Login
Password

Forgot your password?

Basic Candlestick Formations for Chart Pattern Traders

By Edited Sep 25, 2016 3 3

Chart Patterns

Let's look at the popular chart patterns...

Trading using chart patterns or candlestick formations are an excellent way to gauge the market sentiment. Plenty of times, these patterns repeat themselves over and over again, therefore creating an edge that plays out in your favor over the long run.

So we are going to discuss some of the popular chart patterns for traders:

  1. Bull and Bear Flag
  2. Double Top and Bottom
  3. Falling and Rising Wedge
  4. High and Low Base Breakout
  5. Symmetrical Triangle Breakout
  6. Head and Shoulders/Inverted Head and Shoulders

Bull and Bear Flag

A waving flag in the wind...

Bull Flag

The bull flag is a chart pattern that has a bias to the long side. It is telling you people are buying up the underlying stock, and it is poised for a breakout soon. 

 

Bull Flag

Bear Flag

The bear flag is similar to the bull flag, but with a bias to the short side. It is letting you know that the bears are taking control. 

 

Bear Flag

These two patterns are usually continuation patterns to a move that started by a strong breakout. They can also be a initiation of a big move coming ahead. 

Steve Nison Courses

Japanese Candlestick Charting Techniques, Second Edition
Amazon Price: $100.00 $47.87 Buy Now
(price as of Sep 25, 2016)
A great book to hone your charting skills and make more money in the long run trading stocks or forex.

Double Top and Bottom

Signs of Reversal?

Double Top

Double Top is a classic reversal pattern used to determine if the move is ending. There is a lack of new buyers coming in, and the sellers are losing their shirt and giving up, causing in a shift between supply and demand.

Double Top

Double Bottom

Double bottom is the opposite the Double top. It could signal a potential reversal coming soon. The buyers are losing their shirt, and there are no more sellers selling it short, hence causing a shift in supply and demand.

Double Bottom

These reversal chart patterns are useful to determine if a potential move could be over, but I would be careful using them as the only signal to take a position. These patterns are just signals to tell you a new move could happen, or it could also just be a false signal.

Falling and Rising Wedges

A continuation Chart Pattern

Falling Wedge

This pattern is a continuation pattern usually, informing you that a move could be imminent and one should proceed with a position if there is other evidence present to support the move. It could be a moving average crossover or some indicator to help confirm the move. A falling wedge can appear in both bullish and bearish moves.

 

Falling Wedge

Rising Wedge

The Rising Wedge is the opposite of the Falling Wedge. It is usually found in continuation moves as well. The common factor among both patterns it that they tend to pinch together. Stocks hate to be squeezed. The tighter and longer the squeeze, the stronger the breakout when it happens.

Rising Wedge

High and Low Base Breakout

High Base

This is usually formed after a lot of buying pressure from the buyers. It looks like a nice little rectangle, and a breakout usually occurs when it moves higher above the top of the high formed in the base.

High Base

Low Base

This is usually formed after intense selling. Buyers and sellers are deciding whether they would like to take part in the next move. This also signifies indecision until either side makes up their mind. Once they do, a breakout or breakdown will occur.

Low Base

 

Symmetrical Triangle

These can break either way...

Symmetrical Triangles are also a consolidation move. Buyers and sellers are extremely indecisive, cause a squeeze to happen. The longer the consolidation, the stronger the breakout or breakdown would be. 

Symmetrical Triangle Breakout
Symmetrical Triangle Breakdown

Inverted Head and Shoulders/Head and Shoulders

Not the shampoo brand mind you...

Inverted Head and Shoulders

They occur usually at market bottoms. Too much selling pressure, and the buyers are starting to see a buying opportunity. They soak up some pressure, making a higher swing low on the chart, indicating a change in momentum. The break of the neckline indicates a shift in sentiment.

Inverted Head and Shoulders
Head and Shoulders

Head and Shoulders

This is the opposite of the inverted version. It is the telltale sign of a top forming. Buying is at an all-time high, and sellers see it as a good time to sell short, hence forming a lower swing high. The neckline break signals a change in sentiment to the short side.

Conclusion

Chart pattern trader's best tools!

These candlestick formations are excellent for chart pattern traders. Not only are they formed frequently in charts, they are also reliable when combined with proper money management and position size. These patterns can be used on stocks, forex, futures and options. As long as you have a charting platform, you will be able to see these patterns.

Advertisement
Advertisement

Comments

May 31, 2013 12:29pm
savickram
Nice article. These technical analysis / chart pattern are good in short term forecasts but in my opinion, fundamental analysis is far better for long term forecasting.

But, great article on chart patterns. Write more about them. Looking for your next article.

Thanks,
Vickram.
Jun 16, 2013 5:15pm
dabella
Thanks Hikapo, this is good trading insight.
As a part time stock and forex trader, I have to say that these patterns are on my top #3 tools to generate a trading idea. My personal trading style is 100% intraday with technical analysis and I do not even bother to check on the fundamentals. However, I respect the ones that does and in such case, these technical setups work very well to pinpoint an entry or exit point.

Daniel.
Jun 28, 2013 2:58pm
Nikon
Good summary of the more important patterns. Thanks.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money