Descending Continuation Triangle

 What is Descending Continuation Triangle?

Descending Continuation Triangle
 A Descending Continuation Triangle (Classic Pattern) is considered a bearish signal, indicating that the current downtrend may continue.
A Descending Continuation Triangle features two converging trendlines. The bottom trendline is horizontal and the top trend line slopes downward. The pattern illustrates lows occurring at a constant price level, with highs moving constantly lower. The pattern displays two highs touching the upper trendline and two lows touching the lower trend line.
This pattern is confirmed when the price breaks out of the triangle formation to close below the lower trendline.
Volume is an important factor to consider. Typically, volume follows a reliable pattern: volume should diminish as the price swings back and forth between an increasingly narrow range of highs and lows. However, when the breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious about decisions made based on this pattern.

Important Characteristics

Following are important characteristics of this pattern.
Occurrence of a Breakout
Technical analysts pay close attention to how long the Triangle takes to develop to its apex. The general rule is that prices should break out – clearly penetrate the lower trendline – somewhere between three-quarters and two-thirds of the horizontal width of the formation. The breakout, in other words, should occur well before the pattern reaches the apex of the Triangle. The closer the breakout occurs to the apex the less reliable the formation.
Duration of the Triangle
The Triangle is a relatively short-term pattern. It may take from one to three months to form.
Shape of Descending Continuation Triangle
The horizontal bottom trendline need not be completely horizontal.
Volume
Investors should see volume decreasing as the pattern progresses toward the apex of the Triangle. At breakout, however, there should be a noticeable increase in volume.

Trading Considerations

Duration of Pattern

Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to reach its target. The shorter the pattern the sooner the price moves. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However, you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least 2 times the duration of the pattern.

Criteria that Support

Look for a region of support at the bottom trendline and a line of resistance at the highest high of the Descending Continuation Triangle.
Moving Average
Compare prices to the 200 days Moving Average. When prices are close to or touch the 200-day Moving Average this signal is considered stronger.
Volume
A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.

Criteria that Refute

No Volume Spike on Breakout
The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable.
Short Inbound Trend
An inbound trend that is significantly shorter than the pattern duration is an indication that this pattern should be considered less reliable.
Underlying Behavior
This pattern with its increasingly lower highs and constant lows indicates that sellers are more aggressive than buyers.

Bottom Triangle – Bottom Wedge

What is Bottom Triangle – Bottom Wedge?

Classic Pattern

Bottom Triangle and Bottom Wedges are considered to be bullish signals that mark a possible reversal of the current downtrend.

Description

Bottom Triangle and Bottom Wedge make up a group of patterns which have the same general shape as Symmetrical Triangles, Wedges, Ascending Triangles and Descending Triangles. The difference is that these particular formations are the reversal and not continuation patterns. These patterns have two converging trendlines. The pattern will display two highs touching the upper trendline and two lows touching the lower trend line. Contrary to Triangle formations, Wedges are characterized by their boundary trendlines both moving in the same direction.
This pattern is confirmed when the price breaks upward out of the Bottom Triangle or Bottom Wedge formation to close above the upper trendline.
Volume is an important factor to consider. Typically, volume follows a reliable pattern: volume should diminish as the price swings back and forth between an increasingly narrow range of highs and lows. However, when the breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious about decisions based on the particular Triangle or Wedge pattern.
Important Characteristics
Following are important characteristics for this pattern.
Occurrence of a Breakout
Technical analysts pay close attention to how long the pattern takes to develop to its apex. The general rule is that prices should break out – clearly penetrate the upper trend line – somewhere between three-quarters and two-thirds of the horizontal width of the formation. The breakout, in other words, should occur well before the pattern reaches the apex of the Triangle or Wedge. The closer the breakout occurs to the apex the less reliable the formation.
Duration of the Triangle or Wedge
This pattern is a relatively short-term. While long-term Bottom Triangle and Bottom Wedges do form, the most reliable patterns take between one and three months to form.
Volume
Investors should see volume decreasing as the pattern progresses toward the apex of the triangular or wedge-shaped pattern. At breakout, however, there should be a noticeable increase in volume.
Trading Considerations
Duration of the Pattern
Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to reach its target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However, you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least two times the duration of the pattern.

