Successful Trading Chart Patterns – Part 2 of 7

 Continued From Part 1

5. Bull Pennant

Close to the bull flag, bullish pennants involve two important elements – 1. a near vertical, high volume short-term price jump, or flag pole, and 2. a symmetrical, lower-volume triangle-shaped consolidation. This consolidation, with price maneuvering toward a single equilibrium, has a corresponding price action and end implications to a symmetrical triangle. Much like the bull flag, these consolidations are temporary and usually occur within the middle of a bigger upward move. Once the breakout occurs, be aware of a retest of the pennant’s top line. If that fails and the amount turns upward, the formation is complete. If the test fails and the cost comes backpedal to the consolidation range, the organization is no longer valid.

6. Rectangle

Rectangles may be continuation or reversal patterns, depending on the strength of the trend. If the trend is strong, a rectangle can signal a profit-taking area, which allows the need to build and the trend to regroup. In a weak trending or flat market, rectangles can likewise represent a reversal pattern, close to a triple top. Rectangles generally keep well-defined horizontal lines and pricing is considered to be well-balanced among traders.

7. Cup and Handle

The Cup and handle can sometimes be a tricky pattern with a series of more patterns within the larger pattern, like a double top (sides of the cup), inverted head and shoulders (cup), flags and pennants (handle). Cup and handle patterns resemble a double top formation, but the gap comes from increased volume and consolidation after the second top. This consolidation leads to a buying spree that pushes price up through resistance and beyond the last double top formation. The upside breakout from the handle should take place on strong volume, which verifies the selling pressure has been relieved. Be mindful of upside breakouts and quick reversals to try the previous resistance lines, which are now support. If the test fails, search for a trade to the upside.

 

 

 

5. Bull Pennant 
Close to the bull flag, bullish pennants involve two important elements – 1. a near vertical, high volume short-term price jump, or flag pole, and 2. a symmetrical, lower-volume triangle-shaped consolidation. This consolidation, with price maneuvering toward a single equilibrium, has a corresponding price action and end implications to a symmetrical triangle. Much like the bull flag, these consolidations are temporary and usually occur within the middle of a bigger upward move. Once the breakout occurs, be aware of a retest of the pennant’s top line. If that fails and the amount turns upward, the formation is complete. If the test fails and the cost comes backpedal to the consolidation range, the organization is no longer valid. 
6. Rectangle 
Rectangles may be continuation or reversal patterns, depending on the strength of the trend. If the trend is strong, a rectangle can signal a profit-taking area, which allows the need to build and the trend to regroup. In a weak trending or flat market, rectangles can likewise represent a reversal pattern, close to a triple top. Rectangles generally keep well-defined horizontal lines and pricing is considered to be well-balanced among traders. 
7. Cup and Handle 
The Cup and handle can sometimes be a tricky pattern with a series of more patterns within the larger pattern, like a double top (sides of the cup), inverted head and shoulders (cup), flags and pennants (handle). Cup and handle patterns resemble a double top formation, but the gap comes from increased volume and consolidation after the second top. This consolidation leads to a buying spree that pushes price up through resistance and beyond the last double top formation. The upside breakout from the handle should take place on strong volume, which verifies the selling pressure has been relieved. Be mindful of upside breakouts and quick reversals to try the previous resistance lines, which are now support. If the test fails, search for a trade to the upside. 
6 Uptrend Reversal Patterns 
8. Rising Wedge 
Rising wedges are virtually always reversal patterns in an uptrend. Rising wedges represent the start of a more substantial reversal and can form into additional patterns, such as a rounding top. Hence, the targets after a breakout are limited. Volume is a necessary piece of information with the rising wedge is developing. Volume should be high on the continuation of the trend as the first leg of the wedge forms. Volume should then decline as the consolidation nears the wedges apex. As the breakout occurs, volume should spike. Be aware of a downside breakout and retest of the prior support lines. If this test fails, be ready for a trade downward or the development of another, larger pattern. 

 

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