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Trade Less, But Wisely; Get Rich Step by Step
Master The Art of Trading
Advanced Chart Pattern (continued)
Let us study important Continuation Chart Patterns
Anchor 2.1
Ascending Triangle ≡
Ascending Triangle Pattern is a bullish continuation pattern which occurs during ongoing uptrend and signals that the price will continue to trend higher on completion of the pattern.
This pattern is formed between a rising lower trend line (support line) and a flat horizontal trend line (resistance line). It should be noted that support and resistance lines touch at least five points. It shows the continuation of prior trend and indicates that the buyers are more aggressive than the sellers and are likely to take the price higher and higher.
This pattern is said to be complete when a breakout happens on the continuous side. A trader can take long entry at the breakout point. When a trader has missed to take a trade during uptrend earlier, he can catch this opportunity to take a long entry at the breakout point on the higher side.
The potential target for this pattern is generally calculated by projecting the height of the ascending triangle at its thickest point above the breakout point. Stop loss will be placed at swing low which occurs just before the breakout point on the upside.
This pattern is considered to be more reliable when high volume during the uptrend is followed by flat or low volume during triangle formation and again increased volume when a breakout occurs.
Anchor 2.2
Descending Triangle ≡
Descending Triangle Pattern is a bearish continuation pattern which occurs during ongoing downtrend and signals that the price will continue to trend lower on completion of the pattern.
This pattern is formed between a falling upper trend line (resistance line) and a flat horizontal trend line (support line). It should be noted that support and resistance lines touch at least five points. It shows the continuation of prior trend and indicates that the sellers are more aggressive than the buyers and are likely to take the price lower and lower.
This pattern is said to be complete when a breakout happens on the continuous side. A trader can take short entry at the breakout point. When a trader has missed to take a trade during downtrend earlier, he can catch this opportunity to take a short entry at the breakout point on the lower side.
The potential target for this pattern is generally calculated by projecting the height of the descending triangle at its thickest point below the breakout point. Stop loss will be placed at swing high which occurs just before the breakout point on the downside.
This pattern is considered to be more reliable when high volume during the downtrend is followed by flat or low volume during triangle formation and again increased volume when a breakout occurs.
Anchor 2.3
Bullish Rectangle Pattern ≡
This is a bullish continuation pattern that occurs during uptrend and signals that the price is likely to continue to trend higher on completion of the pattern. This pattern shows that a tug of war was going on between the buyers and sellers and eventually the buyers manage to win after price gave a breakout on upside.
This pattern occurs when market is in range bound mode and it is formed between a flat upper trend trend line (resistance line) and a flat lower trend line (support line). The pattern is said to be complete only when a breakout happens and price breaks the resistance line on upside.
A trader can take a long entry at such breakout point. When a trader has missed to take a trade during uptrend earlier, this pattern guides him to catch the opportunity to take a long trade at the breakout point on upside.
The potential target for this pattern is generally calculated projecting the height between the two flat trend lines above the breakout point. A trader should put a stop loss at a swing low which occurs just before the price breaks the resistance on upside.
This pattern is more reliable when high volumes during uptrend followed by flat or low volume during consolidation and again increased volume when breakout occurs.
Anchor 2.4
Bearish Rectangle Pattern ≡
This is a bearish continuation pattern that occurs during downtrend and signals that the price is likely to continue to trend lower on completion of the pattern. This pattern shows that a tug of war was going on between the buyers and sellers and eventually the sellers manage to win after price gave a breakout on downside.
This pattern occurs when market is in range bound mode and it is formed between a flat upper trend trend line (resistance line) and a flat lower trend line (support line). The pattern is said to be complete only when a breakout happens, and price breaks the resistance line on upside.
A trader can take a short entry at such breakout point. When a trader has missed to take a trade during downtrend earlier, this patter guides him to catch the opportunity to take a short trade at the breakout point on downside.
The potential target for this pattern is generally calculated projecting the height between the two flat trend lines below the breakout point. A trader should put a stop loss at a swing high which occurs just before the price breaks the support on downside.
This pattern is more reliable when high volumes during downtrend followed by flat or low volume during consolidation and again increased volume when breakout occurs.
Anchor 2.5
Cup and Handle Pattern ≡
This cup and handle pattern is developed by William O Neil. The pattern gets its name from its shape which resembles that of a conventional tea cup with handle.
The cup is usually U-shaped and handle is basically the retracement from the prior top to about 1/3rd of the vertical height of the cup and looks quite similar to a bowl. This pattern is characterized by a cup shape which acts a base representing a period of consolidation followed by a handle showing retracement.
The cup is usually "U" shaped and may be considered as rounding bottom with almost equal height. However, a "V" shaped cup also qualifies a cup and handle pattern, but conviction is higher in "U" shaped due to consolidation at the bottom. The handle is usually the pullback from the higher end of the cup which may be rounding, triangle or a descending channel. Usually the pullback is about 1/3rd of the size of the prior advance. The smaller the pullback, the better will be strength of the formation and higher the possibility of a breakout. A horizontal line drawn a the top of the cup is known as the neckline.
This pattern is said to be complete only when the price breaks the neckline on the upside, after formation of handle. A trader can take a long entry at this break out point. Whenever a trader has missed an opportunity to take a trade during uptrend earlier, then he can catch this opportunity to take a long trade after a breakout point on the higher side.
The potential target for this cup and handle pattern is calculated projecting the height of the cup (height between the neckline and bottom of the cup) above the breakout point. A stop loss can be placed at the lowest point of the handle
This pattern is considered to be more reliable if there is a significant rise in volume when price breaks above the neckline.
Anchor 2.6
Inverted Cup and Handle Pattern ≡
As the name suggests, this is an inverted version of cup and handle pattern as explained above. It is a bearish continuation pattern which occurs in downtrend and signals that the price will continue to go down after completion of the pattern. This pattern is characterized by an inverted cup shape which acts a base representing a period of consolidation followed by a handle showing retracement. A horizontal line drawn at the bottom of the inverted cup is known as neckline.
The pattern is said to be complete only when the price breaks the neckline on the downside after formation of a handle. A trader can take a short entry at this breakout point. If a trader has missed to take a short entry during downtrend, he can catch an opportunity to short at this breakout point. The potential target in this pattern is normally calculated projecting the height between the neck line and top of the inverted cup below the breakout point. A stop loss can be placed a the highest point of the handle.
This pattern is considered to be more reliable if there is significant rise in the volume when price breaks below the neckline.
The pattern is said to be complete only when the price breaks the neckline on the downside after formation of a handle. A trader can take a short entry at this breakout point. If a trader has missed to take a short entry during downtrend, he can catch an opportunity to short at this breakout point. The potential target in this pattern is normally calculated projecting the height between the neck line and top of the inverted cup below the breakout point. A stop loss can be placed a the highest point of the handle. This pattern is considered to be more reliable if there is significant rise in the volume when price breaks below the neckline.
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