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TECHNICAL AnalysisLogical Thinking towards Price ActionDynamic Subject
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Trading FriendsTrend Advisors
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1 Head & Shoulder2 Inverted Head &
Shoulders3 Double / Triple Tops4 Double / Triple
Bottoms5 Triangles
- Ascending Triangle- Descending Triangle- Symmetrical Triangle- Diamond
6 Channels- Ascending Channel- Descending Channel- Horizontal Channel
7 Flags – Bullish/Bearish8 Wedges / Pennants9 Cup & Handle10 Rounding Top11 Rounding Bottom
High Profitable
Believe in Charts
Confirm with Candles
CLASSICAL CHART PATTERNS
Technical Analysis -
PATTERNSww
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CHART PATTERNS (Quick View-1)Name Type Appear
Head & Shoulder
Bearish
Double /Triple TOPs
Bearish
FLAGS(Bull Flag)
Bullish+
Conti.
RoundingTOPs
Bearish
Name Type AppearInvertedHead & Shoulder
Bullish
DoubleTriple BOTTOMs
Bullish+
Reversal
InvertedFLAGS(Bear Flag)
mostlyBearish
+Cont.
RoundingBOTTOMs
Bullishl
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RISK 1Reward-2
CHART PATTERNS (Quick View-2)Name Type Appear
AscendingTriangle
MostlyBullish
DescendingTriangle
MostlyBearis
h
SymmetricalTriangle
EitherSide
Break
Diamond
Top of Chart
Bearish
EitherSide
Break
Name Type AppearAscendingChannel
BreakOut
Criteria
DescendingChannel
BreakDownCriteri
a
HorizontalChannel
BreakOut /BreakDownCriteri
aCup &Handle
BullishAbovenecklin
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RISK 1Reward-2
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Chart PATTERNSTrading PATTERNS In technical analysis, the distinctive formation created by the movement of security prices on a chart.
Price-lines in course of its journey time creates PICTORIAL DIAGRAMS is known as “PATTERNS”
It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time.
Continuation Patterns
Head & Shoulder (2)
Cup & Handle
Triangles (4 types)
Flags (2) types
Chartists try to identify patterns to anticipate the future price direction.
Patterns in security prices occur daily.
price patterns may be easy to understand & see on paper
But much harder to spot, and
trade these formations in real time.
But If you Spot YOU GAIN MORE & more…
Channels (3 types)Diamond
ReversalPatters
Rounding Top/Bottom
Pennants Wedges
TOPS/Bottoms
Double/Triple
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NECK-LINE - A level of support or resistance found on a head and shoulders pattern that is used by traders to determine strategic areas to place orders.
Each peak of a regular head and shoulders pattern falls toward a support level, also known as a neckline, before it rises to create the next peak.
A move below the neckline (in the case of a head and shoulders top) is used by traders as a signal of a reversal of the current uptrend.
Left Shoulder: Bulls push prices upwards making new highs; however these new highs are short lived and prices retreat.
Head: Prices don't retreat for long because bulls make another run, this time succeeding and surpassing the previous high; a bullish sign. Prices retreat again, only to find support yet again.
Right Shoulder: The bulls push higher again, but this time fail to make a higher high. This is very bearish, because bears did not allow the bulls to make a new higher or even an equal high. The bears push prices back to support (Confirmation line); this is a pivotal moment - Will bulls make another push higher or have the bears succeeded in stopping the move higher.
Bearish Reversal- Creates on top of the
chart- Some times-Irregular
appearance
Head and Shoulders - Sell SignalIf prices break the confirmation support line, it is clear that the bears are in charge; thus, when price closes below the confirmation line, a strong sell signal is given.
Note that a downward sloping confirmation line is generally seen as a more powerful Head & Shoulders pattern, mainly because a downward sloping confirmation line means that prices are making lower lows.
Patterns Head & Shoulders
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Inverted Head & Shoulders Must confirm with VOLUMES
Bullish Reversal
Reverse Head and ShouldersThe opposite of the Head &
Shoulders pattern is the Reverse Head & Shoulders pattern which is another strong pattern, this time a
bottoming pattern
The reasoning behind a Head & Shoulders pattern is as follows:
Left Shoulder: Bears push prices downwards making new lows; however, bulls begin to return and push prices slightly higher.
Head: Price gains don't last long before bears return and push prices even lower than before; a bearish sign. Prices then find buyers at the new lower prices.
