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Chart Formations

Chart Formations

Head and shoulders pattern:

A technical analysis term used to describe a chart formation that is represented by an instrument's price: 

  1. Rises to a peak and subsequently declines.

  2. Then, the price rises above the former peak and again declines.

  3. And finally, rises again, but not to the second peak, and declines once more. The first and third peaks are shoulders, and the second peak forms the head.

A head and shoulders reversal pattern forms after an upside trend, and its completion marks a trend reversal. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The lows of each peak can be connected to form support, or a neckline.

Head and shoulders bottom (Reversal):

A chart pattern used in technical analysis to predict the reversal of a current downside trend, this pattern is identified when the price of a security meets the following characteristics:

  1. The price falls to a trough and then rises.

  2. The price falls below the former trough and then rises again.

  3. Finally, the price falls again, but not as far as the second trough.

Once the final trough is made, the price heads upward toward the resistance found near the top of the previous troughs. Investors typically enter into a long position when the price rises above the resistance of the neckline. The first and third troughs are considered shoulders, and the second peak forms the head.

The head and shoulders bottom is sometimes referred to as an inverse head and shoulders. The pattern shares many common characteristics with its comparable partner, but relies more on volume patterns for confirmation.

As a major reversal pattern, the head and shoulders bottom forms after a downside trend, and its completion marks a change in trends. The pattern contains three successive troughs with the middle trough (head) being the deepest and the two outside troughs (shoulders) being shallower. Ideally, the two shoulders would be equal in height and width. The highs in the middle of the pattern can be connected to form the neck line (a resistance level)


Double tops reversal:

A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop. The double top is a major reversal pattern that forms after an extended uptrend. As its name implies, the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in between.

Double bottom:

A charting pattern used in technical analysis. It describes the drop of a stock (or index), a rebound, another drop to the same (or similar) level as the original drop, and finally another rebound.

The double bottom is a major reversal pattern that forms after an extended downside trend. As its name implies, the pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in between.

Falling wedge:

A technical chart pattern composed of two converging lines connecting a series of peaks and troughs.

Falling wedges indicate temporary interruptions of upward price rallies. Rising wedges indicate interruptions of a falling price trend. Technical analysts see a 'breakout' of this wedge pattern as either bullish (on a breakout above the upper line) or bearish (on a breakout below the lower line).


A technical analysis pattern includes trend lines along a price range that gets narrower over time due to lower tops and higher bottoms. Variations of a triangle include ascending and descending triangles. Triangles are very similar to wedges and pennants.

The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. You could also think of it as a contracting wedge, wide at the beginning and narrowing over time.

Price Channel:

When charting the price of an asset, this is the space on the chart between an asset's support and resistance levels. The price of the asset will stay within the support and resistance levels until a breakout occurs.

Range traders will buy an asset when its price is near the bottom of the trading channel and sell it when the price gets closer to the top of the trading channel, making a profit from the price spread. Trading channels may be flat, ascending or descending.

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