PATTERN

FORMATION Power point made

by Jimmy Ho

S
 Chart patterns
■ Chart patterns are an integral
aspect of technical analysis, but
they require some getting used
to before they can be used
effectively. By learning to
recognize patterns early on in
trading, you will be able to
work out how to profit from
breakouts and reversals.
 3 basic pattern types
 Continuation Patterns  Reversal Patterns  Bilateral Patterns include:
include:
include: • Ascending Triangle (slides 33 - 34)
• Falling Wedge (slides 3 - 7)
• Double Top (slides 23 - 24) • Descending Triangle (slides 35 - 36)
• Bullish Rectangle (slides 8 - 10)
• Double bottom (slides 25 - 26) • Symmetrical Triangle (slides 37 - 38)
• Bullish Pennant (slides 11 - 13)
• Head & Shoulders (slides 27 - 28)
• Rising Wedge (slides 14 - 16
• Inverse Head and Shoulders (slides
• Bearish Rectangle (slides 17 - 18)
29 - 30)
• Bearish Pennant (slides 19 - 20)
• Rising Wedge (same)
• Falling Wedge (same)  Cup patterns include:
• Rounding bottom (slide 39)
• Cup and handle (slides 40 - 41)
CONTINUATION
PATTERNS
Falling Wedge (Bullish
continuation pattern)

■ It represents a tightening price

movement between the support and
resistance lines. Unlike the triangle,
the wedge doesn’t have a horizontal
trend line and is characterized by two
downward trend lines.
■ A falling wedge is usually indicative
that an asset’s price will rise and
break through the level of resistance
Falling Wedge real example

 A falling wedge represents a tightening of price.

The move bounces in between the support and
resistance line. The pattern forms two down-
ward horizontal lines closing in.
 There must be at least two touches on the top
and bottom of your lines. The more the merrier.
Indicators such as volume create more
confirmation.
 The size of the move is becoming tighter
meaning, less volatility
 See how the volume was low and became higher.
 Looking at the chart, notice how it bounces off
the breakthrough. It continues up once and falls
back onto the support line. Typically, this
happens on a falling wedge, and it’s called the
retest.
Target(profit), Entry &, Stop lost

 For bullish patterns, you would buy

“calls” options.
 The entry of the falling wedge,
would be above the breakout of your
resistance.
 Once you reach your target goal, you
would sell
 If your call doesn’t pass the
resistance line, make a stop loss to
lose less money
 Example
Entry

Target profit

Stop loss

Stop loss: Below the breakout (yellow

dotted line). The minimum loss you’re
Entry: the breakout of your resistance
willing to take
line (yellow arrow)
Target profits: the distance of the first
rejection (yellow double arrow), placed on
the breakout
Bullish rectangle
(continuation
pattern)
■ It is a continuation pattern
that occur when a price
pauses during a strong trend
and temporarily bounces
between two parallel levels
before the trend continues.
■ It exhibits a period of
consolidation or indecision
between buyers and sellers as
they take turns throwing
punches but neither has taken
over
Target(profit), Entry &, Stop lost
Bullish Rectangle real example

Target profit

Entry

Stop loss

Entry: The breakout of your Stop loss: Below the support line
resistance line (yellow arrow) Target profits: The distance of the
first rejection (yellow double arrow),
placed above the breakout.
Bullish Pennant/Flag
(continuation pattern)
■ It indicates the impending
continuation of a strong upward
price move.
■ They're formed when a market
makes an extensive move higher,
then pauses and consolidates
between converging support and
resistance lines.
Bullish Pennant/Flag real example

 The bullish pennant is

when the price is
overextended (orange
dotted lines) and then
rest.
 The two lines begin to
converge (squeeze)
and eventually
continue the uptrend.
 Flag ”pole” is forming.
Bullish Pennant/Flag
Target(profit), Entry &, Stop lost
■ Entry: The breakout of your resistance line
■ Stop loss: Below the support line
■ Target profits: The distance of the flag- pole is placed
above the breakout.
Rising wedge (Bearish
continuation pattern)
■ The Rising Wedge is a bearish reversal pattern that
begins wide at the bottom and contracts as prices
move higher and the trading range narrows.
■ This pattern shows up in charts when the price moves
upward with pivot highs and lows converging toward
a single point known as the apex.
■ Using two trendlines, one for drawing across two or
more pivot highs and one connecting two or more
pivot lows—convergence is apparent toward the upper
right part of the chart.
Rising Wedge,
■ Entry: The breakthrough of the support.
■ Target profit: The distance of the bottom width is

Target profit Entry, placed below the breakout (double blue arrows). An
estimation of your target profits.

and Stop loss ■ Stop loss: Above the breakout of the squeeze.
Bearish rectangle
(continuation pattern)
■ Bearish rectangle is usually formed, when price action
tends to move between two horizontal lines, with the
upper line serving as a resistance, while the lower line
serving as a support.
■ Each one of these bounds must also be a trend line, or
price action must touch both lines at least twice. It
usually occurs when a price pauses during a strong
downtrend and temporarily bounces between two
parallel levels before the trend continues
 ■ Entry: Placed on the breakthrough of the support.
Bearish rectangle, Target ■ Target profit: The distance between the resistance
and support lines is placed below the breakout.
profit, Entry, and Stop loss ■ Stop loss: Placed above the breakout of the squeeze
Bearish pennant
(continuation pattern)
■ A bearish pennant is a technical trading pattern that
indicates the impending continuation of a downward
price move. They’re essentially the opposite to bullish
pennants: instead of consolidating after a move up, the
market pauses on a significant move down.
■ When technical traders spot a bearish flag pennant,
they take it as a sign that the downward price move is
going to continue once the market breaks below its
support line. Like their counterpart, bearish pennants
can occur over any time frame
 ■ Entry: At the breakthrough of the support
■ Target profit: The distance of the bottom
Bearish Pennant, of the pennant, placed below the breakout

