Breakout Patterns Chart for beginner in stock market

a Quick view for a beginner

1. THE PATTERN TRADER TUTORIAL™

BREAKOUT PATTERNS
Quick Reference Cards

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Whether you're a long term investor, short term speculator or swing trader,
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edge in understanding and anticipating opportunities before they happen

‘Adapted and simplified, Breakout Patterns are now easier to master.
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THE BREAKOUT PATTERN

Future |
Trend |

Resistance

Original
Trend |

Introduction
Breakout Patterns are age old, time tested and highly reliable
techniques of identifying charling patterns that allow investors to
make low tisk judgement calls on the future direction of their
investments.

Breakout Patterns hide precious information that when properly
interpreted, reveal to the informed and savvy investor, the fear,
doubt, greed, intent, euphoria, panic and many other emotional
states that are likely to influence the direction of the investment.

The Pattern Trader Tutorial” strives to keep the original intepreta-
tions of the Breakout Patterns and constantly monitors changes in
its medium to long term effects.

The Breakout Patterns Quick Reference Cards" serve to incorporate
these medium term trading altematives, while preserving the
original interpretations for the long term investor.

These Breakout Patterns are broken down into 2 classifications:
Continuation & Reversal

2. TRADING THE BREAKOUT PATTERN

In almost every Breakout Pattern, there are usually four
common elements that help with timing an entry. Ina
Bullish Breakout, for example, there will be;

1. the Breakout (8)

2. a High (C)

3. a Pullback (C to D)

4. a Support (D)

Diamond Bottom

Immediately aftera Breakout to the upside, asin the case
of the Diamond Bottom illustrated above, the price will
make an early rally (B to C) that is often driven by greed
and euphoria, When the price hits a crifical high, usually
ahistorical or technicalrelracement level (C), it normally
pulls back (C to D) by between 30% to 40% of the rally
(Ato C). This retracement wil stall on the “neck line” of
the pattern (D). This confirms Bearish failure to maintain
a negative sentiment. Should the price bounce on the
Support (D) and resume its uptrend, thisis a sign of Bullish
commitment and a window to time an ently.

|
y

Uptrend Downtrend
(Rally, Bull run, Spike) (Correction, Pull back)

AN

Pattern

Resistance Support
The highest level The lowest level
of a price trend of a price trend

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Breakout Signal

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3. CONTINUATION PATTERNS CONTINUATION PATTERNS

| |

Bullish (Consolidation) Flag Zo y
In An Up Trend AY i"

, Le yee . a
Bullish (Declining) Flag eon lil Bull DK Fag

In An Up Trend I ” ds
I
. a I |
Bearish (Consolidation) Flag y =
In A Down Trend YA N=
I
I
Bearish Flag Bearish (Rising) Flag
In A Down Trend In A Down Trend

|
Bullish Pennant i

|
| Up Trend La
in An Up Tren, My
D.-

Bearish Pennant i!

|
In A Down Trend Bullish Pennant Bearish Penndnt

In An Up Trend In A Down Trend
Bullish Symmetrical Triangle I,
In An Up Trend |

|
¡y
Yo
Bearish Symmetrical Triangle Pra
In A Down Trend N

Bulish Symmetrical Triangle Bearish Symmetrical Triangle
In An Up Trend In A Down Trend

CS: Pen ned y Co in

Bearish (Rising) Flag
In An Down Trend

4. CONTINUATION PATTERNS

Bullish Ascending Triangle
In An Up Trend

Bearish Descending Triangle
In A Down Trend

Bullish Cup & Handle
In An Up Trend

Bearish (Inverse) Cup & Handle
In A Down Trend

Falling Wedge
In An Up Trend

Rising Wedge
In A Down Trend

Bullish Rectangle
In An Up Trend

Bearish Rectangle
In A Down Trend

CONTINUATION PATTERNS
|

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yo

Bulish Ascending Triangle
In An Up Trend

Bulish Cup & Handle
In An Up Trend

Ann

Falling Wedge
In An Up Trend

Bulish Rectangle
In An Up Trend

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|
Bearish Descending Triangle
In A Down Trend

CN

Bearish (Inverse) Cup & Handle
In A Down Trend

Rising Wedge
In A Down Trend
|

IN
Bearish Rectangle
In A Down Trend

5. REVERSAL PATTERNS

Bullish Ascending Triangle
In A Down Trend

Bearish Descending Triangle
In An Up Trend

Falling Wedge
In A Down Trend

Rising Wedge
In An Up Trend

Double Bottom
In A Down Trend

Double Top
In An Up Trend

Triple Bottom
In A Down Trend

Triple Top
In An Up Trend

REVERSAL PATTERNS
| |
| ]
NI ae VA
Sr Pb
| |

Bulish Ascending Triangle Bearish Descending Triangle
In A Down Trend In An Up Trend

Dr

Al |
N

Falling Wedge Rising Wedge
In A Down Trend In An Up Trend

SA

Al

1 à

|
Double Bottom Double Top
In A Down Trend In An Up Trend

Triple Bottom Triple Top
In À Down Trend In An Up Trend

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6. REVERSAL PATTERNS REVERSAL PATTERNS

Inverted Head & Shoulders
In A Down Trend

Head & Shoulders Inverted Head & Shoulders Head & Shoulders
In An Up Trend In À Down Trend In An Up Trend

Rounding Bottom

In A Down Trend A À
Rounding Top IK. YA
In An Up Trend il

IN
|

Broadening Bottom

In A Down Trend Rounding Bottom Rounding Top

In À Down Trend In An Up Trend

QA.

Broadening Bottom Broadening Top
In À Down Trend In An Up Trend

Broadening Top
In An Up Trend

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7. REVERSAL PATTERNS
Broadening Descending Wedge
In A Down Trend

Broadening Ascending Wedge
In An Up Trend

Diamond Bottom
In A Down Trend

Diamond Top
In An Up Trend

V-Bottom Reversal
After A Down Trend

Parabolic Reversal
After An Uptrend

REVERSAL PATTERNS

Broadening Descending Wedge
In A Down Trend

‘as

Diamond Bottom
In À Down Trend

V-Bottom Reversal
After A Down Trend

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Broadening Ascending Wedge
In An Up Trend

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Diamond Top
In An Up Trend

Parabolic Reversal
After An Uptrend

8. CONTINUATION PATTERNS

| |
A

Bullish (Consolidation) Flag
In An Up Trend

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Bullish (Declining) Flag
In An Up Trend

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CONTINUATION PATTERNS

Description:

Flags are common and reliable breakout patterns that signal a
continuation pattern in a strong up trending market. They are
short-term congestion patterns that form within two to three
trading weeks.

Features:
The Flag is formed after a sharp price movement up (known as
the Flagpole) then consolidates sideways. It is rectangular in
shape and may slope downwards or move horizontally against
the previous trend. The two parallel lines that form the Flag
serve as support and resistance lines. Volumes for the sharp
advance should be heavy and declines as the Flag is being
formed. Once the price breaks out of the resistance line, the
initial trend resumes as the rally accelerates. The breakout is
often accompanied by heavier volumes.

