In technical analysis, transitions between rising and falling trends are often signaled by price patterns.
By definition, a price pattern is a recognizable configuration of price movement that is identified using a series of trendlines and/or curves. When a price pattern signals a change in trend direction, it is known as a reversal pattern; a continuation pattern occurs when the trend continues in its existing direction following a brief pause. Technical analysts have long used price patterns to examine current movements and forecast future market movements
By dow theory we can understand the trend whether its positive or negative based on the market movement or demand and supply at same time in price patterns not only understand about the trend but also shows us different patterns to know where the price is going to move.
When a line chart is plotted with the data and if we found there are two tops formed which are very much similar with in the time limit we can say a double top is formed.
Double top conditions
Two equivalent tops
Volume should be high after the second top
duration is 20 days to 1 month
Short position can be created below the previous low.
When a chart is plotted with the data and if we found there are two bottoms formed which are very much similar we can say a double bottom is formed,
Double bottom conditions:
Two equalant bottoms
Volume should be higher after the second bottom or at the breakout
Duration is 20 days to 1 month
long positions can be created when it exceeds the previous high.
The line chart pattern appears to be shoulder, head and a shoulder formation is called as head and shoulder.
Condition for bearish trend
Shoulder, tallest head, shoulder formation with 3 months duration.
Volume is high at left shoulder and low at the right shoulder.
Hi,
your answers are brief and appropriate.