Criteria that Support

Support and Resistance
Look for a region of support or resistance around the target price. A region of price consolidation or a strong Support and Resistance Line at or around the target price is a strong indicator that the price will move to that point.
Moving Average
Watch for the 200-day moving average to flatten. When prices cross above the 200-day moving average (usually about two-thirds to three-quarters of the way through the pattern), the pattern is considered more reliable.
Volume
A strong volume spike upon the arrival of the example affirmation is a solid marker in the help of the potential for this example. The volume spike ought to be altogether over the normal of the volume help of the potential for this example. The volume spike ought to be altogether over the normal of the volume for the span of the example. What’s more, the volume amid the term of the example ought to be declining all things considered.
Criteria that Refute

No Volume Spike on Breakout

The absence of a volume spike upon the arrival of the example affirmation means that this example may not be dependable. Also, if the volume has stayed consistent, or was expanding, over the term of the example, at that point this example ought to be viewed as less dependable.

Short Inbound Trend

An inbound pattern that is fundamentally shorter than the example length means that this example ought to be viewed as less dependable.

 Underlying Behavior
This pattern is a result of converging trendlines of support and resistance which give this pattern its distinctive shape. This occurs because the trading action gets tighter and tighter until the market breaks out with great force. Buyers and sellers find themselves in a period where they are not sure where the market is headed. Their uncertainty is marked by their actions of buying and selling sooner, making the range of the price movements increasingly tight. As the range between the peaks and troughs marking the progression of price narrows, the trendlines meet at the “apex”.
The narrowing of the trading action and the decreasing volume of trade reflect the indecision in the market. Finally, consensus or decision in the market is reached and this is reflected as the price breaks out upward to close above the triangular or wedge-shaped boundary. A spike in volume on this breakout date reflects the stronger consensus that the financial instrument should move in that direction.

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Chart patterns

Chart Patterns

Again and again, certain Chart patterns seem to develop on our charts. And we realize that the probability of reversal or continuation is greater with certain patterns. Not saying that the reverse cannot take place. Anything is possible and therefore we have our stops … but these patterns usually either reverse or continuing trends. Knowing about chart patterns is one more weapon in our arsenal.

Two types of Chart Patterns

a) Reversal Patterns: These patterns reverse trends -> Eg. Double Top, Double Bottom, Head and Shoulders, Cup n Handle.
b) Continuation patterns: These indicate a possible continuation in trends -> Eg. Triangles, Bull flag, Bear flag, Pennant.
Some Patterns are explained with examples from Indian Stock Market:
I)   Cup & Handle Pattern
 
II)  Head & Shoulders Pattern
 
III) Double Tops
 
IV) Triple Tops
 
V)   Triangles ( Symmetrical, Ascending, Descending, Expanding)
Head and Shoulders, Upside Breakout, ascending Triangle and Double Bottoms are all patterns which may be found in charts. The occurrence of these patterns can be quite advantageous as they often give strong indications of what is happening or about to happen. The negative aspect is that these patterns don’t really exist. They are subjective impressions placed on graphical history. A bit like mind reading. And we all know how easy that is!One piece of advice I was given a while ago about looking at patterns, trend lines and trend channels was “If the pattern isn’t blindingly obvious, then it doesn’t exist. If you force a pattern on the market you will generally pay for it with your money.

Ascending Continuation Triangle

Ascending Continuation Triangle explained

Classic Pattern
An Ascending Continuation Triangle is considered a bullish signal. It indicates a possible continuation of the current uptrend.
Description
An Ascending Continuation Triangle shows two converging trendlines. The lower trendline is rising and the upper trendline is horizontal.This pattern occurs because the lows are moving increasingly higher but the highs are maintaining a constant price level.The pattern will have two highs and two lows, all touching the trend lines.This pattern is confirmed when the price breaks out of the triangle formation to close above the upper trendline.

Volume is an important factor to consider. Typically, volume follows a reliable pattern: volume should diminish as the price swings back and forth between an increasingly narrow range of highs and lows. However, when the breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious about decisions based on this Triangle.

Ascending Continuation Triangle

 

Important characteristics

Following are important characteristics of this pattern.
Occurrence of a Breakout
Technical analysts pay close attention to how long the Triangle takes to develop to its apex. The general rule is that prices should break out – clearly penetrate one of the trend lines – somewhere between three-quarters and two-thirds of the horizontal width of the formation. The breakout, in other words, should occur well before the pattern reaches the apex of the Triangle. The closer the breakout occurs to the apex the less reliable the formation.
Duration of the Triangle
The Triangle is a relatively short-term pattern. It may take between one and three months to form.
Shape of Triangle
The horizontal top trend line need not be completely horizontal but it should be close to horizontal.
Volume
Investors should see volume decreasing as the pattern progresses toward the apex of the Ascending Continuation Triangle. At breakout, however, there should be a noticeable increase in volume.