Psychology:

A pause/consolidation after a sharp price movement allows the
security to “rest” and gather strength for momentum before it
moves forward to make a new high. Huge volumes upon the
breakout confirms the commitment of the Bulls

Price Target:
The price target is derived by adding the height of the Flagpole
(Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E

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9. CONTINUATION PATTERNS

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le

Bearish [Consolidation] Flag
In À Down Trend

|

8 |

l

Bearish (Rising) Flag
In A Down Trend

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CONTINUATION PATTERNS

Description:

Flags are common and reliable breakout patterns that signal a
continuation pattern ina strong down trending market. They are
short-term congestion patterns that form within two to three
trading weeks.

Features:
The Flag is formed after a sharp price movement down (also
known as the Flagpole) and consolidates sideways. It is rectan-
gular in shape and may slope upwards or move horizontally
against the previous trend. The two parallel lines that form the
Flag serve as the support and resistance lines. Volumes for the
sharp decline should be heavy and reduces as the Flagis being
formed. Once the price breaks out of the support line, the initial
trend resumes, sending the price lower. The breakout is often
accompanied by heavier volumes.

Psychology:

A pause/consolidation after a sharp price movement allows the
security to “rest” before continuing in the original direction to
make new lows. Huge volumes upon the breakout confirms the
commitment of the Bears

Price Target:

The price target is derived by subtracting the height of the
Flagpole (Point A minus Point B) from the breakout point (Point
D)

For example, if the price movement from Point A to Point Bis

5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

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10. CONTINUATION PATTERN

Bullish Pennant
In An Up Trend

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CONTINUATION PATTERN

Description:

The Pennant is a common and reliable breakout pattern that
signals a continuation in a strong up trending market. They are
short-term congestion patterns that form between one to five
weeks, The attributes of the Pennant are similar to the Flag.

Features:

The Pennant is formed after a sharp price movement up (also
known as the flagpole) and consolidates sideways. The Pennant
looks like a Triangle with converging support and resistance
trend lines. They form lower highs and higher lows over a period
of time. Volumes for the sharp advance should be heavy and
declines as the pennant is being formed. Once the price breaks
out of the resistance line, it's a BUY signal and the initial trend
is resumed as the rally accelerates. This is often accompanied
by heavy volumes upon the breakout.

Psychology:

A pause/consolidation after a sharp price movement allows it to
rest and gather strength and momentum before moving forward
to make new highs. Huge volumes upon the breakout confirms
the controlling power of the Bulls

Price Target
The price target is derived by adding the height of the flagpole
(Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E.

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11. CONTINUATION PATTERN

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E

Bearish Pennant
In A Down Trend

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CONTINUATION PATTERN

Description:
The Pennant is a common and reliable breakout pattern that
signals a continuation in a strong down trending market. They
are short-term congestion patterns that form within one to five
weeks. The attributes of the Pennant are similar to the Flag

Features:

A Pennant is formed after a sharp price movement down (also
known as the flagpole) and consolidates sideways. It looks like
a Triangle, with converging support and resistance trend lines.
They form lower highs and higher lows over a period of time
Volumes for the sharp advance should be heavy and declines
as the Pennant is being formed. Once the price breaks out of
the support line, it is a SELL signal and the initial trend will
resume, sending the price lower. This is often accompanied by
heavy volumes upon the breakout.

Psychology:
A pause/consolidation after a sharp price movement allows it to
rest before continuing in the same direction to make new lows.
Huge volumes upon breakout confirms the controlling power of
the Bears.

Price Target:
The price target is derived by subtracting the height of the flag-
pole (Point A minus Point B) from the breakout point (Point D).

For example, if the price movement from Point A to Point B is

5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E:

oni Pt dr y Cn

12. CONTINUATION PATTERN

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C

Bullish Symmetrical Triangle
In An Up Trend

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CONTINUATION PATTERN

Description

Symmetrical Triangles are longer-term patterns that usually
form along a trend. Itis a highly reliable continuation pattern
when itis formed in an up trending market.

Features:

A Symmetrical Triangle is formed when it rallies to a new high,
pulls back to an intermediate supportlevel and rallies again, but
toa lower high and immediately declines back to a higher low.
The descending resistance line and an ascending support line
converge to form a Symmetrical Triangle. This pattern consists
of at least two lower highs and two higher lows. Volumes should
expand at the start of the Triangle and as the range converges
towards the apex, volatility and volumes tend to dip drastically.
Once the price breaks out of its resistance, itis a BUY signal
and the initial trend resumes as the rally accelerates. Volumes
must surge heavily upon the breakout

Psychology:

After reaching a relative new high, momentum starts to fade
and price movement pauses as traders are uncertain about the
near term direction. Once it reaches a certain level, it retraces
back to a high, but lower than the previous high. The indecision
continues between the Bulls and the Bears. As the price range
gradually narrows, traders will revalue the current level. Upon
Confirmation of valuations, Buyers usually start coming in. This
should be reflected by the extremely high volumes that sends
the price to a higher high as it breaks out upwards

Price Target:
The price target is derived by adding the widest vertical height
of the Triangle (Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point Bis

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E.

oni Pt dr y Cn

13. CONTINUATION PATTERN

Bearish Symmetrical Triangle
In A Down Trend

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CONTINUATION PATTERN

Description
Symmetrical Triangles are longer-term patterns that usually
form along a trend. It is a highly reliable continuation pattern
when itis formed in a down trending market.

Features:

A Symmetrical Triangle is formed when it dips to a new low,
pulls back to an intermediate resistance level and moves down
again to a higher low and immediately retraces to a lower high.
The descending resistance line and an ascending support line
converge to form a Symmetrical Triangle. This convergence
consists of at least two lower highs and two higher lows.
Volumes expand at the start of the Triangle and as the range
converges towards the apex, volatility and volumes tends to dip
drastically. Once the price breaks out of the support line, ¡ts a
SELL signal. The initial trend resumes sending the price lower.
Volumes must surge heavily upon the breakout.

Psychology:

After reaching a relative new low, momentum fades. The price
retraces up slowly as traders are uncertain about the near term
direction. Once it reaches a certain level, it drops back to a low
that is higher than the previous low. The indecision continues
between the Bulls and the Bears. Each pause in the narrowing
range encourages renewed bearish conviction. As the price
range gradually narrows, traders will revalue the current level
Upon confirmation of valuations, Sellers will start coming in,
confirmed by extremely high volumes that send the price lower
as it breaks out downwards.

Price Target:

The price target is derived by subtracting the widest vertical
height of the Triangle (Point A minus Point) from the breakout
point. For example, if the price movement from Point A to Point
Bis 5points, subtract 5 points from the breakoutpoint (Point D)
to get the price target of Point E.

oni Pt dr y Cn

14. CONTINUATION PATTERN

Bullish Ascending Triangle
In An Up Trend

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CONTINUATION PATTERN

Description:

Ascending Triangles are reliable bullish patterns which form
during an up trend as a continuation pattern. The duration of
this formation can vary from a few weeks to within three months.

