Resistance
Resistance/Support
Support
Charting Patterns
Cup and Handle
Pattern on bar chart as short as 7 weeks or as
long as 65 weeks
Cup in the shape of a U; Handle has a slight
downward drift
Right hand side of pattern has low trading
volume
As the stock comes up to test old highs, the
stock will incur selling pressure by the people
who bought at or near the old high
Selling pressure will take the stock price
sideways for 4 days to 4 weeks, then it takes
off
Charting Patterns
Head and Shoulders
Resembles an “M” in which a stock’s price
Rises to a peak and then declines, then
Rises above the former peak and again
declines, and then
Rises again but not as the second peak and
again declines
The first and third peaks are shoulders,
and the second peak forms the head.
Very bearish indicator
Head and Shoulders
Double Bottom
Occurs when a stock price drops to a
similar price level twice within a few weeks
or months
The double-bottom pattern resembles a
“W”
In a perfect double bottom, the second
decline should normally go slightly lower
than the first decline to create a shakeout
of jittery investors
The middle point of the “W” should not go
into new high ground.
Double Bottom
Triangles
In triangles widest part of correction occurs at the earliest in the
development of the pattern and then trading range narrows forming
a shape of a triangle. The upper trend line acts as resistance and
lower line represents as support.
Triangles are
continuation
formations. Ascending
Three flavors:
Symmetrical
Ascending Break out
tends to be to upside
Symmetrical
Descending Break out
tends to be to downside
Symmetrical Descending
Typically, triangles
should break out
about half to three-
quarters of the way
Flags and Pennats:
A flag is defined as a parallelogram. Lower
tops and lower bottoms characterize
bullish trend while Higher tops and higher
bottoms indicate bearish trend
Pennats are smaller in size and duration
then triangles and behave same as flags
Rounded Tops & Bottoms
Rounding Rounding
formations are Bottom
characterized by a
slow reversal of
trend.
Rounding Top
Rounded Bottom Chart
Example
Wedge formations
If you draw trend lines along both the bottom and top of a share price chart,
you will sometimes get a trend channel and you'll sometimes get a wedge shape.
A falling wedge is a bullish pattern while rising wedge is bearish pattern.
wedge formations usually take place over a period of 3-4 weeks. This is
because they occur as reversals of intermediate and minor trends.
DJIA Oct 2000 to Oct 2001
Example
Nov to Mar
Trading range
Descending
triangles