PRESENT BY MYFXCRAZE

CHART
PATTERNS
BEGINNER GUIDE
TABLE OF CONTENTS
Bullish Patterns:

Ascending Continuation Triangle

Bottom Triangle – Bottom Wedge
Continuation Diamond (Bullish)
Continuation Wedge (Bullish)
Diamond Bottom
Double Bottom
Flag (Bullish)
Head and Shoulders Bottom
Megaphone Bottom
Pennant (Bullish)
Symmetrical Continuation Triangle (Bullish)
Upside Breakout

Bearish Patterns:

Continuation Diamond (Bearish)

Continuation Wedge (Bearish)
Descending Continuation Triangle
Diamond top
Double Top (Bearish)
Downside Breakou
Flag (Bearish)
Head and Shoulders top (Bearish)
Megaphone Top
Pennant (Bearish)
Symmetrical Continuation Triangle (Bearish)
Top Triangle – Top Wedge
Triple Top
 Bullish Patterns

2. Bottom Triangle - Bottom Wedge

1. Ascending Continuation Triangle

3. Continuation Diamond (Bullish) 4. Continuation Wedge (Bullish)

5. Diamond Bottom 6. Double Bottom

 7. Flag (Bullish) 8. Head and Shoulders
Bottom

9. Megaphone Bottom
10. Pennant (Bullish)

11. Symmetrical Continuation

Triangle (Bullish)
12. Triple Bottom
 13. Upside Breakout

Bearish Patterns

1. Continuation Diamond (Bearish)

2. Continuation Wedge
3. Descending Continuation
(Bearish)
Triangle

4. Diamond Top 5. Double Top (Bearish)

6. Downside Breakout

7. Flag (Bearish)
 8. Head and Shoulders Top
9. Megaphone Top
(Bearish)

10. Pennant (Bearish)

11. Symmetrical Continuation Triangle

(Bearish)

12. Top Triangle - Top Wedge 13. Triple Top

 1. Ascending Continuation Triangle

An Ascending Continuation Triangle is considered a bullish

signal. It indicates a possible continuation of
the current uptrend.

An Ascending Continuation Triangle shows two converging

trendlines. The lower trendline is rising and
the upper trendline is horizontal. This pattern occurs because
the lows are moving increasingly higher
but the highs are maintaining a constant price level. The
pattern will have two highs and two lows, all
touching the trendlines.
This pattern is confirmed when the price breaks out of the
triangle formation to close above the upper
trendline

1. Ascending Continuation Triangle

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when breakout occurs, there should
be a noticeable increase in volume. If this volume picture is not
clear, investors should be cautious about decisions based on
this Triangle
 2. Bottom Triangle - Bottom Wedge
Bottom Triangles and Bottom Wedges are considered to be
bullish signals that mark a possible reversal of the current
downtrend.

Bottom Triangles and Bottom Wedges make up a group of

patterns which have the same general shape as Symmetrical
Triangles, Wedges, Ascending Triangles and Descending
Triangles. The difference is that these particular formations are
reversal and not continuation patterns. These patterns have
two converging trendlines. The pattern will display two highs
touching the upper trendline and two lows touching the lower
trendline. Contrary to Triangle formations, Wedges are
characterized by their boundary trendlines both moving in the
same direction. This pattern is confirmed when the price breaks
upward out of the Bottom Triangle or Bottom Wedge formation
to close above the upper trendline.

2. Bottom Triangle - Bottom Wedge

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when the breakout occurs, there
should be a noticeable increase in volume. If this volume
picture is not clear, investors should be cautious about
decisions based on the particular Triangle or Wedge pattern.
 3. Continuation Diamond (Bullish)

A Continuation Diamond (Bullish) is considered a bullish signal,

indicating that the current uptrend may continue

Diamond patterns usually form over several months in very

active markets. Volume will remain high during the formation of
this pattern. The Continuation Diamond (Bullish) pattern forms
because prices create higher highs and lower lows in a
broadening pattern. Then the trading range gradually narrows
after the highs peak and the lows start trending upward. The
Technical Event® occurs when prices break upward out of the
diamond formation to continue the prior uptrend.

3. Continuation Diamond (Bullish)

Duration of Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to its target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration.

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.
 4. Continuation Wedge (Bullish)

A Continuation Wedge (Bullish) is considered a bullish signal. It

indicates a possible continuation of the current uptrend.

A Continuation Wedge (Bullish) consists of two converging

trend lines. The trend lines are slanted downward. Unlike the
Triangles where the apex is pointed to the right, the apex of this
pattern is slanted downwards at an angle. This is because
prices edge steadily lower in a converging pattern i.e. there are
lower highs and lower lows. A bullish signal occurs when prices
break above the upper trendline. Over the weeks or months
that this pattern forms the trend appears downward but the
long-term range is still upward. Volume should diminish as the
pattern forms.

4. Continuation Wedge (Bullish)

Pattern Duration

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to the Target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.
5. Diamond Bottom

A Diamond Bottom is considered a bullish signal, indicating a

possible reversal of the current downtrend to a new uptrend

Diamond patterns usually form over several months in very

active markets. Volume remains high during the formation of
this pattern. The Diamond Bottom pattern occurs because
prices create higher highs and lower lows in a broadening
pattern. Then the trading range gradually narrows after the
highs peak and the lows start trending upward. The Technical
Event® occurs when prices break upward out of the diamond
formation.

