reversal patterns. StockSharp

Reversal Patterns ( Head & Shoulders )

2022-11-06T16:31:10Z

💥The Head and Shoulders pattern is a popular reversal pattern in technical analysis. It is named after its appearance on the chart, which resembles a head with two shoulders. The pattern indicates a potential reversal of an uptrend and a change in market direction.

💥The Head and Shoulders pattern is formed by three peaks, with the middle peak being the highest. The left and right peaks are almost equal in height, and the pattern is completed when the price breaks below the neckline, which is the level connecting the two troughs between the peaks.

💥Traders often use the Head and Shoulders pattern to identify entry and exit points in a trade. Once the pattern is confirmed, traders may enter a short position, targeting a price decline equal to the distance from the head to the neckline. Stop-loss orders can be placed above the right shoulder to protect against a potential false breakout.

💥💥It's important to note that the Head and Shoulders pattern should not be used in isolation and should be confirmed by other technical indicators and analysis.

💥Reversal patterns are patterns that indicate that the trend that occurred in the past is likely to disappear, and new trends that are opposite of the old are likely to arise. For example, if the previous trend was an uptrend, a reversal pattern indicates that the uptrend is ending, while a downtrend is likely to follow. If the original trend was a downtrend, a reversal pattern would mean that the downtrend is about to end, while an uptrend is likely to follow.

💥From the picture, you can see that the trend was originally an uptrend, with the number of volumes rising accordingly, which is one feature that enhances the movement as an uptrend, before the left shoulder point. After that, it begins to adjust to the bottom (neckline), but you will notice that the number of volumes decreased compared to the previous period. Since many traders still believe that this downtrend is just a minor adjustment in the big uptrend, there are not many stocks to be sold out because they are afraid that if they sell out, they can't buy back (the buyback price will be higher than when it was sold), which is what traders expect. In the next period, the price rebounds from the uptrend line up to the head point, which is higher than the left shoulder point. The number of volumes increases accordingly because everyone is still looking at the picture as an uptrend.

💥After that, it starts to decline again, but at this moment, it can't be said for certain that the first vertex is the left shoulder and the second vertex is the head because it is still in an uptrend. This downward adjustment is down to test the uptrend line again. The initial number of volumes may not be too noticeable, but when it reaches the receiving point on the uptrend line, it appears that the support is not there, and thus, the uptrend line breaks down.

💥Now everyone is starting to realize that there will be a serious downturn, causing a lot of selling resulting in higher trading volume. The price continues to weaken until the bottom of the 2nd trough (neckline) and then starts to gain strength back, causing a rebound in the volume price. However, the number of volumes is not as much as in the past, as everyone is not sure if the downturn will actually happen. There is a possibility of further downward adjustments until the point of the right shoulder, causing a sales force by people who sell at low prices to make a profit first. This point will increase the beliefs of many parties, who may start to see a pattern of the left shoulder head up, and where they are now is most likely the right shoulder. However, to confirm the occurrence of the right shoulder, the bottom point of the shoulder groove (point 2) must not be higher than the first vertex, and the 3rd peak (the right shoulder) must not go above the head (the 2nd peak). This downward adjustment will have a large number of volumes, confirming the decline, especially when it breaks down the neckline.

💥💥One important point to note about the neckline in an uptrend is that it must not have a negative slope to be a real Head & Shoulders pattern.

💥By now, everyone can see that the head & shoulders pattern is perfect. Will they stop playing now? It's unlikely! There are still some groups that know that even head & shoulders can still play out. That is, after discarding the right shoulder point until the price falls through the neckline, in principle, it can be analyzed that the level that falls below the neckline, down to a distance equal to or close to the distance measured from the head down to the neckline, will begin to be targeted. As a result, there may be a rebound, but the number of volumes will not be as much.

💥Because it is a short play, these groups will be prepared to set up a sell-off again at the 4th vertex in order not to go beyond the neckline. The pattern seen after the head is a downtrend.

