Price chart pattern technique

The price chart pattern technique is a method of analyzing and predicting trends according to price chart patterns.

Unlike the candlestick charting techniques, the price chart pattern technique is formed from long-term, medium-term trading instead of short-term trading.

The price chart pattern depicts the battle between supply and demand expressed through resistance and support levels. The pattern shows whether supply or demand is winning or drawing.

Price chart patterns include 2 main groups: continuation patterns and reversal patterns:

The continuation pattern represents a temporary cessation of the current trend, after which the price tends to continue in the previous trend.

The reversal pattern represents a temporary cessation of the current trend, after which the price trends against the previous trend.

Some typical price chart patterns:

1. Double bottom pattern.

A double bottom is made up of two consecutive flat bottoms with a peak in the middle. This pattern usually appears after a strong downtrend.

Conditions of formation:

  • The previous trend was a strong downtrend.
  • Two bottoms are formed in a row, with equal prices.
  • A peak is formed between two troughs.
  • The price from the second bottom moves up above the resistance level created by the middle top.

Double bottom pattern

Double bottom price chart pattern technique shows the price in a downtrend reaching the first bottom and retracing. Sellers continued to expect the price to continue falling, but the price reached a second bottom and then rallied again. At this time, the psychology of the sellers could not hold, and the selling pressure decreased, while the bullish sentiment of the buyers increased, and the buying pressure increased. When the price breaks through the resistance level, the bullish belief is strongly reinforced, and the buyers overwhelm the sellers, creating a trend reversal. A few sellers still expect the price to fall to create a price correction, but they can’t win over the buyers, the new uptrend is confirmed.

Experts often say to buy after the price breaks through a resistance level and then come back to test that resistance and go up again. The profit target is said to be equal to the price range from support to resistance.

2. Double top pattern.

A double top is made up of two consecutive equal tops with a bottom in the middle. This pattern usually appears after a strong uptrend. A double top is the opposite of a double bottom.

Conditions of formation:

  • The previous trend was a strong uptrend.
  • Two peaks are formed in a row, with equal prices.
  • A bottom is formed between two peaks.
  • The price from the second top slipped below the support created from the middle bottom.

Double top pattern

The double-top price chart pattern technique shows the price in an uptrend reaching the first top and retracing. Buyers continued to expect the price to continue to rise but the price rallied to the second peak and rallied again. At this time, the psychology of buyers could not hold, and the buying pressure decreased, while the bearish sentiment of the sellers increased, and the selling pressure increased. When the price slips below the support level, the bearish belief is strongly reinforced, and the sellers overwhelm the buyers, creating a trend reversal. A few buyers still expected to increase the price to create a price adjustment rhythm but could not beat the sellers, the new downtrend was confirmed.

Experts often say to sell after the price slips above a support level and then return to test that support and continue to slide down. The profit target is said to be equal to the price range from support to resistance.

3. Triple bottom pattern.

A triple bottom is made up of three consecutive equal bottoms with two peaks in between. This pattern usually appears after a strong downtrend.

Conditions of formation:

  • The previous trend was a strong downtrend.
  • Three bottoms are formed in a row, with equal prices.
  • The first top is formed between the first and second bottom. The second top is formed between the second and third bottom. The two peaks have the same price.
  • The price from the third bottom went up above the resistance level created by the two tops.

Triple bottom pattern

The triple bottom price chart pattern technique shows the price in a downtrend, the sellers expect the price to continue falling but the price does not break through the support level, creating three consecutive bottoms. At this time, the selling pressure decreased, while the bullish sentiment of the buyers increased, the buying pressure increased. When the price breaks through the resistance level, the bullish belief is strongly reinforced, and the buyers overwhelm the sellers, creating a trend reversal. A few sellers still expect the price to fall to create a price correction, but they can’t win over the buyers, the new uptrend is confirmed.

The triple bottom is said to be a stronger trend reaction than the double bottom. Experts often say to buy after the price breaks through a resistance level and then come back to test that resistance and go up again. The profit target is said to be equal to the price range from support to resistance.

4. Triple top pattern.

The triple top is made up of three consecutive equal tops with two troughs in between. This pattern usually appears after a strong uptrend. A triple top is the opposite of a triple bottom.

Conditions of formation:

  • The previous trend was a strong uptrend.
  • Three peaks are formed in a row, with equal prices.
  • The first bottom is formed between the first and second peaks. The second bottom is formed between the second and third peaks. The two bottoms have the same price.
  • The price went up from the third high and slid below the support level created by the two bottoms.