Features:
Ascending Triangles are formed against a flat resistance line
with equal highs and an upward-sloping support ine with higher
lows. The price rallies to a new high and faces resistance. This
leads to a pullback. Buyers then initiate another short rally only
to face the previous resistance again. Another pullback ensues
that sends the price down again to a higher low. Volumes tend
to be light as the pattern develops. Once the price breaks over
the resistance, its a BUY signal and the intial trend is resumes.
Strong volumes are apparent upon breakout.

Psychology:

After a strong trend, momentum tends to fades and the price
reverses as supply seems to have exceeded demand. This
prevents the price from moving higher and results in a pullback
to a reaction low. Buyers start coming in again to drive the price
up to its recent high but are rebutted by aggressive Sellers. This
battle will continue between Buyers and Sellers. Eventually the
Sellers run out of stock to sell and the buyers take the initiative
by pushing the price above the resistance, which now becomes
support. Higher lows indicate increased buying pressure that
leads to a spectacular price breakout and is accompanied by
strong volumes.

Price Target:
The price target is derived by adding the widest vertical height
of the triangle (Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point B is 5

points, add 5 points to the breakout point (Point D) to get the
price target of Point E

oni Pt dr y Cn

15. CONTINUATION PATTERN

Bearish Descending Triangle
In A Down Trend

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CONTINUATION PATTERN

Description

Descending Triangles are reliable bearish pattems which form
in a down trend as a continuation pattern. The duration of this
formation can vary from a few weeks to within three months.

Features:

Descending Triangles are formed above a flat support line with
equal lows and a downward-sloping resistance line with lower
highs. The price drops to a newlow andis deemed as oversold
The Buyers suddenly appear, creating a support that starts a
retracement. Sellers then re-enter the trade which brings the
price back to the previous low. Once more, support thwarts the
Sellers so the Buyers rally the price up again, albeit with less
conviction than the previous high. Volumes tend to dip as the
pattem develops. Eventually, seing pressure breaks the price
out below the support line. This is a SELL signal and the initial
trend is resumed, sending the price lower. Strong volumes are
apparent upon breakout

Psychology:

After a strong downward move in price, momentum falters and
the price retraces. Demand seems to have exceeded supply
which prevents the price from moving lower. As the retracement
reaches a reaction high, Sellers start coming in again to drive
the price down to its recent low. The Sellers get rebuffed again
by aggressive Buyers at the low. As this battle rages on between
the Buyers and Sellers, the Buyers will start to back off, giving
the initiative to the Sellers to push the price lower. Lower highs
indicate increased selling pressure followed by a spectacular
price breakout, often accompanied by strong volumes.

Price Target:
The price target is derived by subtracting the widest vertical
height of the Triangle (Point minus Point) from the breakout
point. For example ifthe price movement fom Point Ato Point

is Spoints, subtract 5 points from the breakout point (Point D)
to get the price target of Point E.

oni Pt dr y Cn

16. CONTINUATION PATTERN

Bullish Cup & Handle
In An Up Trend

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CONTINUATION PATTERN

Description:

The Cup & Handles a Iongertem bush continuation pate
with a consolidation period, followed by an upward breakout
upon the completion of the pattern. This formation can range
from several months to a year.

Features:

The Cup & Handle pattern starts with an upward trend which is
followed by a decine then a pause (sideways consoldaion)
over an extended period of time before rallying to the previous
high. This shape resembles that of a ‘U’. At the high, the price
will retrace by a third of the previous raily before revisiting the
previous high once more. This part forms the handle of the cu
À break above the resistance with strong volumes is a signal fo
BUY.

Psychology:
After a strong rally, the upward momentum fades as investors

realize that the price has reached a critical high. This brings in
the Sellers who force the price down. With no clear sentiment,
the security consolidates in a sideways trend. After an extended
period of time, nervous Short Sellers will start covering their
short positions. This gives the initiative back to the Buyers who
sense that the price has stabilized enough for another bull run.
The Buyers again push the price higher. Once it reaches the
previous (critical) high, short-term Bulls will start profit taking
‘This profit taking sends the price down slightly. But as volumes
increase, downside momentum fades, thus confirming Bullish
conviction. The price then breaks above the critical resistance
and continues to higher high.

Price Target:

The price target is derived by adding the vertical height of he
up fom the right peak tothe bottom ofthe cup (Point minus
Point A) to the breakout point.

For example, if the price movement from Point A to Point B is
5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E.

oni Pt eye

17. CONTINUATION PATTERN

Bearish (Inverse) Cup & Handle
In A Down Trend

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CONTINUATION PATTERN

Description

The Inverse Cup & Handle is a longer-term bearish continuation
pattern with a consolidation period, followed by a downward
breakout upon the completion of the pattern. This formation can
range from several months to a year.

Features:

The Inverse Cup & Handle pattern is preceded by a downward
trend followed by a rise then a pause (sideways consolidation)
over an extended period of time before falling to the previous
low. This shape resembles that of an inverted ‘U’, At the low,
the price will retrace upward by a third of the previous decline
before revisiting the previous low once more. This partforms the
inverse handle of the cup. A break below the support with strong
volumes signals a SELL.

Psychology:
After a strong downward movement, the momentum fades as
investors realize that the price has reached a critical low. This

brings inthe Buyers who fore he pice higher. The price then

consolidates sideways with no clear trend. After an extended
period of time, impatient Buyers will leave the trade. Back come
the Sellers who feel that the price has stabilized enough for a
Bearish initiative. The Sellers again push the price lower. Once
it reaches the previous (critical) low, the Short Sellers start
covering their short positions. The short covering pushes the
price up sight, But as volumes increase, upside momentum
fades indicating Bearish conviction. The price then breaks below
the critical support and continues to head lower.

Price Target:

The price target is derived by subtracting the vertical height of
the cup from the right trough to the peak of the cup (Point A
minus Point B) from the breakout point.

For example, if the price movement from Point A to Point B is

5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

oni Pt dr y Cn

18. CONTINUATION PATTERN

Falling Wedge
In An Up Trend

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CONTINUATION PATTERN

Description:

A Falling Wedge is a reliable longer-term pattern for continuing
the prevailing up trend. This pattern usually takes three to six
months to form

Features:
AFalling Wedge is formed by two converging trendlines sloping
downwards. It begins wide and narows as the price moves lower.
The upper trend line should have a steeper slope than the lower
trend line. The price usually trades within this range which is
characterized by lower highs and moderately lower lows. As the
Wedge forms, volumes wane. Once it breaks above the higher
trend line, ¡ts a BUY signal which is often accompanied by a
surge in volumes.

Psychology:

After an extended rally, momentum starts to wane and the price
starts to move in a narrowing range for traders to catch their
breath. With no clear trend in sight, fear develops amongst the
bullish investors. They begin selling off their positions, bringing
the price gradually lower. After a while, selling pressure declines
and the price stabilizes to create a shallower lower trend line
Volumes tend to be light as this pattern forms. Upon breaking
out, the security will continue to advance upwards, supported
by heavier volumes.