💥In the case of a trend shift from downtrend to uptrend, the pattern is referred to as a reverse head & shoulders. Before the first and second bottoms, the market is still in a downtrend phase, and stocks are sold in large quantities. During the rebound after the first peak, trading volume is relatively low because traders understand that it is just an uptrend in a big downtrend. However, after the second bottom, traders may believe that the prices are already low enough and start to collect stocks, leading to a continued increase in price. When the price breaks through the resistance of the downtrend line, there will be buying pressure to further strengthen the move, and the number of volumes will increase accordingly. However, the move will still be limited by the neckline, and only the second vertex will be adjusted downwards, leaving a possibility of a right shoulder formation.

💥However, traders know that this downturn is just a temporary adjustment. Since the downtrend line has already been crossed, there is no stock drain. Assuming the right shoulder formation is complete at the 3rd bottom, the right shoulder fissure (the 2nd vertex) cannot be lower than the first bottom point and the right shoulder (3rd bottom point) must not be lower than the head (the 3rd peak). After that, there is another upward movement with buying pressure sweeping into another wave, causing the neckline to break up and being confirmed by the presence of a sufficiently large volume. In the next period, not everyone sells out much because they have begun to believe that the trend has changed from downtrend to uptrend, and that the neckline in this case must not have a negative slope.

Continuous Patterns (Ascending Triangle)

2022-11-14T09:25:53Z

💥An ascending triangle is a type of pattern that can be found in technical analysis. It is formed when the price of an asset moves within a converging range, with a horizontal resistance line at the top and an upward-sloping trend line at the bottom. This pattern is a bullish continuation pattern, which means that it is likely to result in the continuation of an existing uptrend once the pattern is broken.

💥To identify an ascending triangle pattern, traders look for a horizontal resistance line and an upward-sloping trend line that connects at least two lows. The resistance line should be roughly flat, while the trend line should slope upwards. These lines should converge towards a point.

💥Traders often look for a breakout above the resistance line to confirm the pattern, as this indicates that buyers have gained enough momentum to push the price above the resistance level. They may also use other technical indicators and analysis to confirm the direction of the breakout and determine potential entry and exit points for trades.

💥Once the price breaks out of the ascending triangle pattern, it is likely to continue moving upwards, with a potential price target equal to the height of the pattern added to the breakout point. However, if the price fails to break out and instead falls below the upward-sloping trend line, the pattern is considered to be invalidated.

💥In the Ascending Triangle pattern (see picture), you can observe that it is similar to the triple tops pattern, but with a difference. During the formation of the Ascending Triangle pattern, the lower highs are higher than the previous lower highs, for example, 3 is higher than 2, and 2 is higher than 1 (while in triple tops, the lower highs are approximately at the same level with each other). This can help analyze whether the price is likely to continue moving up and how much it will move up after breaking through the resistance level.

💥Based on technical analysis principles, it can be analyzed that the price is likely to move up to a distance equal to or close to the distance measured from point A to the resistance level. Therefore, those waiting to sell should be prepared to take profits at that level. When the price drops, it can be bought (if it does not go down much until it changes the trend in the form of reversal patterns) because the adjustment is a minor correction in a big uptrend.

💥In the example above, both pictures show that the SET index formed an Ascending Triangle pattern at some point, which allowed it to maintain its original uptrend. Before the Ascending Triangle formed, the SET index was already moving up. After the pattern formed, the SET index continued its uptrend.

💥In the first example image, the principle of finding price targets was applied when the price was able to break through the horizontal resistance line of the Ascending Triangle pattern. It can be observed that the share price adjusted and fluctuated somewhat along the predicted line, which means that there will be short-term profits. However, for this case, short-term profitability cannot stop the determination or strength of the SET index, as it continues to climb up unceasingly. Those who sold in haste will rush back to buy back in order to continue being in the market.

Reversal Patterns (Triple Tops & Triple Bottoms)

2022-11-07T16:14:42Z

💥Triple Tops and Triple Bottoms are reversal patterns that appear on price charts. They occur when the price of an asset creates three consecutive peaks or troughs at approximately the same level. Triple tops occur during an uptrend, indicating a possible trend reversal, while triple bottoms occur during a downtrend, signaling a potential shift in trend direction.

💥In a triple top pattern, the first peak represents a resistance level that the price is unable to break through, causing it to decline to a support level. The second peak shows a renewed attempt to break through the resistance level but is again rejected, leading to another decline to the support level. Finally, the third peak fails to surpass the resistance level, and the price declines below the support level, signaling a potential downtrend.