5. Diamond Bottom
Duration of Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to its target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved. Inbound Trend The inbound trend is an important
characteristic of the pattern. A shallow inbound trend may
indicate a period of consolidation before the price move
indicated by the pattern begins. Look for an inbound trend that
is longer than the duration of the pattern. A good rule of thumb
is that the inbound trend should be at least 2 times the
duration of the pattern
6. Double Bottom

A Double Bottom is considered a bullish signal, indicating a

possible reversal of the current downtrend to a new uptrend.

Double Bottoms are considered to be among the most

common of the patterns. Since, they seem to be so easy to
identify, the Double Bottom should be approached with
caution by the investor. The Double Bottom is a reversal
pattern of a downward trend in a stock's price. The Double
Bottom marks a downtrend in the process of becoming an
uptrend. A Double Bottom occurs when prices form two
distinct lows on a chart. A Double Bottom is only complete,
however, when prices rise above the high end of the point that
formed the second low. The two lows will be distinct. The
pattern is complete when prices rise above the highest high in
the formation. The highest high is called the "confirmation
point".

6. Double Bottom
Analysts vary in their specific definitions of a Double Bottom.
According to some, after the first bottom is formed, a rally of at
least 10% should follow. That increase is measured from high to
low. This should be followed by a second bottom. The second
bottom returning back to the previous low (plus or minus 3%)
should be on lower volume than the first. Other analysts
maintain that the rise registered between the two bottoms
should be at least 20% and the lows should be spaced at least a
month apart. Sometimes the two lows comprising a Double
Bottom are not at exactly the same price level. This does not
necessarily render the pattern invalid. Analysts advise that if
the second low varies in price from the first low by more than
3% or 4%, the pattern may be less reliable.

The bottoms will have a significant amount of time between

them - ranging from a few weeks to a year depending on
whether an investor is viewing a weekly chart or a daily chart.
Generally, volume in a Double Bottom is usually higher on the
left bottom than the right. Volume tends to be downward as
the pattern forms. Volume does, however, pick up as the
pattern hits its lows. Volume increases again when the pattern
completes, breaking through the confirmation point
Important Characteristics

Following are important characteristic to look for in a Double

Bottom.
Downtrend Preceding Double Bottom The Double Bottom is a
reversal formation. It begins with prices in a downtrend.

Time between Bottoms

Analysts pay close attention to the "size" of the pattern - the

duration of the interval between the two lows. Generally, the
longer the time between the two lows, the more important the
pattern is as a good reversal. Some analysts suggest that
investors should look for patterns where at least one month
elapses between the bottoms. It is not unusual for a few
months to pass between the dates of the two bottoms

Increase from First Low

Some analysts argue the increase in price that occurs between

the two bottoms should be consequential, amounting to
approximately 20% of the price. Other analysts are not so
definite or demanding concerning the price increase. For some,
an increase of at least 10% is adequate. The rise between the
lows tends to look rounded but it can also be irregular in shape.
Volume Volume tends to be heaviest during the first low and
lighter on the second. It is common to see volume pick up again
at the time of breakout. Pullback after Breakout A pullback
after the breakout is usual for a Double Bottom.
Trading Considerations

Duration of the Pattern

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.

Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least two times the duration of the
pattern.
7. Flag (Bullish)

A Flag (Bullish) is considered a bullish signal, indicating that the

current uptrend may continue

A Flag (Bullish) follows a steep or nearly vertical rise in price,

and consists of two parallel trendlines that form a rectangular
flag shape. The Flag can be horizontal (as though the wind is
blowing it), although it often has a slight downtrend. The
vertical uptrend, that precedes a Flag, may occur because of
buyers' reactions to a favorable company earnings
announcement, or a new product launch. The sharp price
increase is sometimes referred to as the "flagpole" or "mast".

7. Flag (Bullish)
The rectangular flag shape is the product of what technical
analysts refer to as consolidation. Consolidation occurs when
the price seems to bounce between an upper and lower price
limit. This might occur, for example, in the days following a
positive product announcement, when the excitement is
starting to subside, and fewer buyers are willing to pay the high
price that was commanded just a few days before. But, at the
same time, sellers are unwilling to sell below a lower support
limit.

A bullish signal occurs when the price rebounds beyond the

upper trendline of the Flag formation, and continues the
original upward price movement. This is considered a pattern
confirmation.

When speaking about Flags, technical analysts may use jargon

and refer to the flag as "flying at halfmast". Visually, this
reference is nothing like a flag at half-mast, such as on a day of
national mourning. Instead, this term refers to the location of
the flag - at the mid-point of what would otherwise be a
continuous uptrend
Important Characteristics

Following are important characteristics for this pattern.

Trendlines

Flags are very similar to Pennants. However, with a Flag, the

price trendlines tend to run parallel, whereas with a Pennant,
the price trendlines tend to converge.

Volume

As the Flag develops, the volume tends to decrease. Following

a positive product announcement, the price may have reached
an unexpected high, and fewer buyers will be willing to buy.
Interest in the stock may resume, however, as prices drop, and
sellers begin to lower their price. The increased activity
explains why you will often notice a sharp spike in volume at
the end of a Flag. Duration of the Pattern Martin Pring notes in
his book, Technical Analysis Explained that "Flags can form in a
period as short as 5 days or as longs as 3 to 5 weeks." John J.
Murphy identifies that Flags "often last no longer than one or
two weeks."
Trading Considerations

Possibility of Price Reversal

In some rare cases, the price will break against the original
price movement, and create a reversal trend. The pattern
reversal may be signaled during the Flag formation by a sharp
increase in volume, as opposed to the more typical decrease.

Duration of the Pattern

The duration of the pattern depends on the extent of the price

fluctuations (consolidation). The greater the fluctuations, the
longer a pattern will take to develop.

