Presentation on theme: "Chart Patterns Susan Sanders Shawnee Le Fevre. The information contained here was gathered from sources deemed reliable, however, no claim is made as."— Presentation transcript:
Chart Patterns Susan Sanders Shawnee Le Fevre
The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. This does not contain specific recommendations to buy or sell at particular prices or times, nor should any of the examples presented be deemed as such. The reference to statistical probabilities does not pertain to profitability, but rather to the direction of the market. The size and the duration of the markets move, as well as entry and exit prices ultimately determines success or failure in a trade and is in no way represented in these statistics. This is not, nor is it intended to be, a complete study of chart patterns or technical analysis and should not be deemed as such.
Trend - the direction in which the market is moving in. When the supply of the market is greater than the demand, the trend will be down as there are more sellers than buyers. When the demand is greater than the supply, the trend will be up as there are more buyers than sellers. If the forces of supply and demand are nearly equal, the market will move sideways. Eventually, when new information enters the market, it will begin to trend again, either up, down or perhaps sideways still, depending on how that information is viewed; positive (bullish), negative (bearish) or neutral (sideways.)
Usually, once a trendline is broken, the trend which was previously in force is considered over, or at least in pause. When an uptrend line or 'support' is broken, it then acts as 'resistance'. When a downtrend line or 'resistance' is broken, it then becomes 'support'.
Ascending triangles are generally considered bullish and are most reliable when found in an uptrend. Top part of the triangle appears flat, bottom part of the triangle has an upward slant. Ascending triangles, market becomes overbought and prices are turned back. Buying re-enters the market, prices soon reach their old highs, where they are once again turned back. Buying resurfaces at a higher level than before. Prices eventually break through the old highs and are propelled even higher as new buying comes in. Breakout is generally accompanied by a marked increase in volume.)
Descending triangle bottom part of the triangle appears flat. Top part of the triangle has a downward slant – prices drop to a point where they are oversold. Tentative buying comes in at the lows, and prices perk up. Higher price attracts more sellers and prices re-test the old lows. Buyers re-enter the market, better prices once again attract even more selling Sellers are now in control and push through the old lows while the previous buyers rush to dump their positions.
The wedge formation is also similar to a triangle in appearance, but are distinguished by a noticeable slant, either to the upside or to the downside. A falling wedge is generally considered bullish and is usually found in uptrends, but they can also be found in downtrends as well. This pattern is marked by a series of lower tops and lower bottoms.
A rising wedge is generally considered bearish and is usually found in downtrends. Rising wedges put in a series of higher tops and higher bottoms.
Rectangles are traded as continuation patterns. They are indecision areas - usually resolve in the direction of the trend. Trendlines run parallel in a rectangle. Supply and demand and buyer and sellers seem evenly balanced at the moment. The same 'highs' are constantly tested as are the same 'lows'. The market vacillates between two clearly set parameters. Volume should noticeably increase on the breakout.)
Flags and pennants can be categorized as continuation pause patterns. Usually represent only brief pauses in a dynamic market. Typically seen right after a big, quick move. The market then usually takes off again in the same direction. These patterns are some of the most reliable continuation patterns. Bullish flags - lower tops and lower bottoms, with the pattern slanting against the trend. (Unlike wedges, trendlines run parallel.) Bearish flags - higher tops and higher bottoms, with pattern slopping against the trend.
Pennants look very much like symmetrical triangles. Pennants are typically smaller in size (volatility) and duration
H & S pattern - reversal pattern and it is most often seen in uptrends. Sellers come in at the highs (left shoulder), downside is probed (beginning neckline.) Buyers soon return and push through to new highs (head.) New highs are quickly turned back, downside is tested again (continuing neckline.) Tentative buying re-emerges, the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.) Buying dries up, the market tests the downside yet again. Trendline is drawn from the beginning neckline to the continuing neckline. The pattern is complete when the market breaks the neckline.
Inverted head and shoulders is typically seen in downtrends. The inverted left shoulder should be accompanied by an increase in volume. The inverted head should be made on lighter volume. The rally from the head however, should show greater volume than the rally from the left shoulder. Inverted right shoulder should register the lightest volume of all. When the market rallies through the neckline, an increase in volume is seen.
Double bottoms consists of two well-defined lows at approximately the same level. Pressure falls to a support level, rally and pull back up, then fall to the support level again before increasing. Double bottoms are often seen and are some of the most common of the patterns. Many investors assume that, because the double bottom is such a common pattern, it is consistently reliable. This is not the case and they have high failure rates. If an investor waits for a valid breakout, however, the failure rate declines substantially. Double Bottoms
Double tops consists of two well-defined highs at approximately the same level. Pressure rises to a resistance level, pulls back, then rises to a support level again before decreasing. Sometimes called an "M" formation, it is one of the most frequently seen and common of the patterns. Because they seem to be so easy to identify, the double top should be approached with caution by the investor. Many investors assume that, because the double bottom is such a common pattern, it is consistently reliable. This is not the case and they have high failure rates. If an investor waits for a valid breakout, however, the failure rate declines substantially. Double Tops
May you learn to recognize and trade the chart patterns to earn your own pot of PIPS