In trading, especially when opening, holding, and exiting a trading system, we must pay attention to the overall shape of the K-line. The following are several common and important K-line shape combinations that we have compiled. We hope that they will be of reference for your trading. Thank you!
Several points to note
(1) If the head and shoulders are not proportional, they should not be considered as head and shoulders tops (bottoms), and the operation strategy of head and shoulders tops (bottoms) should not be applied.
(2) In theory, the left shoulder of the head and shoulders top has the largest volume, followed by the head, and the right shoulder has the least. But this is not the case in all cases.
(3) Breaking through the neckline is an important condition for confirming the head and shoulders top (bottom)
(4) After the head and shoulders top (bottom) pattern is formed, the price breaks through the neckline, and the volume will reach a trough in the following short period of time. This is a manifestation of market hesitation. Afterwards, there is usually a process of pullback, which makes the price return to the neckline level.
Triple tops or bottoms are extremely rare patterns, which are only slightly different from the head and shoulders pattern. Its characteristic is that the height of the three peaks or valleys is almost the same. It is often difficult to tell whether a pattern is a head and shoulders pattern or a triple top. Fortunately, the two patterns represent the same meaning.
Double bottom reversal refers to two peaks formed at the top or bottom of the price, which is often called "M" type or "W" type reversal.
Double bottom reversal pattern does not necessarily mean a reversal of price. It is also possible that the price will rise in the process of falling back to the neckline due to the support of the support line. At this time, the price moves in the area between the support line and the previous two high points, forming a variety of patterns such as triple tops and triangles, but this possibility is very small.
The farther the distance between the two peaks, that is, the longer the time it takes to form the two tops and bottoms, the greater the potential for a double top reversal in the future, and the more drastic the fluctuations after the reversal.
The rise (fall) after the double peak pattern breaks through is 1-3 times the neck height of the pattern itself.
A standard triangle adjustment pattern contains 5 sides and 6 points. Each side is composed of a 3-wave structure, and in an ideal state, the running amplitude of each side is 61.8% of the previous side. Understanding the internal structure of the triangle will help us follow the market rhythm in time as the actual trend is gradually determined.