Stock chart patterns are an essential part of any technical analysis and can prove to be a valuable asset for traders. We all love patterns, including patrones de reversión. Therefore, we naturally seek them out in everything. It’s part of our human nature. Your trading psychology should include the ability to recognize stock chart patterns. You will learn to recognize patterns and be able profit from breakouts or reversals. Chart patterns are an extremely powerful tool for technical analysis.
Inverse Head and Shoulders
Inverse head and shoulders stock charts are used to predict a trend reversal. Sometimes it is called “head and shoulders bottom”, or “reverse head, shoulders,” but technical analysis uses the same terminology. Its name comes from its one-level peak that forms the head and the two levels of peaks to either side, which form the shoulders.
Bullish Symmetrical Triangle
The symmetrical triangle pattern can be easily identified because of its distinctive shape, which is created by the convergence of two trendlines. This pattern is created by drawing trendlines that connect a series peaks and valleys. These trendlines act as a barrier and prices will move sharply once they break through them.
This is also known as a “saucer top” and indicates a long-term trend reversal. It shows that the stock is shifting from a downward trend to an upward trend. It can last from months to years. It looks very similar to the cup with handle. However, the pattern is not attached to the handle. This is why the name.
Double tops are bearish reversal patterns that have two peaks or highs at roughly the same price. It is easy to recognize the “M” shape of the double top, which typically follows an uptrend. The double top and the head and shoulder patterns are very similar. The main difference is the twin tops of double top instead of three peaks with the shoulders and head pattern.
Bearish Symmetric Triangle
Because of the unique shape created by the two trendlines, the symmetrical triangle pattern can be easily identified. This pattern is made by drawing trendlines that connect a series peaks and valleys. These trendlines act as a barrier and are usually followed by a sharp price movement once the price has broken through them.
A falling wedge can be either a bullish continuation pattern or a reversal pattern depending on the location of the falling wedge. While they look similar to triangles, wedges tend to slope against the previous trend. A falling wedge may form when an uptrend fails and the trend breaks out higher. The falling wedge is characterized by a series lower highs and lower lows. However, the lower lows are more prominent than the lower highs. This creates a wedge rather than a triangle.
Head and Shoulders
To predict a downturn in an uptrend, the head and shoulders stock chart pattern can be used. This chart pattern is sometimes called “head and shoulder top”. It has one higher peak that forms the head and two lower peaks that form the shoulders. Chart patterns are an important part of technical analysis. Chart patterns are not the only part of technical analysis. Chart patterns that align with technical indicators give “confirmation.” To learn how to combine classic chart patterns and technical indicators, see our technical indicators guide.