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Chart Patterns E-mail

Head and Shoulders

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

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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.

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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.

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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.

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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

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All Charts courtesy of Prophet Financial Systems, www.prophet.net

 

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