The difference is that rising wedges have higher tops and falling wedges have lower bottoms, while ascending triangles have horizontal tops and descending triangles have horizontal bottoms. This is shown with the green lines on the image above. The stop loss should be placed right beyond the horizontal level of the triangle.

Symmetrical triangles have two sides, which are approximately the same size. Since the two sides of the triangle are usually the same, this creates a technical force equivalency, which creates the neutral character of the formation.

11 essential stock chart trading patterns

The image below shows how a symmetrical triangle appears:. When a symmetrical triangle occurs on the chart, we expect the price to move in an amount equal to the size of the formation. However, the direction of the breakout is typically unknown due to the equivalency of the two sides of the triangle. Thus, price action traders tend to wait for the breakout in order to confirm the potential trade direction of the formation. If you trade a symmetrical triangle, you should place a stop loss right beyond the opposite end of the breakout side.

Now that I introduced you to the most important patterns for chart reading it is now time to show you an example of the chart patterns in action. Our chart analysis shows seven successful chart patterns. The green lines show where we could open our positions. The red lines show where stop losses should be placed. First, we start with a double bottom formation. The green line is the signal line of the figure and the moment where we would go long. The red line is the stop loss, which is approximately in the middle of the formation. The price increase turns into a rising wedge afterwards.

Since the wedge comes after a price increase, it has a reversal character. The could be closed after two days when the price reached the size of the formation. The profit gain would have been pips. Then the price starts a new increase which leads us to a symmetrical triangle.

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Look how the sides are approximately the same size and under the same angle. Since the symmetrical triangle has neutral character, we wait for a breakout. And here it is in bearish direction. In the same day the price completes the size of the formation — pips that same day. The decrease after the symmetrical triangle leads us to the first bottom of a double bottom formation. When we spot the second bottom, we would put the signal line right above the top between the two bottoms. The price breaks the signal line and a long trade is confirmed.

We would place the stop loss around the middle of the figure.

In this particular case, one could have stayed in the market for twice the size of the formation! Soon afterwards, price starts consolidating. Notice how the consolidation resembles a rectangle? This is a bullish rectangle! We could manage to stay with this long position more than the potential of the rectangle, because we get no bearish behavior after the bullish potential is fulfilled. The price starts hesitating afterwards and we see some bearish attitude on a lower time frame chart H4. Furthermore, on our daily chart the price closes a Doji candle which has a potential reversal character.

Suddenly, the price finally starts to drop.

11 Most Essential Stock Chart Patterns | CMC Markets

Do you see something? See the black lines on the image above.

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The last double bottom followed by the bullish rectangle creates a shoulder and a head. The following decrease creates a second shoulder afterwards. This is a nice head and shoulders formation. In order to confirm the setup, we need price to break and close beyond the neck line of the formation. So, we connect the two bottoms which create the head and we get our neck line. We would want to stay with the short position until the price completes the size of the figure.

Then a corrective rising wedge appears. It is up to you if you are going to close the head and shoulders position and then open another short position to trade the rising wedge.

The other option is to stay with the head and shoulders short position until the wedge is completed. In both cases you would have generated solid profit from the head and shoulders pattern. Download the short printable PDF version summarizing the key points of this lesson…. What is ethereum? What are the risks? Cryptocurrency trading examples What are cryptocurrencies?

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Chart Pattern Analysis Book Pdf

Start trading Includes free demo account. Quick link to content:. Descending triangle Unlike ascending triangles, the descending triangle represents a bearish market downtrend. Symmetrical triangle For symmetrical triangles, two trend lines start to meet which signifies a breakout in either direction. Pennant Pennants are represented by two lines that meet at a set point. Flag The flag stock chart pattern is shaped as a sloping rectangle, where the support and resistance lines run parallel until there is a breakout. Wedge A wedge represents a tightening price movement between the support and resistance lines, this can be either a rising wedge or a falling wedge.

Double bottom A double bottom looks similar to the letter W and indicates when the price has made two unsuccessful attempts at breaking through the support level.