Target Price

It is commonly held that the length of the flagpole indicates the

potential price increase. When the Flag completes, the price
typically jumps to replicate the height of the original flagpole,
while continuing in the direction of the inbound trend
 8. Head and Shoulders Bottom

The Head and Shoulders bottom is a popular pattern with

investors. This pattern marks a reversal of a downward trend in
a financial instrument's price.

Volume is absolutely crucial to a Head and Shoulders Bottom.

An investor will be looking for increasing volumes at the point
of breakout. This increased volume definitively marks the end
of the pattern and the reversal of a downward trend in the
price of a stock.

A perfect example of the Head and Shoulders Bottom has

three sharp low points created by three successive reactions in
the price of the financial instrument. It is essential that this
pattern form following a major downtrend in the financial
instrument's price.

The first point - the left shoulder - occurs as the price of the
financial instrument in a falling market hits a new low and then
rises in a minor recovery. The second point - the head happens
when prices fall from the high of the left shoulder to an even
lower level and then rise again. The third point - the right
shoulder - occurs when prices fall again but don't hit the low of
the head. Prices then rise again once they have hit the low of
the right shoulder. The lows of the shoulders are definitely
higher than that of the head and, in a classic formation, are
often roughly equal to one another.
The neckline is a key element of this pattern. The neckline is
formed by drawing a line connecting the two high price points
of the formation. The first high point occurs at the end of the
left shoulder and beginning of the downtrend to the head. The
second marks the end of the head and the beginning of the
downturn to the right shoulder. The neckline usually points
down in a Head and Shoulders Bottom, but on rare occasions
can slope up.

The pattern is complete when the resistance marked by the

neckline is "broken". This occurs when the price of the stock,
rising from the low point of the right shoulder moves up
through the neckline. Many technical analysts only consider
the neckline "broken" if the stock closes above the neckline

8. Head and Shoulders Bottom

The volume sequence should progress beginning with relatively
heavy volume as prices descend to form the low point of the
left shoulder. Once again, volume spikes as the stock hits a new
low to form the point of the head. It is possible that volume at
the head may be slightly lower than at the left shoulder. When
the right shoulder is forming, however, volume should be
markedly lighter as the price of the stock once again moves
lower.

It is most important to watch volume at the point where the

neckline is broken. For a true reversal, experts agree that heavy
volume is essential.
9. Megaphone Bottom

A Megaphone Bottom also known as a Broadening Bottom is

considered a bullish signal, indicating that the current
downtrend may reverse to form a new uptrend

This rare formation can be recognized by the successively

higher highs and lower lows, which form after a downward
move. Usually, two higher highs between three lower lows form
the pattern, which is completed when prices break above the
second higher high and do not fall below it. The pattern is
completed when, usually on the third upswing within the
pattern, prices break above the prior high but fail to fall below
this level again.

9. Megaphone Bottom
 10. Pennant (Bullish)

A Pennant (Bullish) is considered a bullish signal, indicating that

the current uptrend may continue.

A Pennant (Bullish) follows a steep or nearly vertical rise in

price, and consists of two converging trendlines that form a
narrow, tapering flag shape. The Pennant shape generally
appears as a horizontal shape, rather than one with a
downtrend or uptrend. Apart from its shape, the Pennant is
similar in all respects to the Flag. The Pennant is also similar to
the Symmetrical Triangle or Wedge continuation patterns
however; the Pennant is typically shorter in duration and flies
horizontally.

10. Pennant (Bullish)

Important Characteristics

Following are important characteristics for this pattern.

Trendlines

For Pennants, the price trendlines tend to converge. At the

start of the Pennant, the price spikes, perhaps in response to a
favorable product or earnings announcement. Following the
price spike, the price fluctuations continue until they taper out
and become decreasingly less volatile. This behavior appears
on a price chart with the initial price spike forming what
technical analysts refer to as the "mast" of the Pennant,
followed by a triangular pennant shape.

Volume

As the Pennant develops, the volume tends to decrease. Martin

Pring notes in his book, Technical Analysis Explained, "a
pennant is in effect a very small triangle. If anything, volume
tends to contract even more during the formation of a pennant
than during that of a flag." However, as with Flags, when the
Pennant completes you will often observe a sharp spike in
volume.

Duration of the Pattern

In his book, Technical Analysis of the Financial Markets, John J.

Murphy identifies that Pennants and Flags are relatively short-
term and should be completed within one to three weeks. He
also notes that by comparison, the bullish patterns take longer
to develop than the related bearish patterns.
Trading Considerations

Possibility of Price Reversal

In some rare cases, the price will break against the original
price movement, and create a reversal trend. The pattern
reversal may be signaled during the Pennant formation by an
increase in volume, as opposed to the more typical decrease.

Duration of the Pattern

The duration of the pattern depends on the extent of the price

fluctuations (consolidation). The greater the fluctuations, the
longer a pattern will take to develop.