Price Target:
The price target is derived by adding the vertical height of the
Wedge (Point B minus Point A) to the breakout point,

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E

oni Pt dr y Cn

19. CONTINUATION PATTERN

Rising Wedge
In A Down Trend

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CONTINUATION PATTERN

Description:

ARising Wedge is a reliable longer-term pattern for continuing
the prevailing down trend. This pattern usually takes three to six
months to form

Features:

A Rising Wedge is formed by two converging trend lines sloping
upwards. It begins wide and narrows as the price moves higher.
The lower trend line has a steeper slope than the upper trend
line. The price usually trades within this narrowing range which
is characterized by moderately higher highs and higher lows. As
the Wedge forms, volumes wane. A break below the supporting
trend in is often accompanied by heavy volumes which signal
a

Psychology:

After a strong downward price movement, momentum fades,
fear and greed sets in and the price starts to move in a narrow
range for traders to catch their breath. There is no clear trend
in sight. Speculators begin to buy in. This rallies the price level
slightly higher. As time passes, buying pressure declines which
leads to price stabilization and creates a shallower higher trend
line. Volumes tend to be light as this pattern forms. Upon the
breakout, the price will begin to falter and decline drastically
with strong volumes.

Price Target:
The price target is derived by subtracting the vertical height of
the Wedge (Point B minus Point C) from the breakout point.

For example, if the price movement from Point B to Point C is

5 points, subtract 5 points from the breakout point (Point E) to
get the price target of Point F.

oni Pt dr y Cn

20. CONTINUATION PATTERN

Bullish Rectangle
In An Up Trend

ai een ned ya in

CONTINUATION PATTERN

Description:

Rectangles are trading range patterns which form as a pause
in a trend. It is one of the most reliable continuation patterns in
an up trending market.

Features:
A Rectangle pattern is formed during a pause in a trend. After
the security rallies to a high, it starts to consolidate in a trading
zone. Itis identifiable by two comparable highs (which serve as
the resistance line) and two comparable lows (which act as the
supportline). Volume patterns are not reliable while the security
gyrates between the support and resistance levels. However,
volumes do expand drastically upon the breakout. A breakout
above the resistance line, with heavy volumes confirms a BUY
signal.

Psychology:

Rectangles are indecision trends represented by a flat trading
range which pits the Bulls against the Bears. When the price
rises to the resistance level, Sellers enter the market to force
the price down. As it reaches the support level, the Buyers take
over, pushing the price higher as the Sellers retreat. Buyers and
Sellers seem to be equally matched as the security vacillates
between two clearly set parameters until one group exhausts
itself. A winner emerges when there is a breakout.

Price Target:
The price target is derived by adding the vertical height of the
rectangle (Point A minus Point B) to the breakout point.

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point E) to get the
price target of Point F.

oni Pt dr y Cn

21. CONTINUATION PATTERN

Bearish Rectangle
In A Down Trend

ai een ned ya in

CONTINUATION PATTERN

Description
Rectangles are trading range pattems which form as a pause
in a trend. It is one of the most reliable continuation patterns in
an down trending market.

Features:

A Rectangle pattern is formed during a pause in a trend. After
the price declines to a low, it starts to consolidate in a trading
zone. It is identifiable by two comparable lows (which serve as
the support line) and two comparable highs (which act as the
resistance line). Volumes are not reliable while the security
gyrates between the support and resistance levels. However,
volumes do expand drastically upon the breakout. A breakout
below the support line, with heavy volumes confirms a SELL
signal.

Psychology:
Rectangles are indecision trends represented by a flat trading
range which pits the Bears against the Bulls. When price falls
to the support level, Buyers tend to push the price higher. As it
reaches the resistance level, the Sellers take over to force the
price back down while the Buyers retreat. Sellers and Buyers
seem to be equally matched as the security vacillates between
two clearly set parameters until one group exhausts itself. A
winner emerges when there is a breakout.

Price Target:
The price target is derived by subtracting the vertical height of
the rectangle (Point B minus Point A) from the breakout point.

For example, if the price movement from Point A to Point B is

5 points, subtract 5 points from the breakout point (Point E) to
get the price target of Point F.

oni Pt dr y Cn

22. REVERSAL PATTERN

Bullish Ascending Triangle
In A Down Trend

ai een ned ya in

REVERSAL PATTERN

Description:

Ascending Triangles in a down trend are reliable bullish reversal
patterns that indicates accumulation. The time frame for this
formation can range from a few weeks to three months.

Features:
Ascending Triangles have a flat resistance line with equal highs
andan upward-sloping support line with higher lows. At the end
of a down trend, the price rallies to a new high. The rally hits a
resistance and pulls back to a higher low. Once again, the price
will retrace to the previous high where the same resistance will
send the price down into another correction. This goes on a few
times with each correction making a low that's higher than the
previous low. The resistance prevents any higher highs from
correspond to the higher lows. Volumes tend to be light as the
pattern develops. A break above the resistance line is a BUY
signal as the initial trend has reversed. The breakout is offen
accompanied by strong volumes

Psychology:

After a strong move downwards, momentum stalls and the price
reverses as demand seems to have exceeded supply. This will
prevent the price from sinking lower. At the high, the price starts
to retrace to reach a reaction low. Buyers start coming in again
to drive the price up to the recent high (resistance). Once again
itis rebuffed by aggressive Sellers. This push and pull between
Buyers and Sellers goes on for a while. As soon as the Sellers
lose interest and run out of stock to sell, the Buyers wil take the
initiative to push the price higher. The higher lows indicate an
accumulation that leads to a spectacular price breakout which
is often accompanied by strong volumes,

Price Target:
The price target is derived by adding the widest vertical height
of the triangle (Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point B is
5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E

oni Pt a y Cn

23. REVERSAL PATTERN

Bearish Descending Triangle
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description:

Descending Trangles in an up trending market are Bearish
reversal patterns that indicate distribution. The time frame for
this formation can range from a few weeks to three months.

Features:

Descending Triangles are formed against a flat support line with
equal lows and a downward-sloping resistance line with lower
highs. After a bull run, the price drops to a point where Buyers
start coming in, creating a support to rally the price up again.
Sellers then re-enter the market to test the previous low. Once
again, they face that support and the price promptly retraces to
a high that is lower than the previous high. Thisis repeated until
the price is unable to hold above the support level. inevitably, it
breaks below. Volumes tends to be lightas the pattern develops.
Once the price breaks below the support ine, ¡ts a SELL signal.
The initial up trend is now reversed, sending the price lower on
strong volumes

Psychology:

After a strong upward move in price, momentum starts to fade
and price moves lower as supply exceeds demand which stops
the price from moving higher. As the price pulls back to a low,
Buyers il again drive the price up higher, albet toa lower high
than the previous high, where they are once again rebuffed by
aggressive Sellers. This fight between Sellers and Buyers goes
on fora while. But once the Buyers start to back off, the Sellers
will seize the initiative to send the price lower. The lower highs
indicate distribution and selling pressure that usually leads lo a
spectacular price breakout supported by strong volumes.

Price Target:
The price target is derived by subtracting the vertical height of
the triangle (Point A minus Point B) from the breakout point

For example, if the price movement from Point A to Point Bis
5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

oni Pt dr y Cn

24. REVERSAL PATTERN

|
Woy!

