Ralph Elliot developed the Elliot wave theory in the year 1934.
 He formulated this theory after analyzing stock price movement and
charts for almost 75 years.
 From his studies he concluded that market movement was quite orderly
and followed a pattern of waves.
 According to this theory, Market moves in waves.
 A movement in a particular direction can be represented by five distinct
waves, Of these five waves three waves are in the direction of the
movement and are termed as impulsive waves.
 Two waves are against the direction of movement and are termed as
corrective waves.
Theory Interpretation