BROKERAGE: TECHNICAL ANALYSIS

Common Chart Patterns

Multi-Bar Candlestick Short-Term

Patterns Patterns Patterns
Horizontal Congestion • Doji • Pennant/Flag
• Double and Triple • Harami • Gaps
Tops/Bottoms • Hanging Man/Hammer • Pipe Bottom
• Rectangles • Shooting Star/Inverted • Narrow Range
Hammer
Triangles • Engulfing
• Symmetrical • Dark Cloud/Piercing
• Ascending and Descending
• Wedges

Other
• Head and Shoulders
• Cup and Handle

17
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Double Top

Characteristics: Double Top

Double Top
(breakout down)
• Two successive peaks separated
by an opposite reversal point
Resistance Line

• Either rounded or pointed peaks

that are usually at roughly the same Entry Pullback
price (resistance level)
Breakout
Support
• Price must break out of middle Line Breakout
reversal point

Price

Calculate target price:

Taking the height from the highest peak to the trough and
then subtracting the amount from the breakout price to the
downside.

18
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Double Bottom

Characteristics: Double Bottom

(breakout up)
• Two successive troughs separated
by a peak
Breakout
Breakout
• Either rounded or pointed troughs Resistance line
that are usually at roughly the same
price (support level)
Entry
Throwback
• Price must break out of
middle peak Double Bottom
Support line
Price

Calculate target price:

Taking the distance from the troughs to the peak and then
adding that amount from the breakout price to the upside.

19
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Triple Top

Characteristics: Triple Top

(breakout down)
• Three distinct peaks at roughly the Triple
Top
same price level separated by two
intermittent troughs Resistance line

• Breakout occurs when price exceeds Pullback

the extreme of the intermittent Breakout

trough or a trend line connecting

Support line
those points
Entry Breakout
Price

Calculate target price:

Take the height from the highest peak to the lowest trough
in the pattern. Then subtract that amount from the lowest
trough in the pattern to generate a price target.

20
* Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Triple Bottom

Characteristics: Triple Bottom

(breakout up)
• Three distinct troughs at roughly the
same price level separated by two
intermittent peaks at any level Entry Breakout
Breakout
Resistance line
• Breakout occurs when price exceeds
the extreme of the intermittent peaks
or a trend line connecting those Throwback
points
Triple
Bottom
Support line Price
• Best performance may be after a
sustained decline*

• An average performance, but watch Calculate target price:

for failures*
Take the height from the highest peak to the lowest trough
in the pattern. Then add that amount to the highest peak in
the pattern to generate a price target.

21
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Horizontal Congestion: Rectangles

Characteristics: Rectangle
(entry up, breakout up) Resistance Zone
• Trading range with support and
resistance levels bounding price Entry Throwback
action Support Zone
Shortfall Breakout
Breakout
• Slight tilt, similar to horizontal
Resistance line
channel

• Often has many false breakouts*

Support line
Price
• Things to consider:
‐ Confirm a breakout
‐ “Shortfall” often indicator of eventual
breakout direction Calculate target price:
Take the height from the resistance line to the support line. Then
• Best occurrence may be bottom either add that amount to the resistance line to generate a price
breaking upward* target for an upside breakout, OR subtract that amount from the
support line to generate a price target for a downside breakout.

22
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Symmetrical

Characteristics: Symmetrical Triangle

(breakout up)
• Bounded by a downward sloping
upper trend line and an upward
sloping lower trend line. Each bound Throwback

is a straight trend line Breakout

Target Line
• Prices must touch each bound at
Entry
least twice. Many false breakouts.
Moderately successful in
performance Cradle
Price
• Things to consider:
‐ Confirm a breakout
Calculate target price:
• Best occurrence may be upward Take the height from the highest peak in the pattern to the
breaking out – above average for lowest trough in the pattern. Then either add it (for upward
all patterns* breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

23
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Ascending

Characteristics: Ascending Triangle

(breakout down)
• Bounded by a horizontal upper trend
line and an upward sloping lower Pullback
Resistance line
trend line. Each bound is a straight Target
trend line Line
Entry

• Prices can break in either direction,

but more commonly upward*
Support line
Breakout
Uptrend Line
• Breakout usually occurs in pattern.
About average failure rates but many Price
small false breakouts*

• Post breakout performance average Calculate target price:

on upside but above average on Take the height from the highest peak in the pattern to the
downside* lowest trough in the pattern. Then either add it (for upward
breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

24
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Descending

Characteristics: Descending Triangle

(breakout down)
• Bounded by two trend lines; the
lower is horizontal and the upper
Resistance line
slopes downward
Downtrend
Line Pullback
• Prices can break in either direction Entry

but most commonly downward*

Support line
Breakout Down
• Above-average performance on Breakout
upside break; retracements occur
often* Price

Calculate target price:

Take the height from the highest peak in the pattern to the
lowest trough in the pattern. Then either add it (for upward
breakouts) to the breakout price or subtract it (for downward
breakouts) from the breakout price to generate a price target.

25
* Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Triangle: Wedge

Characteristics: Rising Wedge

(breakout down from climax peak)
• Bounded by two trend lines, each
headed in the same direction; Price Climax
Pullback
must touch a trend line at least five
times (3 times on one and 2 times on
the other) before a breakout
Breakout
• Often occur following a panic
(declining wedge) or bubble Entry
(rising wedge)
Price
• Performance in both types is below
average, and retracements are
very common* Calculate target price:
For downward breakout, the lowest trough in the pattern is the
price target. For upward breakouts, take the height from the
highest peak in the pattern to the lowest trough in the pattern
and add that amount to the breakout price for a price target.

26
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Head and Shoulders: Top

Characteristics: Head

• Three peaks with center peak higher

than the other two Left Shoulder
Right Shoulder
Breakout
• Shoulders should be at approximately
the same level and the head higher

• Line connecting the two throughs Neckline

between the peaks is called
the “neckline”

• Pattern is only complete on breaking

the neckline Target

• Target is the distance from the head to

the neckline projected from the neckline

• This is a standard pattern for tops and

has one of the lowest failure rates

27 *Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Head and Shoulders: Bottom (Inverse)

Characteristics:
• Inverted but otherwise Head and Shoulders Bottom
identical to a top pattern (breakout up)
except not as profitable*
Price

Breakout Breakout

Neckline
Neckline

Entry Throwback

Left Shoulder
Left Shoulder Right Shoulder Right
Shoulder
Head
Head

28
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.
 BROKERAGE: TECHNICAL ANALYSIS

Cup and Handle (also “Saucer”)

Characteristics: Rounding Bottom

(breakout up)
• Pattern consists of a rounded bottom
(not a “V” bottom), two “lips” at each Price Breakout
end, and a “handle” (similar to a flag
Entry Breakout Lip
pattern) from the handle

• Pattern is complete with breakout Lip

above both lips Throwback

Breakout
Down
• Often have a throwback Cup or Bowl
Handle

• The pattern’s performance ranks

about average for bottom patterns*
Calculate target price:
Take the height of the right cup lip to the bottom of the
cup, then add that amount to the breakout price.

29
*Source: Technical Analysis: the Complete Resource for Financial Market Technicians, 2 nd ed.