Price Pattern Types and Characteristics

Price pattern gives the characteristics behind the price movement whereas dow shows only the trend and it lacks explanation of characteristics and late in communicating.

Pattern Double top and double bottom – follows dow and gives early signal.
Condition for DT and DB
1.Open chart and identify 2 equivalent top or bottom
2.Duration b/w the identified equivalent top and bottom – Min 1 month
3.Volume should be high at second top/bottom crossing the previous neckline’s.

Pattern Head and shoulder – formed when quicker trade happens. Distribution/Accumulation pattern.
Head and Shoulder is bullish reversal pattern.
Inverted Head and shoulder is bearish reversal pattern.
Conditions for bullish reversal, Short position
1. Identify Shoulder, Head, Shoulder pattern in the chart.
2.Min 3 months required for the formation.
3.Volume should be high on Left shoulder
4.Volume should be low on right shoulder
5. Position short below neckline.

Pattern Cup – formed in gradual trade. Meant for very long trade since it takes longer time to form.
Condition
1. Cup shaped pattern visible.
2.Correlation to market movement is low. the nifty movement shouldnt have much impact to the stock.
3.High volume should form round pattern
4.Long position

Flag Pattern – Keenly seen, characteristics is powerful. indicates increase in momentum, price goes up and travels sideways.
Condition
1. Spot steeper trend 70 – 80 degree
2. Rectangular price pattern to happen for 3-7 days.
3. Volume should be low during flag pattern.
4. Flag should not drift low.
5. Long position created after breakout.

Triangle Pattern – Difference b/w flag and triangle is degree. Strongest pattern. Takes minimum 45 days to form.
Condition
1. Spot the wave A B C D E.
2. Line connecting top and bottom should form triangle
3. high volume during break out.
4. Break out can happen any side (up/down) since both the parties are powerful.
5. Generally breakout happens after 70% of triangle formation.