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Some Bullish Stock Chart Patterns to Watch For

By Edited Oct 9, 2015 1 2

If you're looking for to learn about the stock market, technical analysis offers you a powerful tool with which to read the stock market's movements. If you're looking to gain some advantage over other traders in regard when to buy into a stock, these are some of the chart patterns you should look for.

Double Bottom, also known as “W”

With this pattern, the stock is often in a downtrend from a previous high. The downtrend continues for a while until one day it stops and the stock turns around, seemingly unexpectedly, though usually it's good news from the company. This price movement creates the first down leg of the “W”. Then, as investors hear the good news, they pile into the stock raising its price again. However, those investors who bought the stock when it was falling want to get out and so they sell their shares. This price movement creates the middle of the “W”. The final leg of the “W” is a critical stage as the stock price can literally go any direction. Often investors will learn whether or not the news wasn't good enough, or if it was the “real deal” so to speak. If it's the “real deal”, then the price will usually hit its previous low and then rebound upwards, thus forming the last leg of the “W”. Look at the chart below and you'll notice that you will have to wait patiently to see how the stock behaves. Patience is key in determining the “W”, or double bottom, formation.

Double bottom, or "w" pattern formation.
Credit: Image courtesy of stockcharts.com

Cup with handle

This chart pattern features a stock price moving sideways. The price seems to trade within a range, making lower highs and lows, creating the left side of the “cup”. The price will then slowly gain traction until it reaches its previous high, thus forming the right side of the “cup”. Finally, the distinguishing characteristic of the cup-with-handle pattern is the breakout that occurs from the previous high to new highs, thus creating the “handle” of the “cup”. Take a look at the chart below and notice how the price moves lower, stops, muddles around a price point for a while, then moves up again before breaking out into new highs.

Cup with handle
Credit: Image courtesy of stockcharts.com

Head and Shoulders Bottom

This pattern also takes some time to develop and can sometimes look like the “W” pattern described above. The difference in this chart pattern, however, is that the middle portion drops lower. As the stock price declines the first part of the left “shoulder” is formed. Then, some news might come out that raises investors' hopes, sending the price back up, completing a V-pattern and the “left shoulder”. But soon the news or whatever the event proves not enough and sends the price back down, creating the “head”. Investors are downtrodden at this point and the stock seems to be at its worst, and that's when it can turn around. As investors buy back in, the price rises, but there isn't enough support since some people who bought during the "eflt shoulder" sell their shares to recoup their losses. Finally, a second “shoulder” will be created before investor confidence returns and the stock prices charges through its previous high from the “left shoulder”. Take a look at the picture below and study it carefully, you've probably seen it more times than you realize.

Head and shoulders chart pattern
Credit: Image courtesy of stockcharts.com


Sep 24, 2012 10:21am
Awesome article. I love the pictures you have included. I got into to options pretty hard and I studied these types of charts and patterns relentlessly for many months. I love the fact that you only put a few here. There is so much out there that it is easy to become overwhelmed.
Sep 25, 2012 3:02am
Thanks for reading. Yes, it can be very difficult to get your head around some of the investing concepts and vehicles, let alone the jargon. So how're your options doing?
Sep 25, 2012 3:02am
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  1. "Double Bottom Reversel." Stockcharts.com. 24/08/2012 <Web >
  2. "Cup with Handle." Stockcharts.com. 24/08/2012 <Web >
  3. "Head and Shoulders Bottom." Stockcharts.com. 24/08/2012 <Web >

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