Triple top pattern

In an uptrend, buyers expect the price to continue to rise but the price does not break through the resistance level, creating three consecutive peaks. At this time, the pressure on buyers decreased, while the pressure on sellers increased. When the price slips below the support level, the bearish belief is strongly reinforced, and the sellers overwhelm the buyers, creating a trend reversal. A few buyers still expected to increase the price to create a price adjustment rhythm but could not win against the sellers, the new downtrend was confirmed.

The triple top is said to be a stronger trend response than either the pattern or the top. Experts often say to sell after the price slips above a support level and then return to test that support and continue to slide down. The profit target is said to be equal to the price range from support to resistance.

5. Head and shoulders pattern.

The head and shoulders pattern is similar to the three tops, but with the second peak higher than the other two. The first peak (left shoulder), second peak (head), and third peak (right shoulder). This pattern usually appears after a strong uptrend.

Conditions of formation:

  • The previous trend was a strong uptrend.
  • Three peaks are formed in a row. The left shoulder and the right shoulder are equally priced. The head costs more than the shoulders.
  • The first bottom is formed between the left shoulder and the head. A second bottom is formed between the head and right shoulder. The two bottoms have the same price.
  • The price from the right shoulder slipped below the support level created by the 2 bottoms.

Head and shoulders pattern

The head and shoulders pattern is said to be the strongest trend reversal reaction. Experts often say to sell after the price slips below a support level and then return to test that support and continue to slide down. The profit target is said to be equal to the price range from the beginning to the support level.

6. Inverted head and shoulders pattern.

The Inverted Head and Shoulders Pattern is the opposite of the Head and Shoulders pattern, the Inverted Head and Shoulders pattern has a second bottom lower than the other two bottoms. First bottom (left shoulder), second bottom (head), third bottom (right shoulder). This pattern usually appears after a strong downtrend.

Conditions of formation:

  • The previous trend was a strong downtrend.
  • Three bottoms are formed in a row. The left shoulder and the right shoulder are equally priced. The head costs less than the shoulders.
  • The first peak is formed between the left shoulder and the head. The second peak is formed between the head and the right shoulder. The two peaks have the same price.
  • The price from the right shoulder goes up above the resistance level created by 2 peaks.

Inverted head and shoulders pattern

The inverse head and shoulders pattern, like the head and shoulders pattern, is said to be the strongest trend reversal reaction. Experts often say that it’s a good idea to buy after the price rises above a resistance level and then come back to test that resistance and continue upward. The take profit target is said to be equal to the price range from the top to the resistance level.

7. Flag pattern.

The flag pattern usually signals the continuation of the previous trend. There are two types of flag patterns: bullish flag patterns and bearish flag patterns.

Bullish flag pattern:

This pattern usually appears after a strong uptrend.

Conditions of formation:

  • The previous trend was a strong uptrend.
  • The support line is parallel to the resistance line.
  • Support and resistance lines are trending down.
  • Price breaks above the resistance line.

Price chart pattern technique - Rising flag pattern

The bullish flag pattern represents a slight downtrend correction after a strong uptrend. After breaking the resistance line, the potential trend continues. Experts often say to buy after the price goes up above a resistance level and then come back to test that resistance level and continue up. The profit target is said to be equal to the flag handle price range.

Bearish flag pattern:

This pattern usually appears after a strong downtrend.

Conditions of formation:

  • The previous trend was a downtrend.
  • The support line is parallel to the resistance line.
  • Support and resistance lines tend to be ascending.
  • Price slips below the support line.

Price chart pattern technique - Bearish flag pattern

The bearish flag pattern represents a slight uptrend correction after a strong decline. After breaking the support line, the potential trend continues down. Experts often say that it is advisable to sell after the price rises above a resistance level and then return to test that resistance and continue down. The profit target is said to be equal to the flag handle price range.

8. Wedge pattern.

Wedge patterns often appear after a strong uptrend or downtrend. When the price breaks out of the pattern, the price will tend to go against the direction of the wedge. There are three main types of wedge patterns: rising wedge, falling wedge, and expanding wedge.

Rising wedge pattern:

Conditions of formation:

  • The previous trend is a strong bullish or bearish trend.
  • The support line tends to rise faster than the resistance line.
  • Price slips below the support line.

