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Technical Analysis Through Charts
Bull Flag & Pennant
Head & Shoulders
An Inverted Head & Shoulders pattern is just the opposite. Just like the standard version it is still made up of 2 shoulders, 1 head, and the neckline. Only the Inverted Head & Shoulders will usually form near the bottom of a trend and typically signals that a stock is ready to move higher. Confirmation can be found using the neckline as a breakout point.
A standard Head & Shoulders pattern signals that a stock is likely ready to move against its current up trend. The standard Head & Shoulders pattern will typically form near the top of a trend and symbolize that a stocks price is ready to move down. Confirmation can be found using the neckline as a breakdown point.
The Head & Shoulders pattern is one of the most reliable chart patterns in technical analysis. The pattern as you would expect looks like a persons head and shoulders. It is made up of 4 parts. 2 shoulders, 1 head, and the neckline. There are two variations of the Head & Shoulders pattern.
Cup & Handle
A cup & handle pattern resembles the shape of a "tea cup". This is a bullish pattern predicting either an uptrend continuation or a possible down trend reversal. The Cup & Handle pattern tends to have better odds when found in an uptrend and is more reliable on a longer time frame. A Cup & Handle pattern should take at least multiple months to develop. The pattern is formed by a large sell off that will gradually continue higher, returning to prior resistance forming a rounded bottom "U" or "cup" shape. The "cup" shaped bottom should be nice and rounded, not jagged or sharp. Once we have a nice "cup" shape formed we begin to look for a healthy bullish pull back that will create our handle.
The Bull Flag and Pennant patterns are very similar to one another. There is only a slight variation of shape between the two patterns. Often times the terms Flags and Pennants are used to describe the same pattern. A flag is more of a rectangular downward sloping shape, while the pennant looks more like a triangle. or wedge. Flags and Pennants are shorter term continuation patterns and are formed from a strong upward price moment that creates a "flag pole" followed by either a sideways market or slight pull back. the pattern is completed once the price breaks out to the top side of the flag or pennant. The breakout range should be close to the range of the flag pole.
A Wedge is one of the easiest trade setups to spot and trade for new traders. The setup begins with swings that are generally very large, volatile, and have wide price range. As stocks progress, these swings begin to consolidate and start putting in lower highs combined with higher low's. Consolidation can continue for weeks or even months. The price range continues to tighten and the candle sticks are squeezed toward the end of the Wedge. Running out of room the chart begins to build pressure and a breakout occurs. With good volume these breakouts can be very large and have the good range we look for.
Triangles are common patterns used in technical analysis. There is a both a bullish and bearish pattern for triangles. The two types of triangle patterns are ascending triangle and descending triangle.
An ascending triangle is a bullish formation that can be found in a up trend and is used to predict an uptrend continuation. The ascending triangle is composed of three to four higher low's and a multi top resistance area. Once the multi top resistance area is broken and a breakout is confirmed it is likely that the up trend will continue.
A descending triangle is a bearish formation that can be found in a down trend and is used to predict a down trend continuation. The descending triangle should be composed of three to four consecutive lower high's, it will also form a multi bottom support base. Once the multi bottom support is broken and breakdown is confirmed and the down trend will likely continue.