Type's of Chart Patterns

Chart Patterns

Technical analysis is based on the premise that history repeats itself. Until now we have learnt about Trends, Trend lines, Support & Resistance and Candlesticks patterns all of these are the important parts of the technical chart. But there are some patterns form in the historical period which helps in predicting the future market move. These patterns are called as chart patterns.

Broadly, there are two types of chart patterns.

1. Reversal Patterns : These are the patterns which tells that there is going to be a change in the current market trend at the point from which market reverses. Most important reversal patterns are as follows.

  • Head and Shoulder
  • Inverted Head and Shoulder
  • Double Top and Double Bottom

2. Continuation Patterns : Basically, continuation pattern is a resumption of trend after a consolidation of price movement. Following are the examples of the continuation pattern.

  • Flags
  • Ascending and Descending triangle
  • Symmetrical Triangles
  • Pennants
  • Rectangles or Channels

In this Blog we will focus on reversal patterns only.

Below 4 are the most frequently seen reversal chart patterns.

1. Head and Shoulder Pattern

A head and shoulder pattern forms at an end of an uptrend and its completion marks a trend reversal. The pattern comprises of three peaks. with the middle peak being highest and remaining twos side peaks lower than head called as shoulders. The connection line of each peak's is called as neck line.

 

  
Head and Shoulder Pattern



 2. Inverted head and Shoulder

This pattern is same as head and shoulder. Only difference is that it is formed on the end of a downtrend.


Inverted Head and Shoulder

 3. Double Top Pattern

Unlike head and shoulder, this pattern has only two peaks almost as of same height.  This pattern is formed at an end of an uptrend. When the connecting neckline of the lows of this two peaks gets broken the trend reversal confirms.


Double Top

4. Double Bottom

This pattern is similar to inverted head and shoulder unlike it has only two bottom peaks. Double bottom pattern forms at the end of a downtrend. When the neckline of double bottom gets broken uptrend starts which move price higher in the upward direction.

Double Bottom


In the next blog, we will continue with the continuation chart pattern types and will see the different examples.



 

 


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