Price pattern are very important to understand the market. There are many price patterns in technical analysis like double top, double bottom, cup pattern, flag pattern and triangle pattern etc.
Double top denotes bearish trend. Double bottom denotes bullish trend. Cup pattern denotes long accumulation phase for a long time and makes way for break out.
Flag pattern forms in a shorter duration and gives a positive break out.
Triangle pattern denotes a corrective phase of the market and it gives a break out positively, after formation around 70 % of the zone of triangle.
- : Price patterns are very important in Technical analysis. It shows the market trend or price trend over a period of time. There are upward price movement , down ward price movement and sideways price movement.
- : Dow theory says about the demand and supply only. With Dow Theory, we can not move further. It does not speak about price patterns. So, to have a further analysis of the market, price patterns are necessary.
- : In a line chart, if you find trend reversals in top, we can say it as Double Top. The following conditions are necessary to confirm the double top. 1. the duration of time interval between Tops should be minimum one month. 2. The top need not be exactly the same top. May be an equivalent top but not Equal top. 3. The volume should be high either on second top or subsequently. If these conditions satisfy the above criteria, then, it is bearish pattern. short position may be thought of when price drops below previous low.
- : Double bottom is the opposite of double top. It represents bullish pattern. The following conditions to be met for double bottom formation. 1. In a line chart, there should be two equivalent bottom formation between a time interval of minimum 30 days. 2. Volume should be high either at the second bottom or on the following day. 3. Long position may be considered, when price moves above previous high.
- : Head and shoulder pattern: it is price reversal pattern ie., Bullish to bearish. It signifies the resembling of Head and shoulders, namely left shoulder, neck and right shoulder. for forming this Head and shoulder, it may take minimum three to four months to take. When you draw a line connecting left shoulder, neck and right shoulder, it will form a neck line depicting downward price movement.
- : Inverted Head and Shoulder : It is the opposite of Head and shoulder. Here, when you connect the left shoulder, head and right shoulder, it will form a line moving upwards and it shows Bullish trend. It will take three to four months to take to form this trend.
- : Cup pattern: It takes a very long time to build this pattern and it is very powerful. The volume is very low, during the rounding bottom. It denotes the Accumulation phase of the market. People will buy and go on buy at their will and pleasure over a long period. volume will be very low during this pattern. After accumulation, then distribution starts with full upward movement signifying bullish trend.
- : Flag Pattern: here the price movement shoots up in a line approximately forming a steeper pole with 70 to 80 percent of straight line. Then the price movements neither goes up or down, but continues in a sideways movement for few days signifying the rectangular flag. Then, it gives positive breakout, signifying bullish pattern. during breakout, there will be high volume.
- : Entry price for flag pattern: when break out happens and moving ahead of previous high, it will be entry price. Stop loss will be previous day low. Exit price: the difference in price between break out and stop loss will be fixed on the upper side for exit the trade.
- : Triangle pattern: It is 5 wave corrective pattern. it should form a triangle shaped structure. The time taken to form a triangle pattern is one to two months. Positive Break out happens around 70 % of the triangle area. High volume is required to verify the breakout.
- : What is the Exit price in triangle pattern?
- : What is the exit price in flag patter?