Chart Patterns

(Part I)
 What is Trading with the Trend?
Trading with the trend is a strategy in which traders make trading
decisions aligned with the prevailing direction of market movement. This
involves identifying and capitalizing on sustained upward (uptrend) or
downward (downtrend) price movements in a given financial instrument,
such as a stock. Traders seek to enter trades in the direction of the trend,
aiming to ride the momentum and capture potential profits as long as the
trend persists. This strategy often involves using technical analysis tools
and indicators to confirm the trend's strength and identify optimal entry
and exit points. The goal of trading with the trend is to take advantage of
the higher likelihood that prices will continue moving in the established
direction, while minimizing the risk of trading against the prevailing
market momentum.
 Advantages of trading with the trend?
1. Higher Probability of Success: Trading with the trend increases the likelihood of
profitable trades since the market tends to move in the direction of the trend
more often than not. Trends can persist for extended periods, allowing traders
to capture multiple profitable moves.

2. Less Stress and Emotional Trading: Following the trend helps reduce emotional
trading decisions. Traders may feel more confident and disciplined when trading
with the prevailing market momentum, leading to fewer impulsive and
emotional decisions.

3. Potential for Trend Extension: In some cases, trends can extend beyond what
might be initially expected. Trading with the trend can allow traders to capture
these extended moves, leading to potentially higher profits.

4. Objective Decision Making: Trading with the trend provides traders with a clear
and objective framework for decision-making. The focus is on following the
prevailing market direction rather than making subjective predictions.
 Continuation Patterns
A continuation pattern in the financial markets is an indication that
the price of a stock or other asset will continue to move in the same
direction even after the continuation pattern completes.

There are several continuation patterns that technical analysts use

as signals that the price trend will continue. Examples of
continuation patterns include triangles, flags, pennants, and
rectangles.
 Ascending Triangle
An ascending triangle is formed when there is
an uptrend in the market during a series of
high lows and relatively equal highs. When the Resistance
uptrend consolidates, a horizontal line can be Zone
drawn across the highs, which acts as the
resistance level. A rising trendline connecting
the higher lows represents the upward
Support Trendline
momentum, indicating a bullish movement. (Zone)
When you are trading this pattern enter the
trade when the resistance is broken you can
keep the stop loss just below the slope of the
triangle and your profit should be equal to the
the width of the triangle.
 Descending Triangle
When there is a downtrend in the market
during a series of low highs and relatively
equal lows, it is a descending triangle pattern.
Upon consolidation, the equal low points mark
the support level. This is the horizontal line of
the descending triangle. The downward
Resistance Trendline
(Zone) momentum is indicated by the falling
trendline connecting the low highs, mainly
caused by the selling pressure. When you are
trading this pattern enter the trade when the
Support support is broken, you can keep the stop loss
Zone
just above the slope of the triangle. And your
profit should be equal to the width of the
triangle.
Symmetric Triangle
In this continuation pattern, there is
balance between the buyers and
sellers—two converging trendlines,
Resistance Zone one ascending and one descending,
create the triangle. The upper
trendline connects the lower highs,
while the lower trendline connects
the higher lows, implying that
volatility is reducing. You enter the
tarde when either of the trendline is
Support Zone broken. When buying, the stop loss
would be placed below the bottom
slope. When selling, the stop loss
would be placed above the top
slope. Target should be equal to the
width of the triangle.
 Bullish Pole N’ Flag Pattern
This pattern is formed after an uptrend,
during the consolidation. As the name
suggests, it resembles a flag on a
flagpole— the flagpole is the sharp rally
and the flag is a rectangular shaped
continuation of the trend. Two parallel
lines form the flag, where the upper one
acts as resistance while the other, support.
When trading this pattern place your stop
loss where the Flag's lower trend line
reaches its lowest point. And the target
should be same as the length of the pole.
 Bearish Pole N’ Flag Pattern
In direct contradiction to a bullish flag
pattern, a bearish flag continues a
downtrend, consolidating the price
movements. After a sharp correction,
represented by the flagpole, prices move
in a narrow range which is indicated by
the support and resistance lines of the
bearish flag. When trading this pattern
place your stop loss where the Flag's
upper trend line reaches its highest point.
And the target should be same as the
length of the pole.
 Pennant
Pennant is a short term continuation
pattern, it comprises two converging
trendlines with a support (Upward slope)
and resistance (Downward slope) forming a
triangle.
This pattern determines the direction of
trend movement by price breaking:
● If in a downtrend the price falls below
the support line a sell signal arises.
● If in an uptrend the price rises above
the resistance line a buy signal arises.
Here place your stop loss on the other side
(Support or resistance trendline) and the
target will be equal to the length of the pole.
 Channels
These are the extensions of Trendlines.
A parallel combination of 2 trendlines is
said to form a Channel. The upper
trendline serves as the Resistance
whereas the lower trendline serves as
the Support. Note that when you are
trading channels you should keep you
stop loss on the opposite side of your
tarde and the target is same as the
width of the channel. Rules of target
and stop loss is same for all types of
channels.
Descending Channel
This downtrend continuation
pattern draws two parallel
boundaries within which the
price of an underlying asset
falls. These boundaries are the
resistance and support levels,
with the upper line representing
the former and the lower line,
the latter.
Ascending channel

In an ascending channel, price

move upwards within the two
boundaries of support (lower
line) and resistance (upper
line). It is the continuation of
an uptrend and suggests the
asset will rally upon breakout.
 Horizontal Channel
This price pattern shows the equal
forces of buyers and sellers in the
market. Due to this, the price
moves sideways. The breakout of
trend channels predicts the
direction of the price trend. A
bearish trend occurs if the support
zone breaks, while a bullish trend
forms if the resistance zone breaks.
In the horizontal trend channel,
price moves in the form of swings
making highs and lows. It is also
called the ranging market.
Bullish rectangle (Horizontal channel)

Bullish rectangle pattern is a

trend continuation pattern
which is usually formed in an
uptrend and signals the trend’s
direction. It is characterized by
support and resistance levels
which connect recent highs and
lows of the price. If the price
rises above the resistance line a
buy signal appears.
 Bearish Rectangle (Horizontal Channel)
Bearish rectangle pattern is a
trend continuation pattern which
is usually formed in a downtrend
and signals the trend’s direction.
It is characterized by support
and resistance levels which
connect recent lows and highs of
the price. If the price falls below
the support line a sell signal
appears.
Cup and Handle
The Cup with Handle is a bullish
continuation as well as a reversal pattern
that marks a consolidation period
followed by a breakout. The pattern
consists of two components, the handle
and the cup, as suggested by its name.
The cup takes shape following an
advance and has a bowl-like or rounded
bottom. The handle forms when the cup is
finished, and a trade range appears on
the right side. When the handle breaks
out of its trading range again, the
previous rise will continue. When you are
trading this pattern keep your stop loss
below the handle and the target should
be same as the dept of the cup.
 Inverted Cup and Handle
The inverted cup and handle pattern
is a bearish continuation as well as a
reversal pattern that appears in an
downward price trend. The pattern is
considered valid when a downward
breakout occurs and the price closes
below the support or neckline.This
upside-down cup pattern works the
same way as the cup and handle
pattern, except that the breakout
direction is downward instead of
upward.When you are trading this
pattern keep your stop loss above the
handle and the target should be
same as the dept of the cup.