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Risk

Trading Futures, Options on Futures, and retail offexchange foreign currency transactions involves
substantial risk of loss and is not suitable for all
investors. You should carefully consider whether
trading is suitable for you in light of your
circumstances, knowledge, and financial resources. You
may lose all or more of your initial investment.
Opinions, market data, and recommendations are
subject to change at any time. The lower Day Trade
margin the higher the leverage and riskier the trade.
Leverage can work for you as well as against you. It
magnifies gains as well as losses. Past performance is
not necessarily indicative of future results.

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Table of Contents

Introduction.4
Head and Shoulder Top....8
Head and Shoulders Bottom......10
Ascending Channel .12
Descending Channel14
Ascending Triangle .....16
Descending Triangle....18
Double Top..20
Triple Top....21
Cup and Handle 23
Pennant...25
Volume.27

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Why Chart Patterns?

Where most indicators are good for measuring a trend or
telling you when to get into a trend . . .
Chart patterns give you a heads up if the trend is likely to
continue or if a reversal is potentially about to happen.
Chart patterns also clue you in where we are in the fear/greed
cycle of human emotions.
And its fear and greed that move prices . . .
These chart patterns dont form all the time but when they
do, they are powerful.
The key is to not get overwhelmed You dont need to know
them all!
Just focus on the most powerful patterns.
And of course understand how to use them.

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You need to know and understand how to use:

-Triangles
-Channels
-Topping Patterns
-Cup and Handle
-Pennants
-Wedges
-Head & Shoulders
As well as understanding how volume plays an important role.
Lets dive in and take a look at the basics:

Chart Pattern Basics

In many ways, chart patterns are simply more complex
versions of trend lines and support/resistance.
Chart patterns are the best way to make both short and long
term forecasts provided you know what to look for.
They are so powerful that hedge funds create them on purpose
to sucker people into trades . . .
Indicators combined with the right chart patterns have the
best chance of making money.

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With the Right Tools

Once you are able to identify patterns, the key from there is to
assemble tools to give you an edge as to if it is for real and
strong or if it is a complete fake out.
It is also important to realize that the larger the time frame,
the larger the move.
The good news? It is easy to tell if a pattern break will result
in a larger term move or a shorter term fake out fairly quickly,
no matter what time frame you are trading. Think 6

Chart Patterns
Chart patterns are a powerful and consistent source of trade
setups and they form an important base in every successful
traders plan.
But first we must ask ourselves, why are these important to
know?
The main reason is that the stock market, like history, repeats
itself over and over again.
A chart pattern is a map of human emotions: Fear, greed,
worry, joy. It maps them all.
These emotional patterns lead the markets down a path
either the continuation of the current trend, or the end of the
current trend and the start of a reversal
The frustration with chart patterns comes with the realization
that it is not an exact science.

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In fact, its often viewed as more of an art form than a science.

However, once the basics of charting are understood, the
quality of chart patterns can be significantly enhanced and
understood by looking at volume and key indicators.
It is also important to understand that a chart pattern is
simply a more complex version of trendlines and
support/resistance.
A pattern is, in effect, a specific combination of support and
resistance levels and trendlines, designed to give traders a
clean understanding of what process is happening that tends
to lead to a specific result.

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Head and Shoulders Patterns

Head and Shoulders Top

The Head and Shoulders pattern is generally regarded

as a reversal pattern and it is most often seen in uptrends.
This pattern is most reliable when found in the midst of an
uptrend.

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Eventually, after an uptrend, the market begins to slow

down and the forces of supply and demand are generally
considered in balance. Sellers come in at the highs to take
profits (left shoulder) and the downside is probed (beginning
neckline.)
Buyers soon return to the market and ultimately push
through to new highs (head.) However, the new highs are
quickly turned back and the downside is tested again
(continuing neckline.)
Tentative buying re-emerges and the market rallies once
more, but fails to take out the previous high. (This last top is
considered the right shoulder.) Buying dries up and the
market tests the downside yet again.
Your trendline for this pattern should be drawn from the
beginning neckline to the continuing neckline.
Volume has a greater importance in the head and
shoulders pattern in comparison to other patterns. Volume
generally follows the price higher on the left shoulder.
However, the head is formed on diminished volume indicating
the buyers aren't as aggressive as they once were. And on the
last rallying attempt-the right shoulder-volume is even lighter
than on the head, signaling that the buyers may have
exhausted themselves.
New selling comes in and previous buyers get out. The
pattern is complete when the market breaks the neckline.
Volume should increase on the breakdown.

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Head and Shoulders Bottom

The Head and Shoulders pattern can sometimes be

inverted. The inverted head and shoulders are typically seen in
downtrends.
What's noteworthy about the inverted head and shoulders
is the volume aspect.
The inverted left shoulder should be accompanied by an
increase in volume as visible here in DIA. The inverted head
should be made on lighter volume as once again visible here.

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The rally from the head however, should show greater volume
than the rally from the left shoulder. Ultimately, the inverted
right shoulder should register the lightest volume of all.

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Channel Patterns
Ascending Channel

An Ascending Channel is the price action contained

between upward sloping parallel lines as visible above in the
example of ABT. Higher pivot highs and higher pivot lows are
technical signals of an uptrend. Trendlines frame out the price
channel by drawing the lower line on pivot lows, and the upper
line is the channel line drawn on pivot highs. Price is not
always perfectly contained but the channel lines show areas of
support and resistance for price targets. A higher high above

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an ascending channel can signal continuation. A lower low

below the low of an ascending channel can signal trend change.
Price channels show trend. A trader can trend trade in a
channel or swing trade from support to resistance and back to
support. In an uptrend, start with the lower trendline drawn
on pivot lows and add a parallel channel line to complete the
formation.