Trading Considerations

Duration of the Pattern
Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the target price. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However, you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least two times the duration of the pattern.
Criteria that Support
Support and Resistance
Look for a region of support at the lowest low and a line of resistance at the top of the Ascending Continuation Triangle.
Moving Average
Compare prices to the 200 days Moving Average. When prices are close to or touch the 200-day Moving Average this signal is considered stronger.
Volume
A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.
Criteria that Refute

No Volume Spike on Breakout

The absence of a volume spike upon the arrival of the example affirmation means that this example may not be dependable. Also, if the volume has stayed consistent, or was expanding, over the term of the example, at that point this example ought to be viewed as less dependable.

Short Inbound Trend

An inbound pattern that is fundamentally shorter than the example length means that this example ought to be viewed as less dependable.

Underlying Behavior
This pattern with its increasingly higher lows and constant highs indicates that buyers are more aggressive than sellers. The pattern forms because a supply of shares is available at a fixed price. When the supply depletes, the shares quickly break out from the top trendline and move higher.

 

Technical Analysis course

TA course free

TA course free for all. If you are new to the study of technical analysis, you may be wondering just what technical analysis is. In its basic form, technical analysis is the study of past market data, primarily price and volume data  this information is used to make trading or investing decisions.

Website help you in learning technical analysis in a simple and easy way. We will provide you with examples from our Indian markets too.
We have following study material for aspiring technical analysts and traders :
A. Level 1 : In level 1 you learn following aspects of technical analysis .
1) Terminology of technical analysis
2) Methods of charting
3) Determination of price trends/basics of pattern recognition
4) Establishing price targets
5) Equity market analysis
6) Applying technical analysis to bonds, currencies, futures and options
B. Level 2 :  Only Studying is not enough until unless we apply our knowledge in real world. In this level you will apply theory and application of concepts and techniques covered in level 1 . Level 2 candidate must expand his/her understanding of technical analysis to apply various technical indicators and techniques in the analysis of the overall market or an individual security.
Below are some links for books on trading and technical analysis :
More e-books to be downloaded soon… keep visiting

Elliott Wave Principle

What is Elliott Wave?

According to the Elliott wave theory, a total of eight waves represents an entire movement of a price cycle. Out of eight waves, five refers to as Impulsive waves and three and remaining three referred to as Corrective waves.

At the point when the essential market pattern is bullish, impulsive waves are in the direction of the trend (upwards) whereas corrective waves are opposite to the trend (downwards).

Similarly, once the first market trend is pessimistic, impulsive waves are in the direction of the trend (downwards) whereas corrective waves are opposite to the trend (upwards).
The above pattern formation doesn’t rely on a time frame. You’ll be able to observe Elliott wave patterns in Intraday charts still as monthly charts. However, the likelihood of false waves decreases in higher time frame charts.

Elliot wave in Uptrend
Wave Cycles
Wave cycles - elliott wave
Elliott wave in downtrend

 

 

There are three general wave theory rules in Elliott wave theory:

  • Rule 1: Wave 2 cannot retrace more than 100% of Wave 1, means wave 2 cannot go below the start point of wave 1.
  • Rule 2: Wave three will never be the shortest of the 3 impulse waves. (Generally, it is the biggest wave and most furious).
  • Rule 3: Wave four can never overlap Wave one.

To get insights about this wonderful theory, I recommend you read a classic book on Elliott waves.Which is shown below.

Elliott Wave Principle: Key to Market Behavior

Developed by Ralph Nelson Elliott in the 1930s and ’40s, the Elliott Wave Principle is a powerful analytical tool for Predicting Share market behavior. The basic idea behind the Principle is that Share market prices rise and fall in discernible patterns and that those patterns can be linked together in form of waves. Since, its inception, this classic guide to the Elliott Wave Principle has acquired a cult status among technical analysts, worldwide. And with each new edition, the authors have refined and enhanced the principle, while retaining all the predictions from past editions. This book clearly describes Elliott Wave theory and applications and includes the authors’ latest forecasts, including their prediction of the great bear market to follow the past decade’s bull market.
You can Buy this Book from below link:

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