Target Price

It is commonly held that the length of the mast indicates the

potential price increase. Like the Flag, the Pennant is
considered to be a pause in an uptrend. Following the Pennant,
the price typically jumps to replicate the height of the mast,
while continuing in the direction of the inbound trend
 11. Symmetrical Continuation Triangle (Bullish)

A Symmetrical Continuation Triangle (Bullish) is considered a

bullish signal, indicating that the current uptrend may continue

A Symmetrical Continuation Triangle (Bullish) shows two

converging trendlines, the lower one is ascending, the upper
one is descending. The formation occurs because prices are
reaching both lower highs and higher lows. The pattern will
display two highs touching the upper (descending) trendline
and two lows touching the lower (ascending) trendline. This
pattern is confirmed when the price breaks out of the triangle
formation to close above the upper (descending) trendline

11. Symmetrical Continuation Triangle (Bullish)

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when the breakout occurs, there
should be a noticeable increase in volume. If this volume
picture is not clear, investors should be cautious about
decisions based on this triangle

Important Characteristics

Following are important characteristics for this pattern

Occurrence of a Breakout

Technical analysts pay close attention to how long the Triangle

takes to develop to its apex. The general rule is that prices
should break out - clearly penetrate the upper trendline -
somewhere between threequarters and two-thirds of the
horizontal width of the formation. The break out, in other
words, should occur well before the pattern reaches the apex
of the Triangle. The closer the breakout occurs to the apex the
less reliable the formation

Duration of the Triangle

The Triangle is a relatively short-term pattern. While long-term

triangles do form, the most reliable triangles take between one
and three months.
Volume

Investors should see volume decreasing as the pattern

progresses toward the apex of the Triangle. At breakout,
however, there should be a noticeable increase in volume.
12. Triple Bottom

A Triple Bottom is considered a bullish signal, indicating a

possible reversal of the current downtrend to a new uptrend.

The Triple Bottom is composed of three sharp lows, all at about

the same price level. Investors should note that the three lows
tend to be sharp. While the three lows should be sharp and
distinct, the highs of the pattern can appear to be rounded. The
pattern is complete when prices rise above the highest high in
the formation. The highest high is called the "confirmation
point". The highs should be fairly rounded in shape, although it
is not absolutely necessary for the validity of the pattern. The
Triple Bottom is a reversal pattern and illustrates a downtrend
in the process of becoming an uptrend. It is, therefore, vital to
the validity of the pattern that it commence with prices moving
in a downtrend.

12. Triple Bottom

Generally, volume in a Triple Bottom tends to trend downward
as the pattern forms. Volume tends to be lighter on each
successive low. Volume then picks up as prices rise above the
confirmation point and break into the new upward trend.

An investor should not dismiss a Triple Bottom if volume does

not display this pattern. The pattern can take several months
to form and, during that time, volume can be irregular and
unpredictable. Volume should be higher at the lows than on the
days leading to the lows.

Important Characteristics

Following are important characteristics that should be noted

for a Triple Bottom.

Duration of the Pattern

The Triple Bottom usually takes longer than other patterns to

develop. The longer the pattern takes to form, the greater the
significance of the price move once breakout occurs.

Need for a Downtrend

The Triple Bottom is a reversal pattern. This means it is

essential to the validity of the pattern that it begins with a
downward trend in a stock's price
Volume

It is typical to see volume diminish as the pattern progresses.

This changes however, when breakout occurs. A valid breakout
will be accompanied by a burst in volume. Certain experts are
less concerned by seeing a steadily diminishing trend in volume
as the pattern progresses through its three lows.

Pullback after Breakout

It is very common in the Triple Bottom to see a pullback after

the breakout

Symmetry

Investors looking for a valid Triple Bottom should be wary of a

pattern that shows a lot of white space as it is developing. The
pattern should display a fairly regular progression among the
three, well-separated lows. The symmetry of this pattern is
something that should catch your eye.
13. Upside Breakout

An Upside Breakout is considered a bullish signal, marking a

breakout from a trading range to start a new uptrend.

An Upside Breakout occurs when the price of a financial

instrument breaks out through the top of a trading range. This
Technical Event® indicates that prices will rise explosively over
a period of days or weeks as an almost vertical uptrend
appears.

13. Upside Breakout

An Upside Breakout is considered a bullish signal, marking a
breakout from a trading range to start a new uptrend.

An Upside Breakout occurs when the price of a financial

instrument breaks out through the top of a trading range. This
Technical Event® indicates that prices will rise explosively over
a period of days or weeks as an almost vertical uptrend
appears.

Trading Considerations

Inbound

Trend The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least two times the duration of the
pattern

Criteria that Support

Duration of Trading Range

The duration of the trading range for which the breakout

occurred can provide an indication of the strength of the
breakout. The longer the duration of the trading range the more
significant the breakout
Narrowness of Trading Range

The "narrowness" of the trading range can also be used to

gauge the breakout. To determine the narrowness of the
trading range compare the upper boundary with the lower
boundary of the trading range. If the trading range has a small
difference between the upper and lower boundary (making it
narrow) then the breakout is considered stronger and more
reliable

Support or Resistance

Look for a region of support or resistance around the target

price. A region of price consolidation or a strong Support and
Resistance Line at or around the target price is a strong
indicator that the price will move to that point.

Moving Average

Prices which quickly move 50% above the 200-day Moving

Average strongly support this pattern.

Volume

A strong volume spike on the day of the pattern confirmation is

a strong indicator in support of the potential for this pattern.
The volume spike should be significantly above the average of
the volume for the duration of the pattern. In addition, the
volume during the duration of the pattern should be declining
on average.
BEARISH PATTERNS
 1. Continuation Diamond (Bearish)

A Continuation Diamond (Bearish) is considered a bearish

signal, indicating that the current downtrend may continue

Diamond patterns usually form over several months in very

active markets. Volume remains high during the formation of
this pattern. The Continuation Diamond (Bearish) indicates a
possible continuation of a downtrend. The Continuation
Diamond (Bearish) pattern occurs because prices create higher
highs and lower lows in a broadening pattern. Then the trading
range gradually narrows after the highs peak and the lows start
trending upward. The Technical Event® occurs when prices
break downward out of the diamond formation to continue the
prior downtrend

1. Continuation Diamond (Bearish)

Trading Considerations

Duration of Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to its target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.
Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least 2 times the duration of the
pattern.
 2. Continuation Wedge (Bearish)

A Continuation Wedge (Bearish) is considered a bearish signal,

indicating that the current downtrend may continue.