Target profit, Entry, ■ Stop loss: Above the breakout of the

squeeze
and Stop loss
REVERSAL
PATTERNS
Double Bottom
(Reversal Patterns)
■ A double bottom looks similar to
the letter W and indicates when
the price has made two
unsuccessful attempts at breaking
through the support level It is a
reversal pattern as it highlights a
trend reversal.
■ After unsuccessfully breaking
through the support twice, the
market price shifts towards an
uptrend
Double bottom • Entry: The breakthrough of the resistance
• Target profit: The distance of the bounces
Entry, Target profit, between the support and resistance

and stop loss • Stop loss: Below the breakout of the entry
Double top
(reversal pattern)

■ A double top is an extremely bearish

technical reversal pattern that forms after
an asset reaches a high price two
consecutive times, with a moderate decline
between the two highs Opposite to a
double bottom. A double top looks much
like the letter M.
■ The trend enters a reversal phase after
failing to break through the resistance
level twice. The trend then follows back to
the support threshold and starts a
downward trend breaking through the
support line
 • Entry: The breakthrough of the support.
Double top, Entry, • Target profit: The distance of the 2nd
Target profit, and rejection placed below of the breakout.
• Stop loss: Above the breakout of the
stop loss entry.
Head & Shoulders
(reversal pattern
■ Head and shoulders pattern is a
chart formation that appears as a
baseline with three peaks;
(shoulder), followed by a higher
peak (head), and then another
lower peak (shoulder).
■ The outside two are close in height
and the middle is highest. This
reversal pattern helps traders
identify when a reversal may be
underway after a trend has
exhausted itself. This reversal also
signals the end of an uptrend.
Head and Shoulders, • Entry: The breakthrough of the support
• Target profit: The distance of the 2nd
Entry, Target profit, shoulder to the breakthrough, placed below
the breakout.
and stop loss • Stop loss: Above the breakout of the entry.
Inverse head and
shoulders
(reversal pattern)
■ An Inverse head and shoulders is
similar to the standard head and
shoulders pattern, but inverted:
with the head and shoulders top
used to predict reversals in
downtrends.
■ An inverse head and shoulders
pattern, upon completion, signals a
bull market Investors typically
enter into a long position when the
price rises above the resistance of
the neckline.
 • Entry: The breakthrough of the resistance.
Inverse Head and • Target profit: The inverse head and shoulder
Shoulders, Entry, Target can give a target price. The low price (head)
doubles its length for a guesstimate target
profit, and stop loss price. purple arrows.
• Stop loss: Below the breakout of the entry.
BILATERAL (TRIANGLE)
PATTERNS
Bilateral patterns are those that can see either
a continuation or reversal of the current price
movement. There are bullish bilateral patterns
as well as more bearish ones.
Ascending
Triangle
■ Generally a continuation of an
uptrend. The breakout of the price
depends on which pattern.
■ Sometimes a reversal does happen of
this pattern, but it is often a
continuation
■ The bottom of the support is rising to
the resistance (top line). A series of
higher lows and same highs. Showing
a bullish move.
■ At least 2 touches on the top. The
more the better.
 ■ Entry: Placed on the breakthrough of the

Ascending Triangle ■
resistance.
Target profit: The distance of the 2nd touch
Target profit, Entry, (double yellow arrow), placed above the
breakout.

Stop loss ■ Stop loss: Below the breakout of the squeeze.

Descending Triangle
• A descending triangle is typically a
continuation of a downtrend. The pattern
consists of a series of lower highs and the
same lows. A reversal can happen, but it is
usually a downtrend.
• At least 2 points touching the resistance.
The more the better.
• Support is stable, but resistance is pulling
down.
• Check volume as it aligns for
confirmation.
Descending Triangle ■
■
Entry: The breakthrough of the support
Target profit: The distance of the first touch
Entry, Target profit, on the support (double yellow arrow), placed
below the breakout
Stop loss ■ Stop loss: Below the breakout of the squeeze
Symmetrical
Triangle
■ A symmetrical triangle pattern represents a
period of consolidation before the price is
forced to breakout or breakdown.
■ It is characterized by two converging trend
lines connecting a series of sequential
peaks and troughs. Symmetrical triangles
occur when a security's price is
consolidating in a way that generates two
converging trend lines with similar slopes.
■ The breakout or breakdown targets for a
symmetrical triangle is equal to the
distance between the initial high and low
applied to the breakout or breakdown
point.
Symmetrical
Triangle, Entry,
Target profit, Stop
loss
■ Entry: The breakthrough of
the resistance or support.
■ Target profit: The distance of
the first touch on the
resistance or support, placed
below the breakout.
■ Stop loss: Below the breakout
of the squeeze,
 Rounding bottom

■ A rounding bottom 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.
■ A rounding bottom or cup usually indicates
a bullish upward trend. Traders can buy at
the middle of the U shape, capitalizing on
the bullish trend that follows as it breaks
through the resistance levels.
Cup and handle
■ A cup and handle price pattern on a
security's price chart is 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 a well-known
continuation pattern that signals a
bullish market trend. It is the same as
the above rounding bottom, but features
a handle after the rounding bottom.
■ The handle resembles a flag or pennant,
and once completed can see the market
breakout in a bullish upwards trend.