Head and Shoulders is a reversal
pattern from a bullish to a bearish trend. The pattern starts when the price
graph crosses the support line upwards before formation of the left shoulder,
and is completed once the graph crosses the support line downwards after
formation of the right shoulder. An Inverse Head and Shoulders is similar in
shape except that it is upside down and indicates reversal from bearish to
bullish trend
Triangles
A triangle is formed between converging support and
resistance lines. A negative sloping resistance line indicates a reducing level
of profit taking and/or more uncertainty about the value of the stock. With a
positive sloping support line the price levels are squeezed into a corner. Once
the support or resistance line is broken, pressure that has built up as a
result of uncertainty is released and a certain amount of momentum is added to
the price change in the direction of the breakout.
There are specific variations of triangles that are
detected separately, namely ascending and descending
triangles. An ascending triangle has a horizontal resistance line and a
descending triangle has a horizontal support line.
Channels
A channel is formed between parallel support and resistance
lines. This pattern usually indicates a relatively strong trend (up or down)
with the price staying within the lines until breakout. A breakout from a
channel indicates either a reversal in the trend or a change in the slope of
the current trend.
Rectangles
Similar to a channel, a rectangle is a pattern formed
between parallel support and resistance lines, however and additional
constraint is that the lines are horizontal.
Double Tops and Bottoms A double top looks like the letter "M". The twice touched high is considered a resistance level. A double bottom looks like the letter "W". The twice touched low is considered a support level
All Charts courtesy of Prophet Financial Systems, www.prophet.net
