Price Patterns

Bullish

Double Bottom: A bullish reversal chart pattern showing two consecutive troughs that are roughly equal, with a moderate peak in-between, concluding with a resistance breakout. See ChartSchool article on Double Bottom (Reversal).

Triple Bottom: A price pattern with three equal lows followed by a breakout above resistance. See ChartSchool article on Triple Bottom (Reversal).

Rounding Bottom: Also known as a saucer bottom, it is a reversal chart pattern representing a long consolidation period that turns from a bearish bias to a bullish bias. See ChartSchool article on Rounding Bottom (Reversal).

Head and Shoulders Bottom: A bullish reversal pattern marked by three (or more) prominent troughs with a middle trough (the head) that is lower than the other troughs (the shoulders). When the trendline (neckline) connecting the peaks at the top of the pattern is broken, the pattern is complete. See ChartSchool article on Head and Shoulders Bottom (Reversal).

Cup with Handle: A bullish chart pattern that marks a consolidation period followed by a breakout. The “cup” part of the pattern resembles a rounding bottom, and is followed by a “handle” that acts as a final consolidation before a breakout. See our ChartSchool article on Cup With Handle (Continuation).

Ascending Triangle: A sideways price pattern between two converging trendlines in which the lower line is rising while the upper line is flat. This is generally a bullish pattern. See ChartSchool article on Ascending Triangle (Continuation).

Falling Wedge: A bullish pattern that begins wide at the top and contracts as prices move lower toward a resistance breakout. See ChartSchool article on Falling Wedge (Reversal).

Selling Climax: See Reversal Spike.

Washout Day: A selling climax or high volume decline that “washes out” all the sellers and paves the way for buyers to take over. This may also take the form of a high volume hammer after an extended decline.

Bear Trap: A situation that occurs when prices break below a significant level and generate a sell signal, but then reverse course and negate the sell signal, thus “trapping” the bears that acted on the signal with losses. A bear trap is another form of whipsaw and relates to the spring.

Spring: A situation that occurs when prices break below support, but soon reverse course and move back above support. Prices are said to “spring” back from their support break and indicate that the bulls are still alive. A spring can also be referred to as a failed (bearish) signal and is considered bullish. Generally, the reversal should occur within 1-3 days of the support break for the failed signal to be considered valid. This is the opposite of an upthrust.

Bearish

Double Top: A bearish reversal chart pattern displaying two prominent peaks that are roughly equal, with a moderate trough in-between, concluding with a support break. See ChartSchool article on Double Top (Reversal).

Triple Top: A price pattern with three prominent peaks, similar to the head and shoulders top, except that all three peaks occur at about the same level. See ChartSchool article on Triple Top (Reversal).

Head and Shoulders Top: A bearish reversal pattern marked by three (or more) prominent peaks with a middle peak (the head) that is higher than the other peaks (the shoulders). When the trendline (neckline) connecting the troughs at the bottom of the pattern is broken, the pattern is complete. See ChartSchool article on Head and Shoulders Top (Reversal).

Bump and Run Reversal: A reversal chart pattern that forms after excessive speculation drives prices up too far, too fast. It is designed to identify speculative advances that are unsustainable for a long period. See ChartSchool article on Bump and Run Reversal.

Descending Triangle: A sideways price pattern between two converging trendlines in which the upper trendline is descending while the lower line is flat. This is generally a bearish pattern. See ChartSchool article on Descending Triangle (Continuation).

Rising Wedge: A bearish pattern that begins wide at the bottom and contracts as prices move higher toward a support break. See ChartSchool article on Rising Wedge (Reversal).

Buying Climax: A sudden upward movement in the market value of a security characterized by a gap in the prices between one trading session and the next. Used by technical analysts and often considered an indication that a security has been overbought and the price will fall.

Blowoff: See Reversal Spike.

Bull Trap: A situation that occurs when prices break above a significant level and generate a buy signal, but suddenly reverse course and negate the buy signal, thus “trapping” the bulls that acted on the signal with losses. A bull trap is another form of whipsaw and relates to the upthrust.

