Charts Formations

Head and Shoulders

This formation is generally seen at the end of long trends. Completion of the formation changes from 1 month to 1 year and it is a very important signal for trend reversal.

Volume is very important for Head and Shoulders formation. The most of the volume occurs under left shoulder and decreases significantly during correction. After pull back, prices start to increase again but the volume is less than that of left shoulder which indicates a weakness .Since the volume is not enough to carry the prices to new highs, a new correction starts. Decreasing volume is the first warning signal for the formation. The right shoulder is the last attempt with lower volume. Breaking of the neck line confirms the Head and Shoulders formation and down trend starts.

Sometimes the reverse of the Head and Shoulders formation can be seen at the end of bear market, this is an early signal for an uptrend.

Sometimes multiple head and shoulders formation can be seen. Interpretation is the same with the head and shoulder.

Triangles and Wedges

Symmetrical Triangle: form with lower highs and higher lows. Because of their shape, they can act as either a continuation or a reversal pattern. This will be signaled by the breakout. An upward breakout is a bullish signal, while a downward breakout is bearish.

Ascending Triangle: is formed by equal highs and higher lows. It is a bullish signal, whether encountered in an up- or down-trend. It is most often observed as a continuation pattern in an up-trend but is a strong reversal signal when witnessed in a down-trend.

Descending Triangle: form with equal lows and lower highs. A bearish signal, the pattern is normally observed as a continuation pattern in a down-trend but can be a powerful reversal signal when encountered in an up-trend.

Falling wedge: forms with lower highs and lower lows. A bullish signal, a falling wedge is a continuation signal in an up-trend and a reversal signal when observed in a down-trend.

Rising wedge: is formed by higher highs and higher lows. A bearish signal, the pattern is normally a continuation signal in a down-trend but acts as a reversal signal when encountered in an up-trend.

Symmetrical Triangles

All triangle formations are consolidation formations. In symmetrical triangle direction of the trend is not known. It is only can be identified after one of the line broken. Prices go up if upper line broken, and go down if lower line broken.

Volume is very important for triangle formations. Volume should decrease during the formations.

Descending Triangles

It is a signal for down trend. Price target can be found approximately by drawing a parallel line to descending line.

Ascending Triangles

It is a signal for uptrend. By drawing a parallel line to descending line, price target can be calculated approximately.

Rising Wedges

Rising wedges are reaction formations appears in down trends and and they are generally traps. Volume is a very important parameter to identify rising wedges. It decreases while the prices are going up and shows the weakness of the rising attempt. When the prices break down the bottom line, a selling crazy may start. So, it is required to be careful for this kind of formation.

Falling Wedges

Falling wedges are opposite of the rising wedges and pull back reactions during the up trends. Sellers continue to believe the securities in their hand and do not want to sell so, volume decreases significantly. When the upper line is broken, generally a rally starts. So this formation is a chance to buy a security with available prices in an uptrend.

Double Bottoms

Double bottoms formations are generally seen at the end of down trends and it is an early signal for a rally.

Double Tops

Double tops point out a weakness of the uptrend and warn for a change of trend. Generally a selling crazy starts when this formation is indicated.