A Continuation Wedge (Bearish) consists of two converging

trend lines. The trend lines are slanted upward. Unlike the
Triangles where the apex is pointed to the right, the apex of this
pattern is slanted upwards at an angle. This is because prices
edge steadily higher in a converging pattern i.e. there are
higher highs and higher lows. A bearish signal occurs when
prices break below the lower trendline. Over the weeks or
months that this pattern forms the trend appears upwards but
the long-term range is still downward.

2. Continuation Wedge (Bearish)

Trading Considerations

Pattern Duration

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to the Target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.
 3. Descending Continuation Triangle

A Descending Continuation Triangle is considered a bearish

signal, indicating that the current downtrend may continue.

A Descending Continuation Triangle features two converging

trendlines. The bottom trendline is horizontal and the top
trendline slopes downward. The pattern illustrates lows
occurring at a constant price level, with highs moving
constantly lower. The pattern displays two highs touching the
upper trendline and two lows touching the lower trendline. This
pattern is confirmed when the price breaks out of the triangle
formation to close below the lower trendline.

3. Descending Continuation Triangle

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when breakout occurs, there should
be a noticeable increase in volume. If this volume picture is not
clear, investors should be cautious about decisions made
based on this pattern.

Important Characteristics

Following are important characteristics about this pattern

Occurrence of a Breakout

Technical analysts pay close attention to how long the Triangle

takes to develop to its apex. The general rule is that prices
should break out - clearly penetrate the lower trendline -
somewhere between threequarters and two-thirds of the
horizontal width of the formation. The break out, in other
words, should occur well before the pattern reaches the apex
of the Triangle. The closer the breakout occurs to the apex the
less reliable the formation.

Duration of the Triangle

The Triangle is a relatively short-term pattern. It may take from
one to three months to form.

Shape of Descending Triangle

The horizontal bottom trendline need not be completely
horizontal.
Volume

Investors should see volume decreasing as the pattern

progresses toward the apex of the Triangle. At breakout,
however, there should be a noticeable increase in volume

Duration of Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to reach its target. The shorter the pattern the sooner
the price moves. If you are considering a short-term trading
opportunity, look for a pattern with a short duration. If you are
considering a longer-term trading opportunity, look for a
pattern with a longer duration.

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved
Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least 2 times the duration of the
pattern
4. Diamond Top

A Diamond Top is considered a bearish signal, indicating a

possible reversal of the current uptrend to a new downtrend.

Diamond patterns usually form over several months in very

active markets. Volume remains high during the formation of
this pattern. The Diamond Top indicates a reversal to a
downtrend. The Diamond Top pattern occurs because prices
create higher highs and lower lows in a broadening pattern.
Then the trading range gradually narrows after the highs peak
and the lows start trending upward. The Technical Event®
occurs when prices break downward out of the diamond
formation

4. Diamond Top
Duration of Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to its target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.
Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least 2 times the duration of the
pattern
 5. Double Top (Bearish)

A Double Top is considered a bearish signal, indicating a

possible reversal of the current uptrend to a new downtrend.

Sometimes called an "M" formation because of the pattern it

creates on the chart, the Double Top is one of the most
frequently seen and common of the patterns. The Double Top
is a reversal pattern of an upward trend in a financial
instrument's price. The Double Top marks an uptrend in the
process of becoming a downtrend. A Double Top consists of
two well-defined, sharp peaks at approximately the same price
level. The two tops are distinct and sharp. The pattern is
complete when prices decline below the lowest low in the
formation. The lowest low is called the "confirmation point".

5. Double Top (Bearish)

Analysts vary in their specific definitions of a Double Top.
According to some, after the first top is formed, a reaction of at
least 10% should follow. That decline is measured from high to
low. The second rally back to the previous high (plus or minus
3%) should be on lower volume than the first. Other analysts
maintain that the decline registered between the two tops
should be at least 20% and the peaks should be spaced at least
a month apart. The pattern is comprised of two distinct tops
that appear near the same price level.
Tops will have a significant amount of time between them -
ranging from a few weeks to a year Generally, volume in a
Double Top is usually higher on the left top than the right.
Volume tends to be downward as the pattern forms. Volume
does, however, pick up as the pattern hits its peaks. Volume
increases again when the pattern completes, breaking through
the confirmation point.
 6. Downside Breakout

A Downside Breakout is considered a bearish signal, marking a

breakout from a trading range to start a new downtrend

A Downside Breakout occurs when prices break out through the

bottom of a trading range and descend quickly as a new
downtrend forms. It appears that the market is being flooded
with sell orders. There are usually gaps throughout this activity.
This pattern can last for a few days to a few weeks.

6. Downside Breakout
Duration of Trading Range

The duration of the trading range for which the breakout

occurred can provide an indication of the strength of the
breakout. The longer the duration of the trading range the more
significant the breakout.