Right Shoulder: The bears push downward again, but this time fail to make a lower low. This is generally seen as bullish sign, bears were unable to push prices further down. Decision time occurs when the price is pushed higher back to support (Confirmation line); either bears will push prices back down or bulls will push prices higher, regaining control of the stock, future, or currency pair.
This pattern is also known as a
"reverse head and shoulders"
Stop Loss = WEEKLY LOW
Volume analysis is important when using the Head & Shoulders chart pattern. How to incorporate volume into the study of the Head & Shoulders pattern is discussed next.Volume and Head and ShouldersWhen the confirmation line of a Head & Shoulders pattern breaks to the downside, a large amount of volume should occur as well.The chart below of General Electric (GE) shows a sharp increase in volume when the confirmation line of the Head & Shoulders pattern was broken:
Reverse Head and Shoulders Buy SignalWhen price closes above the confirmation line, a strong buy signal is given.Usually an upward sloping confirmation line is seen as a more powerful Reverse Head & Shoulders pattern, mainly because an upward sloping confirmation line means that prices are making higher highs.
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1. Ascending Triangle - When the upper trendline is horizontal and the lower trendline is rising with higher
lows.
2. Descending Triangle - When the lower trendline is horizontal and the upper trendline is descending with lower highs.
3. Symmetrical Triangle - When the upper and lower trendlines converge at
roughly the same angle.
A triangle needs a minimum of four points (price ‘tests’) to be valid – two upper tests and two lower tests, which is the same definition for establishing a valid trendline. The significance of a triangle is similar to that of trendline significance and validity.
Classic Technical Analysis teaches that Symmetrical Triangles are more frequently Continuation Patterns than Reversal Patterns, and that Ascending Triangles are “Bullish” while Descending Triangles are “Bearish.”
4. Inverted Triangle - When the upper and lower trendlines converge at
roughly the same angle without touching each other.
Patterns TRIANGLES
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Bullish Reversal & Continuation Pattern
How to trade with Triangle :
The Tri-angle has to be divided into 3 parts such as a,b,c.
If it take a fresh break-out at 2/3rd part or from “b” it creates NEW TREND
Measuring Indications : Measure the height (base) of the said pattern. And project the same distance from the point of BREAK-OUT
Assumptions of ASCENDING Triangle :
If Ascending Triangle is made up of 2 trend lines where (1) upper one is flat and (2) lower one is diagonal.
The line reflects the psychology that sellers are interested to sell at a particular price… WHERE as rising trend line tells us the BUYERS are interested to buy at the higher price. It is basically a war between WEAK SELLERS vs. STRONG BUYER
Patterns ASCENDING Triangle
Mea
sure
Targ
et
- Entry
-- Stop Loss
2/3 distance
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PatternsBearish Reversal & Continuation
Pattern
DESCENDING Triangle
How to trade with Triangle :
The Tri-angle has to be divided into 3 parts such as a,b,c.
If it take a fresh break-out at 2/3rd part or from “b” it creates NEW TREND
Measuring Indications : Measure the height (base) of the said pattern. And project the same distance from the point of BREAK-DOWN
Assumptions of DECENDING Triangle :
If Ascending Triangle is made up of 2 trend lines where (1) Lower one is flat and (2) Upper one is diagonal.
The line reflects the psychology that SELLERS are interested to SELL at a particular price… WHERE as diagonal down trend line tells us the Sellers are interested to SELL at the LOWER price. It is basically a war between WEAK BUYERS vs. STRONG SELLER
Mea
sure
Targ
et- Entry
-- Stop Loss
2/3 distance
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Patterns• Characterized as IN-DECISION • Market in PAUSE • The future of the market is QUESTIONED
SYMMETRICAL Triangle
Measuring Indications : Measure the height of the said pattern. And project the same distance from the point of Break-out / Break-DownAdvice : Confirmation with other Indicators (RSI, MACD, Stochastic),Note : VOLUME should support trend
Assumptions of Symmetrical Triangle :
If Ascending Triangle is made up of 2 trend lines where (1) Lower one Diagonal and (2) Upper one is diagonal.
It is basically a war between WEAK BUYERS vs. WEAK SELLER
Mea
sure
Targ
et-- Stop Loss
2/3 distance
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Ascending Channel
Descending Channel
Horizontal Channel
To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent peak.
Higher Highs & Lows
Lower Highs & Lows
Ranging Highs & Lows
To create a down (descending) channel, simple draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley.