Falling Wedge
In A Down Trend

ai een ned ya in

REVERSAL PATTERN

Description:
A Falling Wedge is a reliable long-term pattern for reversing a
down trend into an up trend. This pattern usually takes three to
six months to form.

Features:

A Falling Wedge is formed with two converging trendlines on a
downward slope. Itbegins with a wide range that narrows as the
price moves lower. The upper trend line should have a sharper
slope than the lower trend line. The price trades within a range
which is characterized by lower highs and lower lows. Volumes
contract as the pattern forms. Once it breaks above the upper
trend line with heavy volumes, it's a BUY signal.

Psychology:

After an extended down trend, momentum starts to wane. The
trend changes and begins moving along anarrow range as if for
traders to catch their breath. Without a clear trend, Short Sellers
still hanging on to their positions will start getting nervous and
begin covering their short positions, thus bringing the price abit
higher. As time passes, selling pressure declines which leads to
price stabilization, thus creating a shallower lower trendline. As
this pattern forms, volumes tends to dwindle. Upon the breakout,
heavy volumes retum to help the price higher into an uptrend.

Price Target:
The price target is derived by adding the vertical height of the
wedge (Point B minus Point À) to the breakout point.

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E

oni Pt dr y Cn

25. REVERSAL PATTERN

Rising Wedge
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description

A Rising Wedge is a reliable long-term pattern for reversing an
up trend into a down trend. This pattern usually takes three to
six months to form

Features:

A Rising Wedge is formed with two converging trend lines on an
upward slope. It begins with a wide range that narrows as the
price moves higher. The lower trendline should havea steeper
slope than the upper trend line. The price trades within this range
which is characterized by higher highs and higher lows. Volumes
contract as the pattern forms. Once it breaks below the lower
trend line with heavy volumes, it's a SELL signal

Psychology:

‚After a strong rally, upward momentum starts towane. The trend
changes and begins moving along a narrow range fortraders to
catch their breath. Without a clear trend, speculative Buyers
rally the price slightly higher. As time passes, buying pressure
declines which leads to price stabilization, creating a shallower
higher trend line, Volume tends to be lightas this pattem forms.
Upon the breakout, the faltering price declines drastically with
strong volumes encouraging the sell-off

Price Target:
The price target is derived by subtracting the vertical height of
the wedge (Point A minus Point B) from the breakout point.

For example, if the price movement from Point A to Point B is

5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

oni Pt dr y Cn

26. REVERSAL PATTERN

F

17

Double Bottom
In À Down Trend

ai een nr ya in

REVERSAL PATTERN

Description:

Double Bottoms are one of the most common and highly reliable
patterns for reversing a down trend into an up trend. Itis usually
an intermediate to long term pattern andis easily recognized as
it resembles the letter VW:

Features:
The Double Bottom is formed with two consecutive troughs of
similar height. Prior to the formation of the pattern, the security
would have been trending downwards with an extended decline
to a new low (first trough). This is followed by a pull back to a
high where it stalls. The price then starts to reverse and edge
lower, moving down to the support formed by the first trough.
At this support level (second trough), if it refuses to break to a
new low, demand will overpower supply to force the price to rise
once more. A break above the resistance at the previous high
signals a BUY. Volumes tend to expand with the advance from
the second trough. A break above the resistance brings heavier
volumes that confirm the Double Bottom reversal.

Psychology:

After an extended decline toa new low, Buyers will feel that the
security is underpriced. This brings on a rash of investors who
prematurely rally the security. This creates the first trough. Once
itreaches a high, the rally will stall and start a correction that
will revisit the low of the first trough. At the low, more Buyers
begin accumulating which leads the price to rally again. As the
rally gathers momentum, the price breaks above the resistance
as a confirmation that the Bulls are fully in control.

Price Target:
The price target is derived by adding the vertical height of the
trough (Point B minus Point À) to the breakout point.

For example, if the price movement from Point A to Point B is

5 points, add 5 points to the breakout point (Point D) to get the
Price target of Point E.

oni Pt dr y Cn

27. REVERSAL PATTERN

Double Top
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description

Double Tops are amongst the most common and highly reliable
patterns for reversing an up trend intoa down trend, Itis usually
an intermediate to longterm pattern and easily recognized as
it resembles the letter M

Features:

The Double Top is formed with two peaks of similar height. After
trending upwards, the security makes a new high (first peak) and
promptly pulls back to a low. The price then reverses and edges
up again, back to the resistance formed by the first peak. Upon
facing the resistance (second peak) and failing to break to a new
high, supply overpowers demand and the price collapses. Once
it breaks below the support ine formed by the initial pull back,
its a SELL signal. Volumes tend to expand with the decline from
the second peak and upon breaking below the support line,
heavier volumes confirm the Double Top reversal.

Psychology:

After an extended rally to a new high, Buyers begin to feel that
the security is overpriced. This doubt prompts the price to fall,
which creates the first peak. Once it reaches a level where the
price stabilizes, itwill begin another gradual move up to test the
high of the first peak. However, Sellers will overrun the Buyers
at this level as some Bulls will profit take out of fear and more
traders start shorting out of greed. This leads the stock price to
decline yet again. As the price deteriorates further and breaks
below the support line, this confirms that the Bears are fully in
control

Price Target:
The price target is derived by subtracting the vertical height of
the peak (Point A minus Point B) from the breakout point.

For example, if the price movement from Point A to Point B is
5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

oni Pt dr y Cn

28. REVERSAL PATTERN

Triple Bottom
In A Down Trend

ai een ned ya in

REVERSAL PATTERN

Description:

The Triple Bottom is very similar in nature to the Double Bottom
except that there are three distinctive troughs instead of two. It
is a longer-term pattern which can take a few months to form.

Features:
The Triple Bottom is formed with three troughs of similar depth
Prior to the formation of the pattern, the security would have
been trending downwards into a huge decline to establish anew
low (first trough). The price then makes a retracement to a high
and promptly reverses to edge lower again, dropping back to the
support formed by the first trough. This down-up action repeats
three times. Upon facing the support for a third time and being
unable to break to a new low, demand will have exceeded supply
and the price will rise yet again. A break above the resistance
formed by the Triple Bottom pattern signals a BUY. As the pattern
develops, overall volumes tend to dip but will increase near the
troughs. At the third trough, a surge of volumes together with the
break above resistance confirms the Triple Bottom pattern

Psychology:

After an extended down trend to a new low, buying pressure will
stall the trend and drive prices up moderately. Upon reaching a
level ofresistance, Sellers will re-emerge to drive the price down
to the previous low. Once again, Buyers will test the Sellers by
pushing the price back up to the resistance level. This goes on
three times. When the Sellers get exhausted, the Buyers seize
the initiative to drive the price to a new high. A break above the
resistance with heavy volumes confirms Bullish commitment.

Price Target:
The price target is derived by adding the vertical height of the
trough (Point B minus Point A) to the breakout point.

