What is the difference between a continuation and reversal pattern?
- Reversal patterns take time in their formation
- Continuation a shorter duration to form.
What are the three types of triangles?
(i) Symmetrical
(ii) Ascending
(iii) Descending
What is the time limit of resolution for the triangle pattern?
- The time limit should be the Apex point and price should break in favour of the previous pattern
- Breakout should happen between 2/3 to 3/4s of the horizontal width of the triangle
- If surpass the 3/4 point the triangle loses potency
What happens to the trendlines of the triangle after a penetration?
- In an uptrend penetration the penetrated upper trend line becomes support.
- In a downtrend, the lower lines become resistance once broken.
How does volume behave in the symmetrical triangle pattern?
- Volume should diminish as the price swings narrow within the triangle.
- Volume should pick up noticeably at the penetration of the trendline that completes the pattern
- The return move should be on light volume with heavier activity on the resumption of the trend.
- Volume is important on the upside than the downside.
What is the measuring technique that should be used with the symmetrical triangle?
- Measure the height of the vertical line at the widest part of the triangle and measure that distance from the breaking point
or - Draw a parallel line on top of the base of the triangle. Making the parallel line a targert in the uprend.
How does volume behave during an ascending and descending triangle pattern?
- Volume diminishes as the pattern works itself out and increases at the breakout phase.
- In the ascending pattern the volume tends to he heavier on the bounce and lighter on the dip
- In the descending formation, volume is heavier on the downside and lighter on the bounce
What is the time factor that is considered when analyzing using triangles?
- Takes between 1-3 months to form.
What does a triangle with a broadening formation mean? (inverted triangle) When does it commonly form?
- Represents that the market is out of control and unusually emotional.
- Unusual amount of public participation.
- Commonly formed at major market tops and tends to mean a bearish formation.
What is volume like in the inverted triangle?
- As broadening formations are formed, volume tends to expand along with wider price swings.
Why do the flag and peanut consider to fly at half-mast?
-As the patterns occurs in the midway of the flagpole or prior the previous move
What are the indications of a wedge reversal in a trend?
- During a market top a rising wedge will appear meaning that a reversal could happen
- During a market bottom a falling wedge will appear the indicates that a reversal is going to occur
How is the rectangle formation resolved?
Rectangle formation is resolved in the direction of the market trend that preceded its occurrence.
Its completion occurs during the close outside the upper or lower boundaries of the rectangle and points in the direction of the trend.
Why is volume an important indicator in the rectangle pattern? What does it tell us?
- When there are rallies on heavier volume and setbacks so lighter volume, then this indicates the continuation of the uptrend.
How can the rectangle pattern be traded when identified?
- Buying could occur at the bottom of the selling rallies near the top of the range
- When breakouts occur the trader will exit the current position and enter a trade that follows the direction of the breakout
How is the measuring technique used in the rectangle pattern?
The height of the rectuaglar pattern is added to the breakout point to find the minimum measuring distance
What is confirmation? What do we look for?
Confirmation is the comparison of technical signals and indicators to ensure that the indicators are pointing in the same direction and confirm each other
What is divergence? What do we look for?
Divergence is the opposite of confirmation and refers to a situation where different technical indicators fail to confirm each other.
What is measured move in analysis?
- Is when chartists see a defined situation with a rally and assume after a retracement of 1/3 of the first rally
- A continuation from the low of the retracement a rally of the same amount follows