Patterns CHANNELS
Up Channel
Down Channel
Sideways channel
To create a Sideways (Horizontal) channel, simple draw a Horizontal lines at the frequent created Highs & Lows.. Which shall almost near / around price range trading.
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Mostly @ top of
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May appear @ Bottom/Top of the CHART
Important things to remember about trend lines:When constructing a channel, both trend lines must be parallel to each other.Generally, the bottom of channel is considered a buy zone while the top of channel is considered a sell zone.Like in drawing trend lines, DO NOT EVER force the price to the channels that you draw! A channel boundary that is sloping at one angle while the corresponding channel boundary is sloping at another is not correct and could lead to bad trades.
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Patterns ASCENDING Channel
Ascending Channel :
An ascending channel is the price action contained between upward sloping parallel lines.
Higher pivot highs and higher pivot lows are technical signals of an uptrend.
Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs.
Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation.
A lower low below the low of an ascending channel can signal trend change.
When prices hit the bottom trend line, this may be used as a buying area. When prices hit the upper trend line, this may be used as a selling area.
Pretty easy to see now with this stock chart how a ascending channel actually looks.
Now, my lines aren't perfectly parallel, but I think you get the idea.
Investing in stocks using this technique is fairly simple when playing a long term channel like the one above.
If the stock breaks the channel's top, then that is a bullish sign as higher prices or possibly even a steeper ascending channel is to follow.
On the flip side, if the channel is broken to the downside, it is a bearish sign of possibly lower prices to come.How to trade :
If price breaks above the ascending price channel, it may be the start of aParabolic move. Usually when price breaks above the ascending channel, it is a sign that the whole world is interested in the stock.
Price may move rapidly upwards. These kind of moves does not last for long. If you own the stock, you may want to consider selling some of your positions as the stock climbs higher.
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Patterns DESCENDING Channel
Descending Channel :
A descending channel is the price action contained between downward sloping parallel lines.
Lower pivot lows and higher pivot lows are technical signals of an uptrend.
Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs.
Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an descending channel can signal continuation.
A Higher high above the high of a descending channel can signal trend change.
Pretty easy to see now with this stock chart how a descending channel actually looks.
Now, my lines aren't perfectly parallel, but I think you get the idea.
Investing in stocks using this technique is fairly simple when playing a long term channel like the one above.
If the stock breaks the channel's lower, then that is a bearish sign as lower prices or possibly even a steeper descending channel is to follow.
On the flip side, if the channel is broken to the upside, it is a bullish sign of possibly higher prices to come.
How to trade :
If price breaks above the decending price channel, it may be the start of aParabolic move. Usually when price breaks above the decending channel, it is a sign that the whole world is interested in the stock.
Price may move rapidly upwards. These kind of moves does not last for long. If you own the stock, you may want to consider selling some of your positions as the stock climbs higher.
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Break-out / Break down
SupportResistancePatterns
Patterns Horizontal Channel
Horizontal ChannelPrice is framed out in a trading range by the pivot highs (resistance) and pivot lows (support). Trendlines drawn on pivots give a visual picture of price action. A new high in price above the horizontal channel is a technical buy signal. A new low in price below the horizontal channel (or rectangle pattern) is a technical sell signal.
The Horizontal ChannelThe horizontal channel is either a reversal or continuation pattern, but it's impossible to tell which until the pattern is completed with a breakout, either down or up. The pattern is similar to the head and shoulders pattern. Notice that the volume decreases gradually over the span of the pattern, a characteristic common to triangles and head and shoulders patterns as well as to horizontal channels. Indecisive trading gets exhausted.As in triangles, the breakout can occur to the upside or to the downside. But the upside breakout has to be accompanied by a solid increase in volume. If the volume isn't impressive, relative to the previous days or weeks of trading, the breakout is suspect.For a downside breakout, the volume doesn't have to be heavy. There will likely be an initial surge in volume as traders sell their shares, anticipating a decline, but prices generally tend to fall of their own weight. In other words, there will likely be sellers, but not likely many buyers.
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Diamond Chart Pattern :A diamond chart formation is a rare chart pattern that looks similar to a head and shoulders pattern with a V-shaped neckline. Diamond chart reversals rarely happen at market bottoms, it most often occurs at major tops and with high-volume. Since diamonds are a variation of head and shoulders tops, you have to resist the desire to classify every head and shoulders top as a diamond formation. The reason you will want to avoid this is because the diamond will signal a break in trend much earlier than a head and shoulders pattern, which could result in a premature short position. To calculate the breakout potential for a diamond formation, you will want to take the distance between the highest and lowest point in the diamond formation and add it to the breakout point. However, in most occurrences a breakout from the diamond chart formation will carry stocks much further.
