Basic Chart Patterns: Wedges, Triangles and Pennants


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Video Transcript:

Hello Traders. Welcome to the third module of the Advanced Technical Analysis Course chart patterns. In this lesson, we are going to go through all the basic chart patterns you will need to learn. We’re going to start with triangles. There are three basic triangle shapes. A symmetrical triangle is formed when price makes both lower highs and higher lows. Because of its shape, these triangles can be either a continuation or a reversal pattern. This is what they look like. As you can see, they’re both contracting up and down, which means that both the bearish and the bullish pressure are equal. We cannot know for sure if we are going to break to the outside or to the down side giving us either a bullish or a bearish signal. The second basic triangle shape is the ascending triangle.

Triangle Chart patterns

These are formed by a flat top or equal highs and higher lows. These triangles are a bullish pattern that can be a continuation in an up move or a reversal that support on a down move. Here is what they look like. As you can see here, we are in a down move and we are making higher lows and a flat top. This is a very strong reversal pattern at the end of a down move at a support zone. If we are in an up move, and we see that we are making higher lows and a flat top, we can wait for the break out to trade the continuation of the trend and go long on the answer that you were analyzing. The third basic triangle shape is a descending triangle. These are formed by a flat bottom or equal lows and higher highs. This triangle is a bearish pattern that can be a continuation in a down move or a reversal at resistance in an up move. This is what they look like.

As you can see here, in a down move if we continue to make lower highs but a flat bottom, this means that the bearish pressure is still here. It is going to overcome with the bullish pressure that we have encountered at this area of support. Eventually we will break to the downside giving us a continuation signal. In an up move, it is the opposite. We are making lower highs, which means we have encountered a strong bearish pressure at this area of resistance. We still have some bullish pressure that keeps maintaining these flat tops. Eventually, this triangle formation is going to give us a reversal signal to go short on the answer that we are analyzing. This is why chart patterns are important because they repeat themselves and it is easy to predict future price action.

We just need to have patience and wait for the breakout in order to trade them. The second kind of basic chart patterns we are going to learn are wedges. There are two basic shapes of wedges. The first one is the rising wedge. These are formed with higher highs and higher lows. They are bearish signals. In an uptrend, they are a reversal patterns and in a down trend, they are continuation patterns. Here is what they look like. As you can see, in both cases we are making higher highs and higher lows. If we are in an up move, this will be a reversal pattern and if we are in a down move, this will be a continuation pattern. In both cases, they are bearish signals and in both cases, we are going to wait for the breakout of the lower line of the wedge for us to go short on the assets.

Wedge chart patterns

The second basic shape of wedges is the falling wedge. These are formed by lower lows and lower highs and they are bullish signals. In a down trend, this pattern is a reversal signal and in an uptrend, it is a continuation signal. This is what they look like. As you can see in both cases, we are making lower highs and lower lows. If we are in an uptrend, this is going to be a continuation pattern because this will be a small correction before the actual move continues. In a down move, it will be a reversal pattern. In both cases, it will be a signal to go long on the assets. The third kind of basic chart patterns we are going to learn are flags. Flags have one shape and are always continuation patterns. These patterns usually form when there is a sharp directional move and after the move, we usually see some sideways price action before continuing on the direction of the move. This sideway price action is called a flag.

Flat chart patterns

The actual directional move is the pole of the flag. This is called a flag. In both cases, it is called a flag and you can have a flat flag or have counter directional flags. Just like this one. In both cases, you need to wait for the breakout of the flag in the direction of the move for you to be able to trade it. In another module, we will teach you exactly how to trade and exactly how to calculate the target for you to be able to profit the trade. In this lesson, we will only teach you the actual pattern. So you can get comfortable with the idea of how to trade them.

Adam

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