Chart patterns can help you predict price movements because there are different cycles of buying and selling action in the market. In this post I will try to explane how to notice different patterns, how they look, what they are and how to recognize the main patterns on charts. Note that nothing in technical analysis nor in recognizing patterns is 100% objective as there is always a number of different interpretations possible. However, some patterns still have proven themselves rather valuable and make it possible to take major profits due to correct recognition of patterns.
Doubble or tripple tops or bottoms
Doubble top or bottom means that the current low or high fails to exceed the previous significant high or low for two times. When talking about the doubble tops or bottoms we need to remind ourselves two previously mentioned terms again – support and resistance.
Resistance is is the price area where there are more sellers than buyers, the point which the price has hard time exceeding. Support is the price area where there are more buyers than sellers and the price is going up again. Pretty much the opposite to Resistance area. Often, the longer the timeline is between the two tops or bottoms the more significant trend reversal you can expect.
How to confirm a doubble top? You can see doubble top when the previous big downswing bottom is exceeded after the visible doubble-top. Also pay attention to volume and if it confirms what you see on the price chart.
V top and bottom
V top or bottom looks like V letter. V bottom is a low which is formed in the end of a decline (coming up now again). V top is formed by a significant advance followed by a big decline.
Key reversals can mainly be of most use to (upcoming?) short term traders like me. Key reversal upday is a day where there is a lower intraday low than the previous day’s intraday low followed by a close Above the previous day’s close. Key reversal downday is a day where the intraday high is higher than the previous day’s high followed by a close Below the previous day’s close.
Leigh Stevens likes to set some more restrictions to this and gives a bit different definitions.
Upside key reversal day is a day when there is a lower intraday low than the previous day’s intraday low (or two previous days) and where the close is above the high of the previous day (or two days).
Downside key reversal day is a day when there is higher intraday high than the previous day’s (or two days) intraday high and close is below the previous day’s (or two days) intraday low.
Note that the time period is not that limited, it can also be Upside key reversal week etc.
Note that to confirm the reversal, volume should be observed as well.
More about chart patterns in chart patterns II .