Narrowness of Trading Range

The "narrowness" of the trading range can also be used to

gauge the breakout. To determine the narrowness of the
trading range, compare the upper boundary with the lower
boundary of the trading range. If the trading range has a small
difference between the upper and lower boundary (making it
narrow) then the breakout is considered stronger and more
reliable

Support and Resistance

Look for a region of support or resistance. A region of price

consolidation or a strong Support and Resistance Line at or
around the target price is a strong indicator that the price will
move to that point

Moving Average Trend

Look at the direction of the Moving Average Trend. For short

duration patterns use a 50 day Moving Average, for longer
patterns use a 200 day Moving Average. The Moving Average
should change direction during the duration of the pattern and
should head in the direction indicated by the pattern.
Volume

A strong volume spike on the day of the pattern confirmation is

a strong indicator in support of the potential for this pattern.
The volume spike should be significantly above the average of
the volume for the duration of the pattern. In addition, the
volume during the duration of the pattern should be declining
on average.
 7. Flag (Bearish)

A Flag (Bearish) is considered a bearish signal, indicating that

the current downtrend may continue.

A Flag (Bearish) follows a steep or nearly vertical decline in

price, and consists of two parallel trendlines that form a
rectangular flag shape. The Flag can be horizontal (as though
the wind is blowing it), although it often has a slight upward
trend. The vertical downtrend, that precedes a Flag, may occur
because of buyers' reactions to an unfavorable company
announcement, such as a court case, or a sudden and
unexpected departure of a CEO. The sharp price decrease is
sometimes referred to as the "flagpole" or "mast"

7. Flag (Bearish)
The rectangular flag shape is the product of what technical
analysts refer to as consolidation. Consolidation occurs when
the price seems to bounce between an upper and lower price
limit. The Flag (Bearish) pattern formation reflects the reaction
of sellers who are willing to sell at a lower cost, and the influx of
buyers who inadvertently drive up the price as they compete
to buy at the best possible price.
A bearish signal occurs when the price rebounds beyond the
lower trendline of the Flag formation, and continues the
original downward price movement.
This is considered a pattern confirmation. When speaking about
Flags, technical analysts may use jargon and refer to the flag as
"flying at halfmast". Visually, this reference is nothing like a
flag at half-mast, such as on a day of national mourning.
Instead, this term refers to the location of the flag - at the mid-
point of what would otherwise be a continuous downtrend

Important Characteristics

Following are important characteristics for this pattern.

Trendlines

Flags are very similar to Pennants. However, with a Flag, the

price trendlines tend to run parallel, whereas with a Pennant,
the price trendlines tend to converge. John J. Murphy notes
that a price drop below the lower trendline may indicate the
resumption of the downtrend.
Volume

As the Flag develops, the volume tends to decrease. However,

you will often notice a sharp spike in volume at the end of a
Flag, whether it is bearish or bullish.

Duration of the Pattern

Martin Pring notes in his book, Technical Analysis Explained

that "Flags can form in a period as short as 5 days or as longs as
3 to 5 weeks." John J. Murphy identifies that Flags "often last
no longer than one or two weeks."

Trading Considerations

Possibility of Price Reversal

In some rare cases, the price will break against the original
price movement, and create a reversal trend. The pattern
reversal may be signaled during the Flag formation by a pattern
of increasing volume, as opposed to the more typical decrease

Duration of the Pattern

The duration of the pattern depends on the extent of the price

fluctuations (consolidation). The greater the fluctuations, the
longer a pattern will take to develop
Target Price

It is commonly held that the length of the flagpole indicates the

potential price decrease. When the Flag completes, the price
typically jumps to replicate the height of the original flagpole,
while continuing in the direction of the inbound trend.
 8. Head and Shoulders Top (Bearish)

A Head and Shoulders Top is considered a bearish signal. It

indicates a possible reversal of the current uptrend to a new
downtrend.

The Head and Shoulders Top is an extremely popular pattern

among investors because it's one of the most reliable of all
formations. It also appears to be an easy one to spot. Novice
investors often make the mistake of seeing Head and Shoulders
everywhere. Seasoned technical analysts will tell you that it is
tough to spot the real occurrences.
The classic Head and Shoulders Top looks like a human head
with shoulders on either side of the head. A perfect example of
the pattern has three sharp high points, created by three
successive rallies in the price of the financial instrument.
The first point - the left shoulder - occurs as the price of the
financial instrument in a rising market hits a high and then falls
back. The second point - the head - happens when prices rise to
an even higher high and then fall back again. The third point -
the right shoulder - occurs when prices rise again but don't hit
the high of the head. Prices then fall back again once they have
hit the high of the right shoulder. The shoulders are definitely
lower than the head and, in a classic formation, are often
roughly equal to one another.
A key element of the pattern is the neckline. The neckline is
formed by drawing a line connecting two low price points of
the formation. The first low point occurs at the end of the left
shoulder and the beginning of the uptrend to the head. The
second marks the end of the head and the beginning of the
upturn to the right shoulder. The neckline can be horizontal or
it can slope up or down. The pattern is complete when the
support provided by the neckline is "broken." This occurs when
the price of the financial instrument, falling from the high point
of the right shoulder, moves below the neckline. Technical
analysts will often say that the pattern is not confirmed until
the price closes below the neckline - it is not enough for it to
trade below the neckline

8. Head and Shoulders Top (Bearish)

There are many variations, some of which are described here
and can be just as valid as the classic formation. Other factors -
including volume and the quality of the breakout - should be
considered in conjunction with the pattern itself.

Variations of a Head and Shoulders Top

Following are some variations of the Head and Shoulder

pattern that may occur

The Drooping Shoulder

The drooping shoulder, where the neckline has a downward

slope, is highly unusual and demonstrates extreme weakness.
The droop happens because the price at the end of the head
and the beginning of the right shoulder has dropped even lower
than the previous low at the end of the left shoulder and the
beginning of the head. Most experts agree that a downward
slope has bearish implications for market weakness. When the
right shoulder is drooping, the trader will have to wait longer
than usual for a decisive neck break. It should also be noted
that when that decisive break does occur much of the move
will have already occurred.
Varying Width of Shoulders

The classic Head and Shoulders Top is symmetrical. However, if

the shoulders don't match in width, don't discount the pattern.