Upthrust: A situation that occurs when prices break above resistance, but soon reverse course and break back below resistance. Price are said to “thrust” up, but cannot maintain the upward momentum and soon decline. The upthrust can also be referred to as a failed (bullish) signal and is considered bearish. Generally, the reversal should occur within 1-3 days of the resistance breakout for the failed signal to be considered valid. This is the opposite of a spring.

Neutral

Area Pattern: A pattern of sideways price movement that follows a stalled uptrend or downtrend of a stock or commodity. Some of these patterns (triangles, flags, wedges etc.) have good predictive value.

Basing: A period where the stock or market is “catching its breath” after a decline, characterized by a flat trading range without any noticeable trend. It is common to see a basing period after a lengthy decline of the stock price. Basing may be a sign of accumulation.

Flag: A continuation chart pattern that generally lasts less than three weeks and resembles a parallelogram that slopes against the prevailing trend. The flag represents a minor pause in a dynamic price trend. See ChartSchool article on Flag, Pennant (Continuation).

Pennant: A continuation chart pattern that is simliar to the flag, except that it is more horizontal and resembles a small symmetrical triangle. Like the flag, the pennant usually lasts from one to three weeks and is typically followed by a resumption of the prior trend. See ChartSchool article on Flag, Pennant (Continuation).

Rectangle: A continuation chart pattern where prices move sideways between two different levels for a period of time and then continue moving in the direction of the previous trend. See ChartSchool article on Rectangles.

Symmetrical Triangle: A sideways chart pattern between two converging trendlines in which the upper trendline is declining and the lower trendline is rising. This pattern represents an even balance between buyers and sellers, although the prior trend is usually resumed. The breakout through either trendline signals the direction of the price trend. See ChartSchool article on Symmetrical Triangle (Continuation).

Topping: A period where the stock or market is “catching its breath” after an advance, characterized by a flat trading range without any noticeable trend. It is common to see a topping period after a lengthy increase of the stock price. Topping may be a sign of distribution.

Triangles: Sideways price patterns in which prices fluctuate with converging trendlines. The three types of triangles are the symmetrical, the ascending, and the descending.

Wedge: A reversal chart pattern characterized by two converging trendlines that connect at an apex. The wedge is slanted either downwards or upwards demonstrating bullish or bearish behavior respectively. See ChartSchool articles on Falling Wedge (Reversal) and Rising Wedge (Reversal).

Gaps

Breakaway Gap: A price gap that forms on the completion of an important price pattern. A breakaway gap usually signals the beginning of an important price move.

Exhaustion Gap: A price gap that occurs at the end of an important trend, and signals that the trend is concluding.

Gap: Gaps form when opening price movements create a blank spot on the chart. This occurs when the high of the day is below the low of the previous day or when the low of the day is above the high of the previous day. Gaps are especially significant when accompanied by an increase in volume.

Gap – Breakaway: Breakaway gaps signal a potential change in trend and are especially significant when accompanied by an increase in volume. A bullish breakaway gap forms when a security gaps up after an extended decline. Bullish breakaway gaps can also occur after an extended base or consolidation period. A bearish breakaway gap forms when a security gaps down after an extended advance. Bearish breakaway gaps can also form after an extended top or consolidation period.

Gap – Common: Common gaps occur within a trading range or shortly after a sharp move as a reaction. These gaps do not signify the beginning or continuation of a move, but rather represent anomalies. For instance, if a security has declined 20% in a week and gaps up, it would be considered a common gap and not likely to signify a change in trend. Or, if a trading range develops between 20 and 30, and a gap forms in the middle, it is probably a common gap.

Gap – Continuation: A continuation gap forms in the middle of a move and in the same direction as the current move. These gaps signal a continuation of the preceding trend and can mark good entry points. After a short or intermediate advance, a continuation up gap is usually considered bullish and signals a renewal of the uptrend. After a short or intermediate decline, a continuation down gap is usually considered bearish and signals a renewal of the downtrend. This gap is also called a measuring or runaway gap.

Gap – Exhaustion: After an extended or long move, a gap in the direction of the current move is called an exhaustion gap. For an exhaustion gap to be considered valid, prices should reverse soon after the gap and close the gap. After an extended decline, a gap down could signal that the downtrend is about to exhaust itself. An exhaustion gap is confirmed when prices reverse soon afterwards and move above (or “close”) the gap. After an extended advance, an exhaustion gap would be confirmed when prices reverse soon afterwards and move below the gap.