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Di mond Pa tte rn created i n AXIS B ank recently
AXIS BANK (1 ,32 4.40 , 1,341 .00 , 1 ,31 3.1 5, 1,328 .30 , +1 8.5000)
Patterns DIAMOND Pattern
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Tops/Bottoms Double/Triple BottomDouble Bottom
Common & highly effective price reversal pattern.
To create a double bottom pattern, price begins in a downtrend, stops, and then reverses trend. However, the reversal to the upside is short-term. Price breaks again to the downside only to stop again and reverse direction upwards. With the second bottom of the double bottom pattern, it is usually more bullish if the second low is higher than the first low.
Double Bottom Buy SignalThe signal to buy is given when the confirmation line is penetrated to the upside. The confirmation line is drawn across the top of the double bottom pattern (see chart above).Often, after price penetrates the confirmation line, price will retrace for a short time, sometimes back to the confirmation line. This retracement offers a second chance to get into the market long.Volume also plays an important part of interpreting the Double Bottom pattern; this is illustrated in the chart aboveGenerally, volume should explode when the confirmation line is penetrated as it did in the above chart.
The Double Bottom reversal pattern is a heavily used and effective charting reversal pattern. ……………………………………Another similar and popular bottom reversal pattern is the Reverse Head & Shoulders Pattern (see: Head & Shoulders). …………………………………The opposite of the Double Bottom is the bearish Double Top pattern (see: Double Top).
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Tops/Bottoms Double/Triple TOPDouble Bottom
Common & highly effective price reversal pattern.
Double Top Formation ComponentsFirst High: Bulls push prices upwards making new highs; however, these new highs are short lived and prices retreat.
Second High: Prices don't retreat for long because bulls make another run, making a similar high. Nevertheless, this is bearish, because bulls were unable to push prices higher; bears held their ground at the previous high level. The bears push prices back to support (Confirmation line); this is a pivotal moment - either bulls will make another push higher or bears will take control and push prices even lower, more than likely taking over for good.
The Double TOP reversal pattern is a heavily used and effective charting reversal pattern. ………………………………………………Another similar chart pattern is the Head & Shoulders Pattern (see: Head & Shoulders). ………………………………………………The opposite of the Double Top is the bullish Double Bottom (see: Double Bottom).
Double Top Sell SignalSell when price closes below the confirmation line.Note that traders expect a significant increase in volume to accompany the confirmation line break; if there is very little volume when price pierces the confirmation line, then the move downward is suspect. Small volume usually means weak support of price movement
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Patterns CUP & HANDLE Pattern
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Assumptions of ASCENDING Triangle :It has no much Technical Importance… how ever we can trade it with confirmation of other Indicators
May June July Augus t September November December2008 February March April May June July August September November 2009 February
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Patterns INVERTED Triangle
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FlagsBullish Flag Bearish
FlagFlag and pennants are one of the most trusted continuation patterns)Flags and pennants can be categorized as continuation patterns. They usually represent only brief pauses in a dynamic market. They are typically seen right after a big, quick move. The market then usually takes off again in the same direction. Research has shown that these patterns are some of the most reliable continuation patterns.
Flags are divided into 2 categories :Bullish flags - Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trendlines run parallel.Bearish flags- Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trendlines run parallel. Pennants look very much like symmetrical triangles. But pennants are typically smaller in size (volatility) and duration.
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Wedges
WedgeA wedge pattern is similar to symmetric triangle - it can be a continuation or reversal pattern, with two differences.
While the triangle shows sideways movement, the wedge can move either upward (normally bearish sign) or downward (normally bullish sigh). The other difference is that wedge normally takes much longer to complete then triangle, usually between three and six months.
Pennants
Pennant is short-term continuation stock chart pattern(compare with Flag) , lasting for one to three weeks normally.
It arise after a sharp stock price movement, when the bulls or bears take a break before they continue to push further in the same direction.
Pennant with converging trend lines looks much like symmetric triangle, the flag pattern with two parallel trend lines looks much more like a channel. The pattern is considered to complete, when the trend line in the direction of the basis trend is broken.
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