Flat Shoulders

While the classic Head and Shoulders Top is made up of three

sharp upward points, these need not be present for the pattern
to be valid. Sometimes, shoulders can be rounded
 9. Megaphone Top

A Megaphone Top also known as a Broadening Top is

considered a bearish signal, indicating that the current uptrend
may reverse to form a new downtrend.

A Megaphone Top is a relatively rare formation and is also

known as a Broadening Top. Its shape is opposite to that of a
Symmetrical Triangle. The pattern develops after a strong
advance in prices and can last several weeks or even a few
months. A Megaphone Top is formed because the prices make a
series of higher highs and lower lows. The Megaphone Top
usually consists of three ascending peaks and two descending
troughs. The signal that the pattern is complete occurs when
prices fall below the lower low.

9. Megaphone Top
Volume in the Megaphone Top usually peaks along with prices.
It is usual to see trading volumes increase or remain high during
the formation of this pattern. The eventual breakout and
reversal can be difficult to identify at the time of its occurrence
because volume does not appear unusual.

Trading Considerations

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful, however you must
consider the current price and the volume of shares you intend
to trade

Criteria that Support

Volume

Volume in the Megaphone Top usually peaks along with prices.

A strong volume spike on the day of the pattern confirmation is
a strong indicator in support of the potential for this pattern
 10. Pennant (Bearish)

A Pennant (Bearish) is considered a bearish signal, indicating

that the current downtrend may continue

A Pennant (Bearish) follows a steep or nearly vertical fall in

price, and consists of two converging trendlines that form a
narrow, tapering flag shape. The Pennant shape generally
appears as a horizontal shape, rather than one with a
downtrend or uptrend. Apart from its shape, the Pennant is
similar in all respects to the Flag. The Pennant is also similar to
the Symmetrical Triangle or Wedge continuation patterns
however; the Pennant is typically shorter in duration and flies
horizontally.

10. Pennant (Bearish)

Important Characteristics

Following are important characteristics for this pattern.

Trendlines

For Pennants, the price trendlines tend to converge. At the

start of the Pennant, the price spikes downward, perhaps in
response to an unexpected and negative company
announcement. Following the price spike, the price fluctuations
continue until they taper out and become decreasingly less
volatile. This behavior appears on a price chart with the initial
price spike forming what technical analysts refer to as the
"mast" of the Pennant, followed by a triangular pennant shape

Volume

As the Pennant develops, the volume tends to decrease. Martin

Pring notes in his book, Technical Analysis Explained, "a
pennant is in effect a very small triangle. If anything, volume
tends to contract even more during the formation of a pennant
than during that of a flag." However, as with Flags, when the
Pennant completes you will often observe a sharp spike in
volume.

Duration of the Pattern

In his book, Technical Analysis of the Financial Markets, John J.

Murphy identifies that Pennants and Flags are relatively short-
term and should be completed within one to three weeks". He
also notes that by comparison, the bullish patterns take longer
to develop than the related bearish patterns
Trading Considerations

Possibility of Price Reversal

In some rare cases, the price will break against the original
price movement, and create a reversal trend. The pattern
reversal may be signaled during the Pennant formation by an
increase in volume, as opposed to the more typical decrease.

Duration of the Pattern

The duration of the pattern depends on the extent of the price

fluctuations (consolidation). The greater the fluctuations, the
longer a pattern will take to develop

Target Price

It is commonly held that the length of the mast indicates the

potential price increase. Like the Flag, the Pennant is
considered to be a pause in a downtrend. Following the
Pennant, the price typically jumps to replicate the height of the
mast, while continuing in the direction of the inbound trend.
 11. Symmetrical Continuation Triangle (Bearish)

A Symmetrical Continuation Triangle (Bearish) is considered a

bearish signal, indicating that the current downtrend may
continue.

A Symmetrical Continuation Triangle (Bearish) shows two

converging trendlines, the lower one is ascending, the upper
one is descending. The formation occurs because prices are
reaching both lower highs and higher lows. The pattern will
display two highs touching the upper (descending) trendline
and two lows touching the lower (ascending) trendline.

This pattern is confirmed when the price breaks out of the

triangle formation to close below the lower (ascending)
trendline.

11. Symmetrical Continuation Triangle (Bearish)

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when the breakout occurs, there
should be a noticeable increase in volume. If this volume
picture is not clear, investors should be cautious about
decisions based on this triangle

Important Characteristics

Following are important characteristics for this pattern

Occurrence of a Breakout

Technical analysts pay close attention to how long the Triangle

takes to develop to its apex. The general rule is that prices
should break out - clearly penetrate the lower trendline -
somewhere between threequarters and two-thirds of the
horizontal width of the formation. The break out, in other
words, should occur well before the pattern reaches the apex
of the Triangle. The closer the breakout occurs to the apex the
less reliable the formation.

Duration of the Triangle

The Triangle is a relatively short-term pattern. While long-term

triangles do form, the most reliable triangles take between one
and three months to form
Volume

Investors should see volume decreasing as the pattern

progresses toward the apex of the Triangle. At breakout,
however, there should be a noticeable increase in volume.