For example, if the price movement from Point A to Point B is
5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E

oni Pt dr y Cn

29. REVERSAL PATTERN

Triple Top
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description:

The Triple Top is very similarin nature to the Double Top except
that there are three distinctive peaks instead of two. It is a long
term pattern which can take a few months to form.

Features:
The Triple Top is formed with three peaks of similar height. The
formation begins with a rally to a new high (first peak) followed
by a pull back to establish a support. The price reverses again
to re-test the resistance formed by the first peak. The test fails
and the price declines again. This up-down action is repeated
three times. Upon facing the resistance a third time and being
unable to break to a new high, demand subsides and the price
falls. Once it breaks below the support line formed by the Triple
Top pattern, i's a SELL signal. As the pattern develops, overall
volumes tend to dip. Sometimes they increase near each peak.
After the third peak, an explosion of volumes together with a
break below the support confirms the Triple Top pattern

Psychology:

After an extended rally to a new high, the up trend is stalled by
selling pressure which drives the price down moderately. Once
the price finds a level of support, Buyers re-emerge to drive the
price upto the previous high where once more, selling pressure
forces the price back down to the support level. After repeating
this three times, the Buyers lose faith, give up the fight and start
profit taking. The Sellers seize the initiative to short the security
which deteriorates the price further to break below the support.
Heavy volumes at the breakout confirms a SELL signal.

Price Target:
The price target is derived by subtracting the vertical height of
the peak (Point A minus Point B) from the breakout point.

For example, if the price movement from Point A to Point B is
5 points, subtract 5 points from the breakout point (Point D) to
get the price target of Point E.

oni Pt dr y Cn

30. REVERSAL PATTERN

Inverted Head & Shoulders
In A Down Trend

ai een ned ya in

REVERSAL PATTERN

Description:
The Inverted Head & Shoulders is one of the most common and
highly reliable patterns that reverses a down trend into a rally.

Features:
The Inverted Head & Shoulders pattern consists of three troughs.
The center trough is deeper than its flanking troughs. It starts in
a down trend that makes a new low and then reverses to a high
to form the inverted left shoulder. A second decline sends the
price to a lowerlow and retraces back to the resistance level to
create the neck line. The inverted right shoulder is formed by a
third decline to a higher low than the inverted head. Once the
price moves higher and breaks above the neck line (resistance),
its a BUY signal. Volumes tend to be heavy at the inverted left
shoulder trough, declines as the inverted head is completed and
lightest at the inverted right shoulder. A break above the resis-
tance is accompanied by a surge in volumes.

Psychology:
After a huge decline to a new low, Buyers start coming in at the
low (left shoulder) to rally the security. Not long after, the Sellers
return on increased pessimism to force the price to a new low
(inverted head). The new low is quickly rejected and a rally to
the resistance level follows, indicating an imbalance between
Buyers & Sellers. Tentative selling then drags the price down
once more, fails to match the previous low andretraces upward.
With each successive trough, volumes weaken, indicating that
selling pressure is drying up. The new lower prices encourages
Buyers to accumulate. A break above the neck line confirms the
reversal

Price Target:
The price target is derived by adding the vertical height of the
inverted head to the neck line (Point D minus Point C) to the
breakout point.

For example, if the price movement from Point C to Point D is
5 points, add 5 points to the breakout point (Point F) to get the
price target of Point G

oni Pt dr y Cn

31. REVERSAL PATTERN

Head & Shoulders
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description

The Head & Shoulders pater is one of the most common and
highly reliable patterns that signals a reversal from an up trend
into a down trend

Features:

The Head & Shoulders consists of three peaks. The center peak
(the head) is higher than its flanking peaks (the shoulders). It
starts witha strong rally that tops out at a high and retraces to
form the left shoulder. The correction stalls and establishes a
support (neck line) before rallying again to form a higher high
(the head). Another correction follows. At theneckline, it rallies
again but is unable o make a higher high than the let shoulder
The security retraces a last time to form the right shoulder. A
break below the neck line is a SELL signal. Volumes tend to be
heavy as the left shoulder peak forms. Volumes then decline as
the headis completed. A break below the support after the right
shoulder is usually accompanied by a surge in volumes.

Psychology:

After an extended rally to a new high, selling pressure forces
the price down (left shoulder). Not long after, Buyers re-emerge
on renewed optimism to push the price to new high (head).
Profittaking at the new high sends the price reeling again. With
the neck line providing support, tentative buying pushes the
rice up once more. But the strength of this rally falters as it
fails to match the previous high. Declining volumes at each
successive peak signals the declining interest amongst the
Buyers. When more profit taking occurs, Sellers will seize the
opportunity to force the price below the neck line. Increased
volumes at the break out signals a SELL.

Price Target:
Te pice target is derived by subtracting the vertical height of
the head t the neckline (Point C minus Point B) from the break
out point. For example, if the price movement from Point B to
Point C is 5 points, subtract 5 points from the break out point
(Point F) to get the price target of Point G.

oni Pt dr y Cn

32. REVERSAL PATTERN

Rounding Bottom
In A Down Trend

ai een ned ya in

REVERSAL PATTERN

Description:

The Rounding Bottom (also called a Saucer Bottom) is a long
term, bullish reversal pattern after a consolidation period. This
is followed by a gradual upward break out upon the completion
of the pattern. This formation can range from several months
toa year.

Features:
The Rounding Bottom pattern is preceded by a downward trend
into a consolitaion (sideways trend) over an extended period of
time before rallying to the previous high. This shape resembles
a Cup & Handle without the handle. The time frame of the prior
high to the long term low is approximately half the distance of
the entire Rounding Bottom pattern. After the completion of the
pattern, the security moves higher and gradually breaks above
the resistance in unspectacular fashion. This break out, accom-
panied by strong volumes, is a BUY signal.

Psychology:

After a strong downward movement, momentum starts to wane
as Sellers lose confidence. The price then moves sideways with
no commitment from either the Bulls or the Bears. An extended
period of consolidation wears the weaker investors out, Buyers
will begin to feel that the price level has stabilized and will start
accumulating large positions for the longer term. This gradually
pushes the price higher. As volumes continues to increase, the
Upside momentum gains confidence, an indication of Bullish
conviction which surges the price to new highs.

Price Target:

Generally, Rounding Bottoms do not have specific price targets
as the pattern is meandering.

oni Pt dr y Cn

33. REVERSAL PATTERN

Rounding Top
In An Up Trend

ai een ned ya in

su]

N

REVERSAL PATTERN

Description

The Rounding Top (also called a Saucer Top) is a longer-term,
bearish reversal pattern after a consolidation period. This is
followed by a downward break out upon the completion of the
pattern. This formation can range from several months toa year.

