Patterns Flashcards
What is a chart pattern?
Distinct formation on a stock chart that creates a trading signal,
or a sign of future price movements. Chartists use these patterns to identify current
trends and trend reversals and to trigger buy and sell signals.
There are two types of patterns within this area of technical analysis, reversal and
continuation
What is a Head and Shoulders?
a Head and Shoulders pattern is displayed whenever you have a top followed by a higher top followed by a top of the previous size.
the support trendline below a head and shoulders is called a “neckline”
the theory asserts that when the second shoulder fails to reach it’s previous height, it will proceed to break the neckline and plummet
Why should you only look for easily detectable patterns?
Because patterns tend to be self-fullfiling prophecies.
If no one else can see it, it’s highly unlikely it will affect the market.
the goal is to see patterns that everyone else will see before they do, this way you have a position before supply and demand kicks in.
What is a Double Top?
Double Tops are any pattern that displays 2 subsequent high tops
What it tells you is that there is a very high likelihood that if that resistance line is reached again, the stock will bounce off of it.
double tops are good predictors in any timeframe, but they’re more likely to be accurate in intra-day timeframes
What is a Multi-Top?
a Multi-Top is the same thing as a Double-Top, but instead of reaching 2 highs and testing the resistance line, it has done so multiple times, this means it’s an even stronger indicator of the strength of that resistance.
It is a very good strategy to Short a stock when it reaches the resistance band and starts falling off again
What is a Double Bottom?
a Double Bottom is any pattern that displays 2 subsequent low bottoms, what it tells you is that there is a very high likelihood that if that resistance line is reached again, the stock will bounce off of it
double bottoms are good predictors in any timeframe, but they’re more likely to be accurate in intra-day timeframes
What is a Multi-Bottom?
a Multi-Bottom is the same thing as a Double Bottom but with more extensive testing of the supportline.
this means that the likelihood of the stock bouncing off of the support line and rising again is even higher!
a good strategy is to look for Multi-Bottoms, buy at the support line when it starts going up again, and then selling it as soon as it bounces off of the resistance line
What is an Ascending Triangle?
Ascending Triangles consist of a straight resistance line and an ascending support line
what this indicates is that buyers are being more aggressive and pushing the price higher and higher with time. As the triangle closes in, the likelihood that one of the lines will be broken increases.
With ascending triangles, this tends to be the resistance line. Always buy as soon as the line is broken, not before, not long after.
What is an Descending Triangles?
Descending Triangles consist of a straight support line and a descending resistance line.
This indicates that sellers are being more aggressive and selling at increasingly lower prices.
If the trendlines are broken, it tends to be the support line that breaks and the price plummets.
Always wait for until the line is broken before shorting the stock
What is a Triangle Wedge?
a Triangle Wedge consists of an ascending supportline and a descending resistance line, what this indicates is impatience on BOTH positions.
as the Triangle closes in, the likelihood that one of them will burst increases, the closer it closes in, the stronger the slingshot effect and the more dramatic the plummet/skyrocket will be.
Always wait for right after a line is broken before taking a position.
What is a Cup and Handle?
a technical indicator that resembles a cup with a handle, where the cup is in the shape of a “u” and the handle has a slight downward drift. The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume.
Cup and Handles tend to be rare but when they do appear they’re very reliable patterns
What is a Rounding Bottom?
A rounding bottom is a chart pattern used in technical analysis and is identified by a series of price movements that graphically form the shape of a “U”. Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements.
This is also a rare occurrence but very reliable when it happens
