Chart Patterns For Reddit Noobs Green Title = Bullish Pattern Red Title = Bearish Pattern White Title = Bearish or Bullish Ascending Triangle • The ascending triangle is a bullish continuation chart pattern that identifies that a potential break of resistance is likely once the support and resistance lines converge (come together). An ascending triangle is based on higher lows until resistance is broken. To draw this pattern, a horizontal line must be placed at the resistance level, and an ascending line drawn at the support level to signify an uptrend. Descending Triangle • The descending triangle is essentially a reverse of the ascending triangle. Unlike the ascending triangle, the descending triangle conveys a bearish downtrend due to lower highs. The support line is horizontal, and the resistance line is sloped downwards (descending) to signify the possibility of a downtrend breakout. Symmetrical Triangle • For a symmetrical triangle, two trend lines start to meet as the price consolidates which signifies a potential breakout in either an up or down direction. The support line is drawn with an upward trend (higher lows) and the resistance line is drawn with a downward trend (lower highs). Even though the breakout has the potential to move in either direction, it will often follow the general trend of the market. Therefore, it can be useful to use more than one timeframe to get a better understanding of the market’s direction. Bull Flag • The bull flag pattern is found in stocks with strong uptrends, they are called bull flags since their pattern resembles a flag on a pole. The pole is a result of a vertical rise and the flag is a result of a consolidation period. The flag is typically angled down away from the prior trend. This consolidation period is often used to identify the potential continuation of the previous trend. Bear Flag • The ideology behind the bear flag is a reflection of the bull flag, only the bear flag favors a bearish downtrend as opposed to an uptrend. Once the downtrend reaches its apex, there is a phase of consolidation before typically following its momentum downward. The Wedge • The wedge demonstrates a tightening of price movement between the resistance and support lines. The trend can either be upward, or downward. Unlike the triangle patterns, there are no horizontal lines in a wedge. The support and resistance lines tend to run in close parallel with one another either up or down. The wedge is usually seen as a reversal pattern, meaning that once the movement consolidates, a downward trending wedge tends to breakout upwards, and an upward trending wedge tends to breakout downwards. Double Bottom • A double bottom resembles the letter ‘W’ making the pattern more memorable than others. This pattern indicates when the price has failed to break the support line twice, resulting in the market price moving to an uptrend for a certain period of time. Like the wedge, this is a reversal pattern. Double Top • Opposite to the double bottom, the double top resembles the letter ‘M’ and signifies the market price could enter a reversal phase because it has failed to break the resistance line twice. The trend follows back to the support line and begins a downward trend breaking through the support line. Head and Shoulders • The head and shoulders pattern attempts to predict a bull to bear market reversal. It is characterised by a large peak in the middle of two smaller peaks either side of it. All three levels fall back to the support line and the trend is likely to breakout in a downward motion. The opposite of this pattern is called ‘Inverted Head and Shoulders’. Rounding Bottom • The rounding bottom pattern usually indicates a bullish upward trend. Traders have the opportunity to buy in the middle of the ‘U’ shape in order to capitalise on the upward trend that follows as it breaks through resistance levels. Cup and Handle • The Cup and Handle is a continuation stock chart pattern that signals a bullish upward trend. It is the same as the Rounding Bottom, however it features a ‘handle’ after the rounding bottom has taken shape. This handle resembles the ‘flag’ from the above-mentioned bull and bear flag patterns. Once the handle is completed, it is typical for the market to breakout in a bullish upward trend. Hammer • The Hammer pattern has a short body and long lower wick, this candle type demonstrates that sellers had entered the market at this point, however the selling has been absorbed due to the buyers. Hammers do not indicate a price reversal to the upside until is is confirmed. Confirmation arises if the candlestick after the hammer closes at a higher price than the hammer did. Traders do not tend to use hammers alone as an indication of price direction; trend analysis, price, and technical indicators can be used alongside it for further confirmation. Shooting Star • A Shooting Star is a bearish candlestick with a long upper wick and small body. Shooting Stars appear after an uptrend, in order to be considered a shooting star, the formation must appear after a price advancement. The Shooting star indicates a possible price reversal and is most affective when it is followed by three or more consecutive rising candles with higher highs. The candle that forms after the Shooting Star is what gives confirmation to its tendency to reverse price movement. The next candle’s high must stay below the high of the Shooting Star and then close below closing price of the Shooting Star. If this happens, it can be a great indication of a reversal and begin a downward trend. Bullish Engulfing • A Bullish Engulfing is a green candlestick that opens below and closes above the previous red candle. A Bullish Engulfing candle can signify an upward movent from the next candle and a reversal. It is important for traders not to base any decision of an engulfing candle alone however. It is cruciala to refer to previous trends and different timeframes to see the bigger picture. Bearish Engulfing • A Bearish Engulfing pattern is the opposite to a bullish one, the engulfing candle is red and opens above and closes below the previous green candle and can signify the coming of a downward trend. Just like the Bullish Engulfing, it is important to look at longer timeframes to get a better understanding of the current trend in the stock.