Features:
The Rounding Top pattern is preceded by an upward trend into
consolidation (sideways trend) over an extended period of time
before falling to the previous low. This pattern resembles the
Inverse Cup & Handle without the handle. The time frame of the
prior low tothe long term high is approximately half the distance
of the entire Rounding Top pattern. After the completion of the
pattern, the security moves lower and gradually breaks below
the support in unspectacular fashion. This break out is often
accompanied by strong volumes and is a signal to SELL

Psychology:

After a strong upward movement, momentum wanes as Buyers
hesitate in fear. The trend then goes sideways over an extended
period of consolidation which tires the weaker investors. Buying
sentiment evaporates, profit taking leads into a sell-off and New
Sellers emerge to short sell the security which gradually sinks
the price lower. As volumes continue to increase, the downside
momentum gains pace and signifies the conviction of the Bears.
The price plunges and makes new lows

Price Target:

Generally, Rounding Tops do not have specific price targets as
the pattern is meandering.

oni Pt dr y Cn

34. REVERSAL PATTERN

Broadening Bottom
In A Down Trend

ai een ned ya in

REVERSAL PATTERN
Description:

A Broadening Bottom is an unusual consolidation pattern that
has increasingly wider ranges and greater volatility that reverses
a down trend into an up trend.

Features:

A Broadening Bottom is formed with two trend lines. The pattern
resembles a megaphone-shaped price trend, where the lower
trend line slopes downwards and the upper trend line slopes
upwards. Thus, prices trend downwards while at the bottom of
the pattern and trend upwards while at the top of the pattern
Each correction makes lower lows and each upward retracement
makes higher highs. This gives the pattem its broadening range
Prices should touch both rend Ines atleast twice. Towards the
end of the pattern, Volumes tend tobe light as the security dips
but this decline is normally short-lived. Momentum usually picks
up after the price hits a low and bounces up. A break above the
upper trend line warrants a BUY. This is often accompanied by
heavier volumes.

Psychology:

After a sell-off to a new low, the price stabilizes and retraces to
an intermediate resistance level. After a period of increased
optimism, Sellers will start coming in to drag the price down to
yet another new low. And as the price declines to a new low,
Buyers will fel that the price has been beaten down and decide
to rally the security again. This sends the price up through the
intermediate resistance level. Upon a negative catalyst, the
price sinks to a third new low. After some time, fear fades and
the price sablizs. Seles start covering thet shor postions
as Buyers start accumulating again. This Teads to another rally
that drives the price above the resistance level. The pattern is
completed and the BUY signal is issued when the price breaks
above the upper trend line.

Price Target:

The price target is derived by adding the vertical height of the

Broadening Bottom (Point D minus Point E) to the break out

point For example the price movement from Point to Point
is 5 points, add 5 points to the break out point (Point F) to

get the price target of Point G.

oni Pot lo uni

35. REVERSAL PATTERN

Broadening Top
In An Up Trend

ai een ned ya in

REVERSAL PATTERN
Description:

À Broadening Top is one of the unusual consolidation patterns
with increasingly wider ranges and increasing volatility that
reverses an up trend into a down trend.

Features:

A Broadening Top is formed with two trend lines. This pattern
resembles that of a megaphone where the upper trend line
slopes upwards while the lower trend line slopes downwards.
Thus, prices trend upwards while at the top of the pattern and
they trend downwards while at the bottom of the pattern. Each
upward retracement makes higher highs and each correction
makes lower lows. This gives the pattern its broadening range
Prices should touch both trend lines at least twice. Towards the
end of the pattern, volumes tend to increase as the price rises.
This rally isnormaily short-lived as the momentum will fade and
quickly retrace to break below the lower trend line. This break
below is a SELL signal and is often accompanied by heavier
volumes.

Psychology:

After a rally to a new high, momentum stalls which brings the
price down to an intermediate support level. After a period of
slow trading, Buyers start coming in to push the price up to yet

another new high on increased volumes. As the price surges to
a new high, Sellers will start to sell off once again and the price
declines through the intermediate support level. At this new low,
renewed optimism sends the price to a third new high. After a
while, the euphoria wanes without reason. Profit taking begins,
fear and panic kicks in and the price inevitably collapses. Once
the pattern is formed and the price breaks below the lower trend
line, its a SELL signal

Price Target:
The price target is derived by subtracting the vertical height of
the Broadening Top (Point E minus Point D) from the break out
point. For example, the price movement from Paint Do Point

is $ points, subtract 5 points from the break out point (Point
F) to get the price target of Point G

men Poon te y Cn

36. REVERSAL PATTERN

Broadening Descending Wedge
In A Down Trend

ai een ned ya in

REVERSAL PATTERN
Description:

The Broadening Descending Wedge is an unusual consolidation
pattern that reverses a down trend into an up trend within a range
that slowly increases with higher volatility

Features

A Broadening Wedge is formed within two trend lines much like
an Inverted Wedge where the lower trend line slopes downwards
as the upper trend line slopes away. The range is narrow at the
start of the pattern and considerably wider ai the end because
the pattern makes lower lows at the bottom in a trend that seems
to be declining while the highs do not make relatively lower highs.
Prices have to touch the lower and higher trend lines at least two
times during the formation of the pattern. Volumes are usually
light as the price falls but this decline is normally short-lived as
the upside momentum picks up after each dip. As the range gets
wider corrections get quicker and volatility increases. A break out
above the upper trend line accompanied by heavier volumes at
the widest part of the pattern is a signal to BUY.

Psychology:
After a sell-off to a new low, the price stabilizes and retraces to
an intermediate resistance level. With renewed confidence, the
Sellers drag the price down to a new low. At this new low, Buyers
will bargain hunt and this sends the price up beyond the previous
intermediate resistance level. Doubt and greed now prompts the
Buyers into profit taking. The Sellers see this as their chance to
short sell and this sinks the price to a third new low. After some
time, rationality stabilizes the price which forces the Sellers to
cover their short positions. The Buyers seize the initiative Lo rally
strongly and break above the resistance level. A break above the
upper trend line completes the pattern and confirms the reversal

Price Target:

The price target is derived by adding the vertical height of the
Broadening Wedge (Point D minus Point E) to the break out point
For example, if the price movement from Point D to Point E is 5
points, add 5 points to the break out point (Point F) to get the
price target of Point G

oni Pt dr y Cn

37. REVERSAL PATTERN

Broadening Ascending Wedge
In An Up Trend

ai een ned ya in

REVERSAL PATTERN

Description

The Broadening Ascending Wedge is an unusual consolidation
pattern that reverses an up trend into a down trend within a range
that gradually increases with higher volatility.

Features

A Broadening Wedge forms within two trend lines like an Inverted
Wedge where the upper trend line slopes upwards as the lower
trend line slopes away. The range is narrow at the start of the
pattern and considerably wider al the end. This is because the
pattern consistently makes higher highs at the tops in a trend
that appears to be rising while the lows do not make relatively
higher lows. Prices have to touch the upper and lower trend lines
at least twice during the formation of the pattern. Volume usually
increases as the price rises but this rally is normally short-lived
as the momentum fades rather quickly. As the range gets wider,
corrections get quicker and volatility increases. At the widest part
of the pattern, a break below the lower trend line, accompanied
by heavier volumes is a signal to SELL.