💥In a triple bottom pattern, the first trough represents a support level that the price cannot break through, causing it to rise to a resistance level. The second trough shows a renewed attempt to break through the support level, but it is again rejected, leading to another rise to the resistance level. Finally, the third trough surpasses the support level, and the price rises above the resistance level, signaling a potential uptrend.

💥Traders usually confirm the pattern by looking at the trading volumes during each peak or trough. Higher trading volumes at the peaks and troughs indicate stronger support and resistance levels. The neckline, which connects the peaks or troughs, is also essential. A break below the neckline in a triple top pattern or above the neckline in a triple bottom pattern confirms the pattern, and traders may initiate trades based on the anticipated trend reversal.

💥Let's discuss triple tops first. Broadly speaking, it refers to when the volume price tries to break through a horizontal resistance but fails to do so, resulting in a subsequent correction. It may be difficult to understand this concept just by listening to it. Therefore, let's try to delve deeper and look at some visuals.

💥In the figure above, let's say the price is moving up and reaches the top 1. Then, there is a sell-off that causes a decline to the bottom 1. However, the trading volume during the bottom 1 is still not significant because everyone thinks it is a minor correction in a major uptrend. They want to buy, and the price continues to rise until it reaches close to top 1 again. Traders have confidence that it will continue to move in an uptrend, and the trading volume during this period is quite large.

💥As mentioned above regarding the meaning of resistance, the price moved down from the second top and continued to flow down to the second bottom, which is a support line. Traders' expectations remain that there may be a rebound. Therefore, during the second bottom line, the volumes appearing are less than during recent uptrends because there is still a concern that after selling, it cannot be repurchased (bought back at a higher price than it was sold). However, when it comes to actually moving up to the third top, some traders are starting to worry because it has failed to pass through it twice before. Therefore, they do not dare to buy to pursue. The number of volumes in this period is seldom different from the last period, so when it reaches the third top, it is quite brittle. A downward adjustment is likely to occur. It can be seen that the price attempted to break the horizontal resistance three times (triple) but still failed to pass through.

💥The completeness of the form takes place when the price has adjusted down until breaking through the horizontal support line that used to support the abyss point 1 and bottom point 2 down. Here, the level is seen as a neckline, similar to the case of head & shoulders, but in fact, they call it the base line. The amount of volume in this period will increase a lot as a result of the profit that will occur after.

💥The question is, will you stop playing at all? The answer is no! But you will wait to set up at a level away from the neckline down equal to or close to the distance measured from the top 2 to the neckline. In principle, there may be some rebound, but that's just a bounce, not a shift. Continually rising playing in this period could be a bit of play and wait to take profits at the level before or close to the neckline. The number of volumes sold out was enormous. You can see that at the beginning, the volume movement is still an uptrend, but later the trend has become a downtrend, and thus it is one of the reversal patterns.

💥If you still don't understand, I encourage you to study the concept again and again. It's not as difficult as you may think! For those who understand, let's move on to discussing triple bottoms. Firstly, we need to understand what triple bottoms are used for. Can you guess? Some traders may have already figured it out. It is a pattern that increases the likelihood of a downtrend turning into an uptrend.

💥Initially, the price trend was still in a downtrend. When the price hit bottom 1 in the chart, buying pressure pushed the price back up. Buyers saw the price at bottom 1 as cheap. However, when the price reached top 1, some people decided to sell and take profit because the overall trend was still in a downtrend. This selling pressure caused the price to fall back down to the base, as defined by the support line mentioned earlier.

💥The price then rebounded from bottom 2 and continued to rise until it reached peak 2. However, it was hit again and began to fall once more until it reached bottom 3. This time, there should be more buying interest as the price had fallen twice before but did not go lower than the previous two bottoms (bottom 1 and bottom 2). Buyers had to fight to push the price back up.

💥If the price can break through the base line resistance again, it will gain a lot of reinforcement. The number of traded volumes will increase, confirming that this rise is strong enough. Many are starting to see that this is a pattern of triple bottoms, although there may be some downturn from short-term take profit. The distance before the neckline compared to the distance between Bottom 1 and Bottom 2 is an adaptation in preparation for an uptrend in the form of triple tops or triple bottoms. When forming, it can be seen that volume and prices move sideways, as shown in the figure depicting triple tops in real volumes.