Trading Considerations

Duration of the Pattern

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to reach its target. The shorter the pattern the sooner
the price move. If you are considering a short-term trading
opportunity, look for a pattern with a short duration. If you are
considering a longer-term trading opportunity, look for a
pattern with a longer duration

Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved
Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least two times the duration of the
pattern.

Confirm the Breakout

To avoid taking an inadvisable position in a stock, some

investors advise waiting a few days to determine whether the
breakout signals that the price is ready to move. A key sign of a
possible false move is low volume. If there's no pick up in
volume around the breakout, investors should be wary.
Typically, a good breakout from a Triangle formation will be
accompanied by a definite surge in volume.
 12. Top Triangle - Top Wedge

Top Triangles and Top Wedges are considered bearish signals

that indicate a possible reversal of the current uptrend to a
new downtrend.

Top Triangles and Top Wedges make up a group of patterns

which have the same general shape as Symmetrical Triangles,
Wedges, Ascending Triangles and Descending Triangles. The
difference is that these formations are reversal and not
continuation patterns. These patterns have two converging
trendlines. The pattern will display two highs touching the
upper trendline and two lows touching the lower trendline.
Contrary to Triangle formations, Wedges are characterized by
their boundary trendlines both moving in the same direction.
This pattern is confirmed when the price breaks downward out
of the Triangle or Wedge formation to close below the lower
trendline.

12. Top Triangle - Top Wedge

Volume is an important factor to consider. Typically, volume
follows a reliable pattern: volume should diminish as the price
swings back and forth between an increasingly narrow range of
highs and lows. However, when the breakout occurs, there
should be a noticeable increase in volume. If this volume
picture is not clear, investors should be cautious about
decisions based on the particular Triangle or Wedge pattern

Important Characteristics
Following are important characteristics for this pattern.

Occurrence of a Breakout

Technical analysts pay close attention to how long the pattern

takes to develop to its apex. The general rule is that prices
should break out - clearly penetrate the lower trendline -
somewhere between threequarters and two-thirds of the
horizontal width of the formation. The break out, in other
words, should occur well before the pattern reaches the apex
of the Triangle or Wedge. The closer the breakout occurs to the
apex the less reliable the formation.
Duration of the Triangle or Wedge

This pattern is a relatively short-term. While long-term Top

Triangles and Top Wedges do form, the most reliable patterns
take between one and three months to form.

Volume

Investors should see volume decreasing as the pattern

progresses toward the apex of the triangular or wedge shaped
pattern. At breakout, however, there should be a noticeable
increase in volume.
13. Triple Top

A Triple Top is considered a bearish signal, indicating a possible

reversal of the current uptrend to a new downtrend.

A Triple Top is a reversal pattern. It marks an uptrend in the

process of becoming a downtrend. The Triple Top pattern is
comprised of three sharp peaks, all at the same level. While the
three peaks should be sharp and distinct, the lows of the
pattern can appear as rounded valleys. The pattern is complete
when prices decline below the lowest low in the formation. The
lowest low is also called the "confirmation point". The three
peaks are well separated and are not part of a congestion
pattern. The peaks do not have to be precisely at the same
level.

13. Triple Top

There is a hybrid variation that appears to be a cross between a
Double and Triple Top. The middle peak is slightly lower than
the left and right peaks.
This is still a valid reversal pattern. It is also possible for the
pattern to display a fourth peak before reversal occurs.
Generally, volume in a Triple Top tends to be downward as the
pattern forms. Volume is lighter on each rally peak. Volume
then picks up as prices fall under the confirmation point and
break into the new downward trend. Volume is higher on the
peaks than at the lows

Important Characteristics

Following are important characteristics for a Triple Top.

Duration of the Pattern This pattern can take upwards of

several months to form. In addition, experts agree that the
longer the pattern takes to form, the greater the significance of
the price move once breakout occurs. The three highs do not
need to be equally spaced from one another

Need for an Uptrend

The Triple Top is a reversal pattern marking the transition

period between an uptrend and a downtrend in prices. This
pattern must begin with an uptrend of prices.
Volume

It is typical to see volume diminish as the pattern progresses.

This should change, however, when breakout occurs. A valid
breakout should be accompanied by a burst in volume. Some
experts are less concerned by seeing a steadily diminishing
trend in volume as the pattern progresses through its three
highs. All agree, however, that an investor will want to see a
definite increase in volume at the time of the break through the
confirmation point.

Rally after Breakout

A high percentage of Triple Tops have rallies back to the point

of the breakdown more often than not.

Trading Considerations

Duration

Consider the duration of the pattern and its relationship to

your trading time horizons. The duration of the pattern is
considered to be an indicator of the duration of the influence
of this pattern. The longer the pattern the longer it will take for
the price to move to its target. The shorter the pattern the
sooner the price move. If you are considering a short-term
trading opportunity, look for a pattern with a short duration. If
you are considering a longer-term trading opportunity, look for
a pattern with a longer duration
Target Price

The target price provides an important indication about the

potential price move that this pattern indicates. Consider
whether the target price for this pattern is sufficient to provide
adequate returns after your costs (such as commissions) have
been taken into account. A good rule of thumb is that the target
price must indicate a potential return of greater than 5% before
a pattern should be considered useful. However you must
consider the current price and the volume of shares you intend
to trade. Also, check that the target price has not already been
achieved.

Inbound Trend

The inbound trend is an important characteristic of the

pattern. A shallow inbound trend may indicate a period of
consolidation before the price move indicated by the pattern
begins. Look for an inbound trend that is longer than the
duration of the pattern. A good rule of thumb is that the
inbound trend should be at least two times the duration of the
pattern.