Price chart pattern technique - Rising wedge pattern

A rising wedge pattern has support and resistance lines that tend to rise, but support lines tend to rise faster. This shows that the buyers are gradually weakening and the sellers are gradually getting stronger. At some point, when the selling force is strong enough, the price will break the downward support line, starting a strong downtrend. Experts often say to sell after the price breaks a support line and then come back to test that support and confirm the trend. The profit target is said to be equal to the wedge price range.

Falling wedge pattern:

Conditions of formation:

  • The previous trend is a strong bullish or bearish trend.
  • The resistance line tends to fall stronger than the support line.
  • The price crossed the resistance line.

Price chart pattern technique - Falling wedge pattern

A falling wedge has a support and resistance line but a stronger resistance line. This shows that the sellers are gradually weakening and the buyers are gradually getting stronger. At some point, when the buying force is strong enough, the price will break the upward resistance line, starting a strong uptrend. Experts often say to buy after the price breaks a resistance line and then come back to test that resistance and confirm the trend. The profit target is said to be equal to the wedge price range.

Expanding wedge pattern:

Conditions of formation:

  • The previous trend is a strong bullish or bearish trend.
  • The resistance line is trending up. The support line is trending down.
  • Price breaks above the resistance line or slips below the support line.

Price chart pattern technique - Expanding wedge pattern

An expanding wedge has a downward support line and an upward resistance line. This proves that the sellers and buyers are constantly increasing pressure. At some point, when the buying or selling force is strong enough, the price will break the resistance or support line. If the price breaks the upward resistance line then a strong uptrend begins. If the price breaks the downward support line, a strong downtrend begins. Experts often say to buy after the price breaks a resistance or support line and then come back to test that resistance/support and confirm the trend. The profit target is said to be equal to the wedge price range.

9. Triangle pattern.

A triangle pattern is created when the support and resistance lines intersect to form a triangle. There are three main types of triangle patterns: rising triangles, falling triangles, and isosceles triangles.

Rising triangle pattern:

Conditions of formation:

  • The previous trend was a strong uptrend.
  • The support line is trending up, the resistance line is trending sideways.
  • Price breaks above the resistance line.

Price chart pattern technique - Rising triangle pattern

An ascending triangle pattern has an ascending support line intersecting a horizontal resistance line. This shows that the sellers are gradually weakening and the buyers are gradually getting stronger. At some point, when the buying force is strong enough, the price will break the upward resistance line, starting a strong uptrend. This pattern presents as a break to move up after a period of strong price increases. Experts often say to buy after the price breaks a resistance line and then come back to test that resistance and confirm the trend. The take profit target is said to be equal to the price range of the height of the triangle.

Descending triangle pattern:

Conditions of formation:

  • The previous trend was a strong downtrend.
  • The support line is trending sideways, the resistance line is trending down.
  • Price slips below the support line.

Price chart pattern technique - Descending triangle pattern

A descending triangle pattern has a horizontal support line intersecting with a descending resistance line. This shows that the buyers are gradually weakening and the sellers are gradually getting stronger. At some point, when the selling force is strong enough, the price will break the downward support line, starting a strong downtrend. This pattern presents as a break and then declines after a period of strong bearishness. Experts often say to sell after the price breaks a support line and then come back to test that support and confirm the trend. The take profit target is said to be equal to the price range of the height of the triangle.

Isosceles triangle pattern:

Conditions of formation:

  • The previous trend is an uptrend or a downtrend.
  • The support line is trending up, the resistance line is trending down.
  • Price breaks above the resistance line or slips below the support line.

Price chart pattern technique - Isosceles triangle pattern

An isosceles triangle pattern has an upward support line intersecting a downward resistance line. This shows that the buyers and sellers are struggling. The price gradually narrows the range until the sellers or buyers prevail, creating a new trend. If the price breaks above the resistance line, it signals the formation of an uptrend. If the price slips below the support line, it signals the formation of a downtrend. This pattern presents as an accumulation range waiting for the price to break through a new trendline. Experts often think that trading should be done after the price breaks out of the triangle and confirms the new trend. The target for taking profit is said to be equal to the price range next to the bottom of the isosceles triangle.

Above are the basic contents of the price chart pattern technique and some common patterns. To increase the effectiveness of the price chart pattern technique, it is necessary to associate price movement with the movement of the trading volume. At the same time, you should combine other technical analysis methods for prediction.

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