1. Head and Shoulders (Bearish):
Description: This pattern consists of three peaks, with the middle peak (the "head") being higher than the two outer peaks (the "shoulders"). Once the price breaks below the neckline (connecting the two shoulder troughs), a bearish trend is confirmed.
Goodness: A reliable reversal pattern that indicates the end of an upward trend and the beginning of a downward trend. It's especially useful for predicting major market declines.
2. Cup and Handle (Bullish):
Description: This pattern resembles a rounded bottom followed by a slight downward consolidation (the "handle"). Once the price breaks out of the handle, it signals a bullish continuation.
Goodness: A strong continuation pattern for identifying upward momentum after a consolidation phase. It shows long-term potential for price increases, making it a favorite among traders.
3. Double Top (Bearish):
Description: This pattern forms two peaks at roughly the same price level, indicating a failure to break resistance. Once the price breaks below the support level formed between the peaks, a bearish reversal is confirmed.
Goodness: It is a highly accurate reversal pattern that signals the start of a downward trend after failing to break a key resistance level.
4. Double Bottom (Bullish):
Description: This pattern occurs after a downtrend and consists of two troughs (lows) at approximately the same price level, indicating strong support. Once the price breaks above the resistance level, a bullish reversal is confirmed.
Goodness: This is a highly reliable reversal pattern indicating that the downward pressure is exhausted and buyers are taking control.
5. Triangle Patterns (Bullish and Bearish):
Ascending Triangle (Bullish): Shows higher lows with a flat resistance line. A breakout above the resistance confirms a bullish move.
Descending Triangle (Bearish): Lower highs with a flat support line. A breakdown below the support signals a bearish trend.
Goodness: Ascending triangles are great for spotting bullish continuations, while descending triangles are valuable for predicting bearish breakdowns.
6. Flag (Bullish):
Description: This pattern forms after a strong price movement, followed by a brief period of consolidation in a parallel channel (flag). The breakout in the direction of the initial trend signals continuation.
Goodness: A powerful continuation pattern that confirms strong momentum and often leads to significant price movement.
7. Wedge (Bearish):
Description: A wedge pattern shows converging trendlines where the price moves in a narrowing range. A breakdown below the support line signals a bearish move.
Goodness: An effective reversal pattern that warns of weakening upward momentum and potential trend reversal to the downside.
8. Pennant (Bullish):
Description: Similar to the flag, this pattern forms after a significant price movement, with the price consolidating in a triangular formation. A breakout in the direction of the previous trend signals continuation.
Goodness: A very strong bullish continuation pattern that follows a sharp price rally, confirming further gains in the direction of the trend.
Each of these patterns provides valuable insights into market behavior and trend shifts. By mastering their identification and application, traders can make more informed decisions regarding entry and exit points in trades.