Psychology:

After arally to a new high, momentum stalls and brings the price
down to an intermediate support level. A period of slow trading
encourages Buyers to push the price up on increased volumes.
As the price surges to a new high, Sellers emerge to profit take
or short sell and the price dips beyond the intermediate support
level, deeming it oversold. Upon seeing higher highs and lower
highs, late and novice Buyers send it back up to a third new high
After some time, the euphoria wanes and higher volatility breeds
fear. A sell-off ensues, fear and doubt kicks in, panic takes over
and the price collapses. The pattern is complete when the price
breaks below the lower trend line

Price Target:

The price target is derived by subtracting the vertical height of
the Broadening Wedge (Point E minus Point D) from the break out
point. For example, if the price movement from Point D to Point
E is 5 points, subtract 5 points from the break out point (Point F)
to get the price target of Point G.

oni Pt dr y Cn

38. REVERSAL PATTERN

Diamond Bottom
In A Down Trend

ai een ned ya in

REVERSAL PATTERN
Description:

Diamond Bottoms are complex, hard to recognize but reliable
patterns for reversing a down trend into an up trend,

Features:

‘The Diamond Bottom forms with a combination of a Broadening
Bottom anda Symmetrical Triangle pattems. Prices broaden
out at the start of the pattern, reflecting higher highs and lower
lows like a Broadening Bottom. The price then narrows to form
lower highs and higher lows like the Symmetrical Triangle, At
the narrowest part of this pattern, a break above the resistance
level of the Symmetrical Triangle signals a BUY. Volumes dip
as the pattern is formed and expand upon the breakout.

Psychology:
After declining to a new low, the price consolidates. A catalyst
of some sort, often in the form of negative news/sentiment, dips
the price to new lows. Then suddenly, the price begins to spike
up. This could be due investors who feel that the security is now
underpriced. Their continued buying leads into blind euphoria.
Once optimism subsides, investors rationalize the overreaction
and promptly profit take at the recent high. Short sellers follow
suit. This sends the price to a second low. This is normally the
mostvolatile part and center of the pattern. At the low, the short
sellers cover their positions, volumes increase with demand and
the price starts another rally. The lower high prompts doubt
which leads into another round of profit taking. At the higher low
toward the end of the pattern, the Buyers and Sellers are non-
commital as they wait for another catalyst. Upon breaking above
and out of the Symmetrical Triangle, volumes will swell and the
reversal is complete.

Price Target:

The price target is derived by adding the vertical height of the
Diamond Bottom (Point B minus Point C) to the breakout point.
For example, if the price movement from Point B to Point C is
5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E.

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39. REVERSAL PATTERN

Diamond Top
In An Up Trend

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REVERSAL PATTERN
Description:

Diamond Tops are complex, rare and difficult to recognize but
are reliable patterns for reversing an up trend into a down trend

Features:

The Diamond Top forms with a combination of a Broadening
Top and Symmetrical Triangle patterns. The price broadens
out at the start of the patter, reflecting higher highs and lower
lows like a Broadening Top. The price then narrows to form
lower highs and higher lows like the Symmetrical Triangle. At
the narrowest part of this pattern, a break below the support
level of the Symmetrical Triangle signals a SELL. Volumes dip
as the pattern is formed and expand upon the breakout.

Psychology:

After a rally to a new high, the price consolidates. A catalyst of
some sort, often in the form of positive news/sentiment, sends
the price to new highs. Then suddenly, the price begins to drop.
This is largely because investors fee thatthe security is now
overpriced. Their continued selling leads into blind fear. Once
fear and panic subsides, investors rationalize the overreaction
and “buy the dip” at the recent low. Now short sellers will start
covering their positions and more Buyers help send the price
to a second high where rash profit taking brings the price back
down again. This is normally the most volatile part and center
of the pattern. At the low, short sellers again cover their short
positions, volumes decrease with doubt and the price make an
unconvincing and modest rally. The lower high prompts more
doubt which leads to another round of profit taking. At the low
toward the end of the pattern, the Sellers and Buyers are non-
commital, holding on for another catalyst. Upon breaking below
and out of the Symmetrical Triangle, volumes will swell and the
reversal is complete.

Price Target:

The price targets derived by subtracting the vertical height of

the Diamond Top (Point E minus Point D) from the breakout

point. For example, if the price movement ram PointD to Point
is points, subtract 5 points from the breakout point (Point F)

to get the price target of Point G

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40. REVERSAL PATTERN

V-Bottom Reversal
After A Down Trend

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REVERSAL PATTERN

Description:

V Bottoms are rare, easy to recognize and reliable patterns for
reversing a down trend into an up trend, This pattern can form
within a month or up to half a year.

Features:

The V Bottom, named so because of its distinct likeness to the
letter *V”, begins as a steady downtrend that has little volatility
The downtrend suddenly experiences a spike in volatility that
sends the price plunging down. Occasionally, the security may
pause for a little while before the plunge. At its lowest, there is
usually a gap down in the price trend which promptly reverses
with another gap in the opposite direction. The V Bottom rever-
sal is complete when the price breaks above the retracment
level where the security paused before plunging down.

Psychology:

After a steady decline, usually as a result of some long term
bearish sentiment, the more tolerant investors eventually grow
impatient and close out their long positions. This sudden rash
of selling encourages the short sellers to jump in for a quick
downside profit. At a critical or technical low, the short sellers
quickly cover their positions, prompting a buying sentiment that
Buyers quickly latch on to. Investors that recently dumped the
security now return with new optimism and the added carrot of
a beaten down price. The rally is supported by heavier volumes
as the price rises.

Price Target:
The price target is derived by adding the vertical height of the
V Bottom (Point B minus Point C) to the break out point.

For example, if the price movement from Point B to Point C is

5 points, add 5 points to the breakout point (Point D) to get the
price target of Point E.

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41. REVERSAL PATTERN

À |

Parabolic Reversal
After An Uptrend

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REVERSAL PATTERN

Description:
Parabolic Reversals are rather common but not easy to spot
but they are extremely reliable at reversing a very profitable
uptrend into a devastating and often, long term downtrend

Features:
Parabolic Reversals are not easily spotted because they begin
as an uptrend that would have been rising over a period of one
year to several years. On a short term chart like a three month
or six month chart, the trend looks innocent enough to make a
decent prof. However, upon changing the time-perspectve on
the chart to a long term one like three years, it becomes quite
apparent that the security is becoming over-euphoric and over-
bought. The higher the price rises, the more volatile the trend
becomes. Volumes also gain significantly as the security makes
higher highs. It now only needs one negative catalyst to create
a massive panic that inevitably sends the security into a dive.

Psychology:

After a long and volatile rally to historical highs, investors are
reaping in massive profits. As the trend rises higher, more profit
taking is evident and this creates more volatility. With every dip
in this uptrend, more Buyers get tempted into the investment. A
lot of these investors would be unaware of the Parabolic curve
thats forming on the long term chart as they, would normally
only use a medium term chart like six months. A negative cata-
lyst in the form of earnings, poor economic outlook, etc, is all i
takes to scare the profitable investors into locking in the profits.
Massive profit taking ensues followed by short selling to make
a quick profit from the sell-off. The selling becomes relentless
and irrational and soon, this once profitable investment is now
extremely volatile, unpredictable and unwanted

Price Target:

Parabolic Reversals will not have specific price targets as the
pattern becomes too volatile and unpredictable.

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