Price patterns

When analyzing price charts, recognizing patterns can aid you in predicting whether the price action will continue as is or whether it will reverse. This is done through continuation and reversal patterns.

Continuation patterns

Triangle

The triangle has three variants: symmetrical, ascending, descending.

The ascending (flat top) triangle is a bullish continuation pattern. The highs of the recent candlesticks remain the same and form a resistance level while the lows creep upwards. Confirmation occurs when the price breaks out above the resistance.

The descending triangle (flat bottom) is a bearish continuation pattern. The lows of the recent candlesticks remain the same and form a support level while the highs creep downwards. Confirmation occurs when the price breaks out below the support.

The symmetrical triangle can be either bullish or bearish depending on the trend. Here, both the lows and highs move towards each other until the price breaks out of the range.

Flag

A flag pattern temporarily goes against the overall trend of the asset. For bullish flags, the pattern is recognized by two downward moving parallel lines between which the price moves before breaking out. For Bearish flags, the two parallel lines move upwards before the price breaks out downwards.

Pennant

Pennants are quite similar to symmetrical triangles. The major difference is that for a pennant to form, a major movement has to occur first which is known as the flagpole. The consolidation of the price in a triangle shape that occurs after the flagpole is known as the pennant.

Wedge

Wedges can be either ascending or descending. Descending wedges are considered bullish and happen in uptrends. With descending wedges, the lows and highs of the candlesticks move downwards but still converge.

Reversal patterns

Double top (M)

The double top is a bearish pattern that signals a reversal of an uptrend. It occurs when the price gets rejected from the same high point twice with a drawback in between. Because of this structure, it is also referred to as an M pattern.

Double bottom (W)

The double bottom is the opposite of the double top and signals a reversal of a downtrend. It occurs when the price gets rejected from the same low point twice with an up move in between. It is also referred to as a W pattern. \

Cup and handle

The cup and handle pattern is a bullish signal. First, the cup is formed by the price moving in a “U” shape or a “bowl”. Then, after the bullish momentum, the price pulls back a bit, creating the handle. The pattern is confirmed once the price moves above the level of initial rejection preceding the handle again.

Head and shoulders (H&S)

The head and shoulders pattern is a bearish signal that indicates the reversal of an uptrend. It consists of three tops: the left shoulder, the head, and the right shoulder. The head is the highest top with the left and right shoulder being of more or less equal height. Between the left shoulder and the head, the price dips. The low point of this is considered the neckline which is considered a support that is again touched during the pullback between the head and the right shoulder.

Reverse head and shoulders

The reverse head and shoulders pattern is a bullish signal that indicates the reversal of a downtrend. It consists of three bottoms: the left shoulder, the head, and the right shoulder. The head is the lowest bottom with the left and right shoulder being of more or less equal height. Between the left shoulder and the head, the price rises. The highest point of this is considered the neckline which acts as a resistance that is again touched during the pullback between the head and the right shoulder.