Gap – Measuring: See Gap – Continuation.

Gap – Up/Down: An up gap forms when a security opens above the previous period’s high, remains above the previous high for the entire period and closes above it. Up gaps can form on daily, weekly or monthly charts and are generally considered bullish. A down gap forms when a security opens below the previous period’s low, remains below the previous low for the entire period and closes below it. Down gaps can form on daily, weekly or monthly charts and are generally considered bearish.

Runaway Gap: A price gap that usually occurs around the middle point of an important market trend. For that reason, it is also called a measuring or continuation gap.

General

Ascending Trend Channel: An ascending line that connects the bottoms of the down waves and is parallel to a trendline. The ascending channel line and the trendline form borders on an uptrend.

Breakout: Price of a security emerging from a previous trading pattern. The new price “breaks out” above the high (or below the low) trading pattern lines that enclose all other prices for that security in the preceding period. Breakouts are used by technical analysts to predict substantial upside or downside movement.

Channel: When prices trend between two parallel trendlines, this is referred to as a channel. See ChartSchool article on Price Channel (Continuation).

Channel Line: A straight line drawn parallel to the basic trendline. In an uptrend, the channel line slants up to the right and is drawn above rally peaks; in a downtrend, the channel line is drawn below price troughs and slants down to the right. Prices often meet resistance at rising channel lines and support at falling channel lines. See ChartSchool article on Price Channel (Continuation).

Continuation Pattern: A type of chart pattern that occurs in the middle of an existing trend. The previous trend resumes when the pattern is complete. Examples include the Rectangle and Pennant continuation patterns. For more continuation patters, see our Chart School article on Chart Analysis.

Down Trendline: A straight line drawn down and to the right above successive rally peaks. The longer the down trendline has been in effect and the more times it has been tested, the more significant it becomes. A violation of the down trendline usually signals a reversal of the downtrend.

Elliott Wave Analysis: An approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave pattern shows a five wave advance followed by a three wave decline. See ChartSchool article on Elliott Wave Theory.

Key Reversal Day: A one day chart pattern where prices sharply reverse during a trend. In an uptrend, prices open in new highs and then close below the previous day’s closing price. In a downtrend, prices open lower and then close higher. The wider the price range on the key reversal day and the heavier the volume, the greater the odds that a reversal is taking place.

Low Pole (LP): A situation on a Point and Figure Chart that occurs when a down column that falls 3 boxes or more reverses to an up column. The reversal retraces more than 50% of a down move that has an odd number of “O’s”, or retraces more than 62.5% of a down move that has an even number of “O’s”. Because it is not an actual P&F buy signal but offers a good probability of leading to one, this formation is considered a “buy alert”.

Reversal Pattern: A chart pattern that occurs before an existing trend reverses direction. For example, a Head and Shoulders reversal pattern marks a change in trend. A break below neckline support indicates that the H&S pattern is complete and the prior uptrend has reversed. For more reversal patterns, see the ChartSchool section on Chart Analysis.

Reversal Spike: Market turns that happen very quickly with little or no transition period. Spikes often occur when a market has become very overextended in one direction, when a sudden piece of adverse news causes a sudden reversal. Reversal spike highs (aka blowoffs) and lows (aka selling climaxes) can signal a reversal or deceleration of a trend, but unfortunately they are very difficult to forecast.

Trend: Refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend. A trading range is characterized by horizontal peaks and troughs. Trends are generally classified into major (longer than a year), intermediate (one to six months), or minor (less than a month).

Trendlines: Straight lines drawn on a chart below reaction lows (in an uptrend) or above rally peaks (in a downtrend) that determine the steepness of the current trend. The breaking of a trendline usually signals a trend reversal. See ChartSchool article on Trendlines.

Up Trendline: A straight line drawn upward and to the right below the reaction lows. The longer the up trendline has been in effect and the more times it has been tested, the more significant it becomes. Violation of the trendline usually signals that the uptrend may be changing direction.

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