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Descending Channel

A Descending Channel or downtrend is the price action

contained between two downward sloping parallel lines as
shown above in DDD. Lower pivot highs and lower pivot lows
are a bearish signal. In a downtrend, a trade might be entered
at the trendline and exited at the channel line. A lower low
below a Descending Channel can signal continuation. A
higher high above the low of an ascending channel can signal
trend change.

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Price channels show trend direction. The slope of the

channel shows momentum. Here is a simple technical edge:
start the down trendline using two lower pivot highs and stay
short below the trendline.

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Triangle Patterns

Ascending Triangle

An Ascending Triangle is a bullish chart pattern used

in technical analysis that is easily recognizable by the distinct
shape created by two trendlines. In an ascending triangle, one
trendline is drawn horizontally at a level that has historically
prevented the price from heading higher, while the second
trendline connects a series of increasing troughs. Traders enter
into long positions when the price of the asset breaks above the
top resistance.
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An Ascending Triangle is most commonly considered to

be a continuation pattern, meaning that it is usually found
amid a period of consolidation within an uptrend. Once the
breakout occurs, buyers will aggressively send the price of the
asset higher, usually on high volume. The most common price
target is generally set to be equal to the entry price plus the
vertical height of the triangle.

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Descending Triangle

A Descending Triangle is a bearish chart pattern that

connects a series of lower highs and a second trendline that
has historically proven to be a strong level of support, as show
in the image above. Traders watch for a move below support,
as it suggests that downward momentum is building. Once the
breakdown occurs, traders may establish short positions and
aggressively push the price of the asset lower.

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This is a very popular tool among traders because it

clearly shows that the demand for an asset is weakening, and
when the price breaks below the lower support, it is a clear
indication that downside momentum is likely to continue.
Descending Triangles give technical traders the opportunity
to make substantial profits over a brief period of time. The
most common price targets are generally set to equal the entry
price minus the vertical height between the two trendlines.

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Topping Patterns

Double Top

A Double Top is a term used in technical analysis to

describe the rise of a stock, a drop, another rise to the same
level as the original rise, and finally another drop.
The double top looks like the letter "M". The twice
touched high is considered a resistance level.

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Triple Top

A Triple Top pattern is used in technical analysis to

predict the reversal of an extended uptrend. This pattern is
identified when the price of an asset creates three peaks at
nearly the same price level. The bounce off the resistance near
the third peak is a clear indication that buying interest is
becoming exhausted. It is used by traders to predict the
reversal of the uptrend.

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The three consecutive tops make this pattern visually

similar to the head and shoulders pattern but, in this case, the
middle peak is nearly equal to the other peaks rather than
being higher. Many traders will enter into a short position
once the price of the asset falls below the identified support
level (shown by the black line in the chart above)

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Cup and Handle

A Cup and Handle is a unique pattern that resembles

just that, a cup with a handle. The cup is in the shape of a "U"
and the handle has a slight downward drift. The right-hand
side of the pattern has low trading volume. It can be as short
as seven weeks and as long as 65 weeks.

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As the stock comes up to test the old highs, the stock will
incur selling pressure by the people who bought at or near the
old high. This selling pressure will make the stock price trade
sideways with a tendency towards a downtrend for four days to
four weeks... then it takes off.
A couple points on trying to detect cup and handles:
Length - Generally, cups with longer and more "U" shaped
bottoms, the stronger the signal. Avoid cups with a sharp "V"
bottoms. Depth - Ideally, the cup should not be too deep. Also,
avoid handles which are too deep since the handles should
form in the top half of the cup pattern. Volume - Volume
should dry up on the decline and remain lower than average in
the base of the bowl. It should then increase when the stock
finally starts to make its move back up to test the old high.
Retest (of old high) - doesn't have touch or come within a few
ticks of old high. However, the further the top of the handle is
away from the highs, the more significant the breakout needs
to be.

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Pennant Pattern

A continuation pattern in technical analysis formed when

there is a large movement in a stock, the flagpole, followed by
a consolidation period with converging trendlines, the
pennant, followed by a breakout movement in the same
direction as the initial large movement, the second half of the
flagpole.

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Pennants, which are similar to flags in terms of structure,

have converging trendlines during their consolidation period
and they last from one to three weeks. The volume at each
period of the pennant is also key. The initial move must be met
with large volume while the pennant should have weakening
volume, followed by a large increase in volume during the
breakout.

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Volume
If, on the break of a pattern, volume goes above its 50
period average volume, then the pattern has a high
probability of success.
If the break happens on low volume, it is just a probe and will
most likely fail quickly. From a trading perspective, I get in
early and then watch. If the breakout happens on low volume
then I can just take a small profit and move on.
Chart patterns are the results of human emotions in the
markets. These patterns are so powerful because they
represent the averages of how people react in the markets.
Like anything, the more time you spend reviewing charts the
more youll be trained to recognize these patterns at just a
glance and be ready for the next big move.

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Heres the next step

Now that youre familiar with the basics of chart patterns, you
should have a solid foundation to start trading. But if youre
serious about trading, then THIS is the logical next step:

The Most Profitable Stock Trading Patterns

In this course, John F. Carter shares:
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patterns in todays market and speed up your trading in
2015
How to use chart patterns to make money right now
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The step-by-step rules for profiting from chart patterns
The science of chart reading so you can spot major
turns in the market
How to identify when hedge funds create a pattern to
trick you into buying into a bad trade
This course was and is still offered on our site for $297, but
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